How to Get Started in Social Media for Art League City
Paid search Advertising Research
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SEARCH ENGINE MARKETING (SEM): EXPLORING
RELATIONSHIPBETWEEN PAID SEARCHADVERTISINGAND
INVESTMENT DECISIONS FORAFIRM
ABSTRACT
Search Engine Marketing has become increasingly popular in last few years. There is large
scale competition amongst search engines to provide the most relevant ads. In such a
scenario, there is a need to better understand the inter relationship between the factors like
conversion rate that affects the performance of the firms. This article tries to address this
need. Most studies in Search Engine Advertising are focused on examining the impact of
brand awareness and purchase intension. However, the present research examines the factors
that influence conversion rate followed by investment decisions of the firm for better ROA.
The research develops a conceptual framework around probability of conversion and Click
through rate at keyword level along with Break Even Decision Model to conceptually
evaluate Advertisement expenditure. Using data from an exploratory case study of Air France
Case on Internet Marketing of multiple search engines, it provides insights into the factors
that influence bidding strategies across different search engine advertising models. Another
Case examined is hula Island Internet shop. It predicts the conversion rate for three different
advertising campaigns based on the cost involved and the cash flow of the firm and suggests
that NPV is the best measure for Advertisement Investment. Further Advertising implications
are discussed.
KEYWORDS
Paid Search Advertisement, Conversion Rate, Investment Decision, Search Engine Marketing
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INTRODUCTION
Search Engine Marketing (SEM)
SEM is a popular method of marketing in which businesses promote products and services
through targeted placement on search engine results page (SERP). SERP contains the list of
most relevant sites for a given search. Since 2006, SERP has become the most successful
form of online advertising because of this target relevancy. SEM involved both website
search engine optimization and pay-per-click sponsored search campaign.
• Display advertisement
• Search advertisement
Search Engine Optimization (SEO)
SEO is used to improve the relevancy ranking of site which meant it would appear higher on
SERP. SEO strategies looks into technical aspects of sites like URL address structure, web
server settings, information architecture, site usability and text content. Search Engine
Optimization consist of the technical details of optimization of search results or SERP.
Sponsored Search
Sponsored Search is a form of online advertising wherein companies promote their product
on search engine results page by advertising ads with the help of advertisers. There are four
entities involved this process – brands, advertisers, publishing companies and customers.
Process of publishing ads starts with advertisers bidding on ads based on Advertisement
budget, google – which is the search engine displays the results on SERP based on its
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algorithm which evaluates the ads based on the content of Ad and performance of landing
Page. It is therefore important to have a meaningful landing page that connects to the text
displayed on the Ad, so that the visitor who click on the Ad and visits the landing page they
should get converted into leads for the company. Such landing pages are rated high
performing by the search engine, and this improves the Ad rank for google search results.
Google ads are primarily classified as display ads and search ads. Display ads are displayed
across articles, videos and websites that consumers visit. Google display ads rely on cookies
and data from consumers website and advertisers use cookie data to reach the target audience.
While Google search ads results appear anywhere from google Play services, google Maps
and others.
Conversion rate
Conversion rate for an Ad is calculated based Total clicks divided by Total impressions of
Ads. There are total 9 AdWords metrics, one of the very important metrics is conversion rate.
Other metrics include CPC, CTR, CPA, Return on Ad Spend, No. of conversions, Number of
Clicks, Number of Impressions, Total Conversion Value, Quality Score.
CPC (Cost Per Click) – Cost of displaying Advertisement/Total clicks
CTR (Click Through Rate) – It is the ratio of view to clicks. This KPI shows how appealing
your ad is for your audience.
CPA (Cost Per Acquisition) – This metric is useful for scenarios where we cannot calculate
ROAS as there is no revenue generated. For example, if you are a photographer and you want
to calculate relevant leads, your business goal is calculate leads from the google Ad
campaign. Therefore, you look at price per (acquisition/conversion).
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ROAS (Return on Ad Spend)- It is the ratio of cost of Google Ads to the revenue generated.
No. of Conversions- Conversion is the action that creates value for business conversion
tracking is done google Analytics.
Number of Clicks- Number of clicks shows the volume in a given time.
Number of Impressions- Number of impressions shows the exposure level of the campaign.
Total Conversion Value- Total conversion value of an ad is the impressions that lead the
customer to the landing page and buying the product or performing the act which marks
conversion. It can also be downloading a brochure or a file, clicking on an event, following a
page etc. For e-commerce sites, it is easy to calculate conversion by calculating the total
revenue. This can be useful in planning how much they should spend in next cycle.
Quality Score- Quality Score for an Ad is a combination of three elements:
1. Landing Page Experience
2. Ad Relevance
3. Expected CTR
Quality Score can significantly reduce your cost and it can be useful in identifying your focus
area.
Now a days, there is dilemma in business owners to decide whether they should invest in
email marketing campaign, social media marketing or AdWords campaign. Digital Marketers
these days find it difficult to decide how to allocate their business resources and what
strategic goals would they achieve by investing their resources into one of these campaigns.
It is therefore important to build right digital media strategy and use the right platform for
communication and right channel to reach the customers. According to Harold Laswell-
Model of communication, there are three elements to communication: Medium- In which
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channel, Receiver- TO Whom, With What Effect-Effect. In the conventional 4P model of
Marketing, the four P stands for product, promotion, placement and price. Pricing is a
function of market condition, cost of production, and many other factors. However, from a
consumer perspective price determines the market position and self-identity- like what kind
of consumers the company is trying to attract and also its own financial stability.
There are different ways of reaching consumers through different mediums like Easy to find
website, contact information, Newsletter, Email Campaign, and Advertising. Now a days,
businesses have confined marketing to a set of activities like having a website which is easily
found on search engine results, marketers list their contact information on Internet, create a
regularly publishing newsletter and run email campaign. If their budget allows, they may buy
more advertising space on digital and print media. But without a coordinated strategic goal
these activities may soon end into loose pieces which have no value of their own and become
irrelevant. Marketing is more than just sending across few messages randomly, it is about
communicating with right audiences. Besides this, to improve your sales you should also
know who your competition is and how customers react to their product through observing
their conversations on social media platforms. For businesses, these are contributing factors
to make investment decision related to marketing efforts.
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OBJECTIVE
Objective 1
Discovering what factors influence conversion rate of Paid Search Advertisement to achieve
better return on advertisement.
Objective 2
How to make Investment decisions and what factors influence investment decisions on
advertisement.
LITERATURE REVIEW
Paid Search Advertising
This paper is related to analyzing aspects of paid search and examines the research on effects
of paid search advertising on conversion rate, and factors influencing investment decisions of
paid search advertisement. A number of models and approaches have been studied related to
the effects of advertising.
Most of the literature on advertising is focused on understanding its effects and measuring the
impact on brand awareness, brand attitude and purchase intention.
These researches are usually conducted via field survey or lab experiments.
However, According to Yang and Ghose (2010), In his research on “Analysing the
relationship between Organic and Sponsored Search Advertising: Positive, Negative and Zero
Interdependence?” he modelled and estimated the interrelationship organic search listing and
paid search advertisements. Using a dataset collected from a nationwide retail store chain that
advertises on google, it has focused on understanding whether the presence of organic listing
on search engine is associated with positive, negative or no effect on click through rate of
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paid search advertisements. Using an integrated model based on Bayesian modelling
framework and monte Carlo methods it estimates the relationship between metrics such as
search volume, click-through rates, conversion rates, cost per click and keyword rank. The
findings suggest that there is an asymmetric positive interdependence between impact of
organic clicks on increase in utility from paid clicks is 3.5 times stronger than the impact of
paid clicks on increase in utility from organic clicks. This interdependence leads to increase
in expected profits ranging from 4.2% to 6.15% compared to profits in the absence of
interdependence. The results suggest a positive interdependence between paid and organic
search listings.
Ghose and Yang (2009) quantified the impact of keyword attributes on consumer search and
purchase behavior and on advertisers cost per click and search engines ranking decision on
different ads. They found that keyword rank influences not only ad click-through rate but also
conversion rate thus value per click is not same across search engine results page. Therefore,
conversion rate is influenced by keyword rank according to Ghose and Yang (2009).
Ghose and Yang (2008a) compared paid search advertising to organic listings with respect to
predicting order value and profits.
Ghose and Yang (2008 b) built a model to map consumers search-purchase in sponsored
search advertising. They provide evidence of horizontal spillover effects from search
advertising resulting in purchases across other product categories.
There is an emerging research in the area of sponsored search advertising. Sponsored search
has become a successful channel for advertisers and a profitable business model for leading
commercial search engine. Michael A. King (2015) performed sponsored search research
leading to classification and prediction of performance metrics like click through rate,
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impression rate, conversion rate etc. It presented an in-depth analysis of sponsored search
advertising campaign on a dataset of 8499 PPC campaign marketing records over a period of
six weeks, using four different classification models (Naïve bayes, LR, decision tree, SVM).
It found that ensemble learning methods were superior classifiers based on a profit per
campaign evaluation criterion.
An empirical analysis of sponsored search advertising in electronic markets by Ghose and
Yang (2009) has focused research on answering questions like how sponsored search
advertising affect consumer search and purchasing behavior on Internet, what sponsored
keyword advertisement most contribute to variation in advertiser value in terms of consumer
click through rates and conversions. Using dataset of several hundred keywords collected
from a nationwide retailer that advertises on google, it examined relationship between
keyword characteristics, position of keyword and landing page quality score on consumer
behavior. Results provide descriptive insights into sponsoring such retail store keywords with
national brands keywords. Analyzing click through and conversion rate provides key insights
into cost per conversion and value per click of different keywords.
Advertisers incur higher CPC for brand specific keywords than for generic keywords that do
not highlight manufacturer or product brand.
Overall, the research focused on analyzing how the various keyword level factors induce
differences in click through rates and conversion.
Telli (2004) findings suggest that sponsored search advertising that seems important to keep
in mind is that even if clicks on certain keywords do not lead to conversions, mere repetitive
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exposure of a consumer to stimulus can increase user familiarity with the brand name and
leads to brand preference.
Hans (2013) studies the impact of advertising statement on click-through and conversion
rates in an online setting. It found that statistical evidence and expert evidence result in higher
click-through rates compared to causal evidence, while causal evidence results in more
conversions than expert evidence and statistical evidence. Thus, one type of evidence
outperforms the other. Another research (Hotchkiss et al. 2004) showed that content of search
engine advertisement text is of crucial importance. Additional research by (Rutz and Trusov
2011) towards the impact of the description of search engine advertisement text on the
effectiveness of advertisement.
According to a research on a dynamic model of sponsored search advertising by Yao and
Mela (2011) has developed a structural model of keyword search engine strategy. Study
focused particularly on how the platform or search engine price its advertising via auction
mechanism and on whether the platform should accommodate targeted bidding wherein
advertisers bid not only on keywords but also on behavioral segments and allowing
advertising slot ranking to differ by segment.
It was found that allowing advertisers to bid by segment would reduce competition within
segments, targeting would enhance the expected number of downloads by increasing the
relevance of advertisement.
Also, the existence of multiple keyword auctions present opportunities for collusion among
bidders. It gives them more profitable trade-offs between payments to search engine and click
across keywords.
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Liu et al (2007), Freng et al. (2007) analyzed mechanism design and equilibria in search
engine auction. Chen and He (2006) and Elison (2008) build models that integrate consumer
behavior with advertiser decisions and later paper theoretically analysis several possible
scenarios in the design of sponsored keyword auctions. Katona and saravary (2007) build a
model of competition in sponsored search and find that the interaction between search listings
and paid links determines equilibrium bidding behavior.
Bernard J & Zhe Liu (2013) analyzed the effect of Ad Rank on the performance of Keyword
Advertisement Campaigns. Its results were useful for companies looking to design a more
effective campaign for search engine marketing. It has evaluated that conversion potential is a
more accurate measure of impact of an ad’s position. Their research used data from 33
consecutive months of a major US retailer Search engine marketing campaign. It has
examined the effect of ad rank on critical keyword metrics like clicks, cost-per-click, sales,
revenue, orders, item sold, and advertising ROI. On the contrary this study found a relatively
low effect on conversion compared to other metrics like clicks and sales, indicating a general
compelling performance of top-ranked ads listing on results page. Serial position effect was
the theoretical foundation for this research on ads-position’s impact on human behavior.
While another research (Ashish & Kartik) 2011 studied impact of location of Ad on the
profitability of firm. They found that while click through rate decreases with position,
conversion rate increases with position and is even higher for more specific keyword. This
research was in-line with the idea of Yao and Mela (2011). Their result proved that top-most
position of the ad is not necessarily profit maximizing which was against the results of
Bernard and Lui (2013). Their study has provided strategic insights for advertisers
participating in sponsored search and provided insights into consumer behavior in these
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environments. They have also revealed potential inefficiencies in current auction mechanisms
of search engines.
Shuai Yang , Shan Lin et al (2016) have described the effect of brand engagement on social
media on effectiveness of search engine advertising. It discovers how elements of brand
engagement relate to other elements of online activities. It studied three types of brand
engagement on social media – affiliation, conversation and responsiveness influence search
engine advertising effectiveness including click through rate and conversion rate. They found
that affiliation, conversation and responsiveness increase click through rate and conversion
rate.
Advertisement Investment Decisions
Advertising has more capabilities than research and development to increase brand value and
in turn enhance firm level financial performance as described in Mizik and Jacobson (2003).
For example, a firm’s financial performance metric such as market value in publicly held
firms are a result of a negotiation process between buyer and seller of a firm’s equity that
incorporates expectations about the future financial performance. Mizik proposed framework
explicitly took into account the theoretical, intermediate market-based asset, brand value,
between marketing activities and firm financial performance.
Leigh McAlister (2007) in his research on Advertising, Research and Development and
systematic risk of the firm has shown using a panel data on 644 publicly listed firms between
1979 and 2001 that the firm’s advertising/sales and R&D/sales lowers a firm’s systematic
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risk. It has extended on previous research which was focused primarily on the effects of
marketing initiatives on performance metric without considering of systematic risk.
An analysis of advertising cost by American Institute of CPA’s Accounting standard
Executive committee concluded that except direct response advertisements, the future
economic benefits of most advertising cannot be measured with degree of precision required
to report an asset in financial statements. This perspective of advertising provides favorable
tax treatment for advertisers by allowing full cost of an advertising campaign to be deducted
from current year’s revenue.
Brigham (1994), states that Finance traditionally allocates advertising to working capital
(short-term component of the organization’s fund that are allocated and utilized within one
year) as a component of the cash-conversion cycle, financed by current liabilities and
generating sales for the current year.
In recent advertising studies, changes in advertising were found to have a positive effect on
market value of firms over time by providing information to equity investors on the
expectations of cash flow. Table below shows four different perspectives of intertemporal
effects of advertisement.
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Shultz (1990) suggest that (1) advertising can be considered a multi period investment held to
the same criteria as any organizational commitment of capital; (2) advertisement should be
allocated utilizing the economic fundamentals of marginal analysis. Marginal analysis
heuristics suggest that we pursue an activity until the additional cost of activity is just equal
to additional revenue.
According to Levy and sarnat (1986), suggest that capital budgeting is the appropriate
framework for financial analysis of any multiperiod investment.
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Overall, this research is based on examining the impact of paid search advertisement on
conversion rate.
And, Factors affecting the firm’s investment decision on advertisements.
Hypothesis
Hypothesis 1: Conversion rate decreases with use of paid search advertisements in SEM.
Hypothesis 2: Advertising expenditures should not be considered from a decision-making
perspective out of current cash of the company.
FRAMEWORK
Paid Search Advertisement Conversion Rate Analysis
Paid search process from the perspective of advertiser and consumer is described as the
process in which the consumer searches for a keyword, say “Hotel Los Angeles”. The
advertiser has selected this keyword and created a text advertisement for the offering. The
Advertiser then bids the dollar amount he is willing to pay for a click on the text
advertisement served in response to a search for this keyword. The actual CPC and position
of the text advertisement are determined by the proprietary, auction style algorithm. CPC and
position are a function of the own bid, the bids of the competing firm and other metrics that
focus on past ad performance. The search result page will display non-sponsored results
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(organic results) and text advertisement from focal advertiser next to text advertisement from
other advertisers.
A major problem with measuring conversion in paid search is that it occurs infrequently,
particularly in the tail of an advertiser’s keyword list. Thus, for many keywords’ advertisers
cannot simply calculate conversion on the basis of observed data, making it impossible to
evaluate which keywords are profitable. Clickstream data does not contain include
information at the visitor level (i.e clickstream data), which excludes us from modelling the
purchasing decision of individual users. Google as well as other major search engines only
provide keyword level aggregate data on a daily basis. Thus, firms cannot tie their site
visitors to individual paid search advertisements in terms of specific position and CPC.
Cookie based data also suffers from the limitation of not allowing companies to “identify”
visitors before purchasing (i.e leverage demographic information).
Oliver J RUTZ (June 2012) has used modelling approach to model whether conversion
probability given click-through to the advertiser’s website can be measured using available
keyword-level information alone. Conversion rates differ systematically across keywords. In
2004, daily conversion rates at the keyword level ranged between 0% and 50% with an
average of .9% and a standard deviation of .07. This variation in conversion indicates that
different keywords “attract” different types of consumers who ultimately purchase at
different rates. Model is built with keywords as the unit of analysis so that we can improve
the estimation of conversion rates differ systematically across individual keywords.
It has modelled the click through probability for a keyword using a binary logit. Based on the
binary model the click through probability Pwt for keyword w at time t is given by:
Pwt= exp (vector of keyword level parameters)/ (1+ exp (vector of keyword level parameters))
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It is known that in addition to the actual bids, past performance of the advertisement in terms
of CTR, as well as measures of landing page quality, are taken into account. Often, additional
features such as the performance of the ad group (companies can group similar keywords
together) or the performance of the whole campaign are taken into account. From an
advertiser’s perspective, the paid search auction can be best described as a black box.10 In
addition to not knowing the precise workings of the auction, advertisers do not have access to
basic competitive information such as who else was listed and in which position competitors
were listed. Although changes in the competitive landscape may result in search engines
becoming more transparent regarding the inner workings of their auctions, transparency does
not seem to be on the near horizon.
Supposedly, a “better fitting” advertisement (i.e., an advertisement that has a higher CTR
based on past performance) will be ranked higher by the search engine given the same bid.
First, a company’s bid strategy and past click-through performance enter the auction. Second,
competitive actions (bids) influence the company’s position through the auction mechanism.
Critical Advertisement Investment Decisions Analysis
To determine benefits from an advertising campaign, it is important to determine the suitable
profits- first sales or expected profits an organization should use to make its strategic
decisions.
Capital budgeting is superior to marginal analysis in the assessment of expenditures with
multiperiod effects as suggested by both Levy and Sarnat (1986) and Brigham (1994), the
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appropriate capital budgeting should take into account all cash flow generated by the
expenditures, explicitly consider the time value of money, be able to access projects with
different levels of risk and be able to select the best project from among the mutually
exclusive projects.
Integration characteristics of Advertising and Capital Budgeting: Elliot (1983) applied
marginal analysis to advertising and research and development expenditure. He derived that
ratio of the inputs’ value of marginal product to the cost of the inputs’ value of marginal
product to the cost of the input must be equal across all inputs, including advertising and
R&D. He assumed that the objective function of the firm was profit rather than value
maximization.
Danaher and Rust (1994) ROI model to estimate the advertising’s contribution to cash flow
within the net present value (NPV) framework. Figure 1 describes a multiperiod advertising
investment cycle.
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Financial Implication of Advertisement as an Investment
An organization utilizing financial decision making would have as its fundamental outcome
of any action an increase in shareholder wealth. The ultimate goal of advertising is increase in
1) sales 2) market share 3) market coverage 4) contribution margins through some hierarchy
effect communication model (Kotler, 1994)
The goal of advertising is to stimulate cash flows through sharing relevant information to
target market such as price, features, or may be designed to influence attitudinal variables
such as image or style.
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Effects Of Advertising On An Organizations Cash Flow
For economically rational advertising expenditures, the net present value of incremental after-
tax cash flows must be atleast equal to cost of advertising investment.
Cash flow after tax can be found by summing net income and depreciation. The incremental
cash flow is the change in the net income plus the change in depreciation.
It is unlikely that the advertising expenditure would alter the company’s depreciable base.
Thus, any change in the after-tax cash flow will be attributed to a change in net income.
A Break-Even Model To Conceptually Evaluate Advertising Expenditure
Net present value (NPV) is well known choice for financial decisions. It takes into account 1)
all the cash flow generated by the expenditure. 2) explicitly considers the time value of
money. 3) can assess projects with different levels of implicit risks 4) can select between
mutually exclusive projects. NPV represents the additional value to firm from a specific
project.
Cash flow is the product of change in sales and profit margins. Cash flow generating from
advertisements are generally uncertain. These cash flows must be discounted utilizing a risk
adjusted discount rate. The appropriate discount rate for advertising would be same as for any
other investment that produce cash flow distributed around expected value.
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The Break-Even Decision Model
As the response to sales is uncertain due to a proposed advertising expenditure. Therefore, if
NPV in eq (3) is set to zero and the required return is used as discount rate, adjusted by
variance in cash flows, the equation’s solution or break-even sales is the minimum required
sales to justify advertisement expenditure. The sales force is then required to evaluate the
additional sales in light of market share, competitors, etc. in order to determine if the
expenditure is justified.
DATA AND METHOD
CASE-I -> Air France Business Case on Internet Marketing: Optimizing Google, Yahoo,
MSM, And Kayak Sponsored Search.
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Yahoo Search -- Content driven web portal
Microsoft MSN search – aQuantive, Own search product within Microsoft AdCenter
Kayak Search – travel search service
The Air France Business case is about optimizing the Search Engine Marketing campaign to
increase ticket sales relative to the dollars spent on advertising. SEM is an advertising
phenomenon with advertisers spending billions of dollars in the SEM channel. The case
centers around finding the optimal campaign based on effectively allocating the dollars across
the search engine, correctly using appropriate keywords and bidding strategies for placement
on search result page for Internet users.
In the industry there were internet search options available including google, Microsoft,
MSM, Yahoo and Kayak. Background information is provided on SEM and its associated
cost and means to measure the successfulness of marketing efforts. Cost per click and
probability to produce a sale differs among publishers. Pivot tables are used to illustrate
campaign and strategies that are successful in meeting target internet sales.
With the emergence of Travel Industry by the Internet, e-commerce has emerged as a fast-
growing sales medium. With adoption of e-tickets, airlines were protected from many logistic
problems faced by many Industries.
Landscape of Travel Industry:
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Airlines Industry provides number of services like ability to purchase flights, which makes
them attractive destinations for travelers to perform web searches. Websites provides services
like airlines schedules, real-time flight information and customer loyalty programs.
Therefore, there is a dramatic increase in no. of user-oriented travel tools on airlines websites.
Aggregator websites like expedia.com, orbitz.com, and priceline.com provides booking
through its websites and earns revenue and pays a part of it to aggregator to facilitate the
purchase. Aggregator websites provides package convenience to buyers on their websites.
Another type of aggregator service is metasearchers. Sites like kayak.com, sidestep.com
provides aggregator information services to buyers to consolidate information but needs to be
redirected to airlines website to complete purchase. Airlines providers paid these sites for
advertising (similar to search engines) them and including them in their results. Online
transactions are more suitable in travel due to its intangibility compared to retail etc.
Consumer adoption of E-commerce for Travel
SEM involves both website search engine optimization and pay-per-click sponsored search
campaigns. Pay-per-click or sponsored search advertising campaigns, businesses bid on
keywords for sponsored link listings consisting of a title, short description and a display
URL.
Sponsored link usually appeared at the top of a SERP for a relevant search. Relevancy is
determined by match of keyword bid on by the advertiser, the amount bid for those keywords
compared to competitor bid, the number of times an ad has been clicked on for a keyword
and proprietary “black box” algorithm criteria for search engine provider.
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An advertiser pays for an ad when a user clicks the ad. Cost-per-click could reduce with
volume as search engine provider determines the ad was more relevant to those keywords.
Advertisers place maximum bid on keywords and lay out plans for daily budget campaigns.
These budgets along with relevancy determine how much share-of-voice (SOV) the
advertiser achieved.
Large search engines allowed for broad, exact and phrase keyword campaigns to allow
advertisers to cast either wide or narrow nets of impressions.
Choice of keyword depends on the type of product and geotargeting, a new search engine
feature allows campaigns to target specific geographic regions and language.
Industries such as kayak for travel services allow more specific searches within the given
Industry in sponsored searches.
Pay-per-click campaigns are considered easily measurable as they can be tracked using
analytics software, advertiser knows the number of times an ad is seen, which keyword is
used, number of clicks per impression, click through rate on an ad, how many clicks
converted to transaction and how much revenue generated with those transactions.
Sponsored search:
To optimize sponsored campaigns, metrics used to improve are: cost-per-click reduction,
increase in booking, net revenue, revenue per transaction, return per transaction, overall
performance by engine, or other performance metric that could improve net revenue.
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Sponsored search provided more traceable results than SEO and are more campaign driven.
Pay-per-click are more effective as it allows instant tracking of events.
SEO and pay-per-click work together in SEM strategy. Website and relevant portfolio of pay-
per-click keywords could be inferred by analyzing which keywords were most effective at
leading a consumer to a website and performance of pay-per-click keyword could be used to
tweak content on home website.
Media partner of Air France turned to internet marketing campaigns and SEO to reach
customer segments in multiple countries including US to maximize net revenue and ROA.
After carefully analyzing the brand, to improve performance through innovation, media
contacts work with research and technology providers to get access to granular data sets from
companies like Double click that provides internet Ad services and integrate it with
company’s campaign data.
DoubleClick
DoubleClick’s advertising exchange service help maximize ROA through dynamic pricing
and intelligent bidding. Search specialist maximize bids based on past performance with bid
rules. Pricing models: cost-per-thousand, cost-per-click and cost-per-action.
Google generated revenue through two programs: highly targeted advertising and online
search services.
Relevancy of a google ad is determined by combination of cost-per-click and click-through
rate so that relevant ads are displayed more prominently.
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Page rank reflects Google’s view of importance of web page by considering more than 500
million variables and 2 billion terms. Important pages receive higher page rank and are more
likely to appear at the top of search results.
Microsoft MSM
Till 2006, Microsoft has relied heavily on yahoo for search related advertising, now it began
creating its own search product within adCenter.
AdCenter used pay-per-click technology when serving advertisements as well as
advertisement click-through rate in determining the frequency at which an ad is displayed.
Microsoft provided advertisers with the option to target ads to a particular customer
demographics.
Yahoo, claims intellectual property rights on its digital content residing on yahoo’s computer
servers. Yahoo is both a pure play and content driven web portal for the global internet
community. Yahoo SEM combines ads with content matching, a unique ability to display
more than just search results which includes context-specific content linked to search
keywords. Yahoo received 46 percent less revenue per SERP than Google.
Kayak, In SEM industry aimed to differentiate itself from travel aggregators like orbitz,
Expedia etc. Kayak is a travel search service and does not hold its inventory in relation to
selling tickets, airline seats or hotel rooms. Kayak’s web site search and clickstream data
were not integrated with DoubleClick. As a result, advertising agencies had to rely on
alternative data sources.
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Now, the challenge was to increase ticket sales and ROA. Internet ticketing worked by
measuring the last keyword clicked and this keyword was credited for sales conversion.
The teams research then extended to understanding consumer behavior, considering how
many searches it might take for someone to convert.
Media contacts had to decide which search engine (Google, Yahoo, MSN and Kayak)
delivered most value to air France per dollar spent. Also, they had to check if any search
engines were partnered with travel aggregators, as it could create potential conflict.
Media contacts could use DobleClick to analyze performance and make recommendations for
strategy optimization. It could analyze campaign key performance Indicators (KPIs) by
search engine, bid strategy, keyword group, keywords and so on.
Potential strategies media contacts should consider increasing Air France’s market share and
profitability in United States. While SEM was a profitable venture for Air France, a thorough
analysis was needed to reveal that different search engines would target different customer
segments and yield unique purchase behavior from SEM campaign.
FINDINGS
Our Analysis provides input on whether media contact should recommend a uniform strategy,
or should it recommend a tailored strategy to maximize return on Investment. This research
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explores important KPIs for a successful marketing campaign and how should the SEM
campaigns be structured for different search engines.
There are four components to advertising: The merchant (Brand or retailer), the network, the
publisher, and the customer.
Air France has tried various media strategy across search engines – Google, yahoo, MSN,
Kayak. Each search engine marketing parameters are different as discussed below, so the
campaigns across search engines should be tailored according to the Bidding strategies,
prices, pros and cons.
As different search engines offer different parameters for Ad formats, bidding strategies, Pros
and cons and pricing. Therefore, the publishers across the search engines should use a
tailored strategy for advertisement campaigns.
Five popular advertising strategies that can be used for different campaigns are:
1. Pay-Per-Click
2. Social Media Ads
3. Influencer Marketing
4. Banner Ads
5. Ad Retargeting
KPIs
a. Number of new users and increase in sessions
i. If the number of new users and sessions show increase, this is a strong
indicator.
ii. Google Analytics Acquisition Report Overview
iii. Add-Segment Organic Traffic
b. Organic Conversions
28. 28
i. An important KPI to measure is the number of conversions earned.
While an increase in number of organic users is positive, the goal is to
get these users to become customers. Organic traffic that converts
means you are attracting the right users.
ii. Google Analytics Acquisition Report / utilization of segments.
c. Page Speed
i. The longer the page takes to load the less likely is the user to revisit or
convert. Ranking suffers because longer page speed suffers a negative
user experience. Page speeds should be regularly monitored so that
instances of longer time can be fixed.
ii. Google Analytics Universal Analytics Property Behavior Report
Site Speed.
d. Core Web Vitals
i. Easy to use web pages, how long it takes for largest element to load,
how much time passes until a user can interact with site elements.
Visual stability of the page. Factors affecting Core web vital scores:
image size, JavaScript, image attributes, and the scores can fluctuate
when revisions are made.
e. Impressions and clicks
i. Impressions are the number of times your website was shown to a user
on google while number of clicks is anytime a user clicked on your
result to navigate. Goal is to increase number of impressions, if user
see but do not click, it is taken as a negative sign for relevance and it
negatively affects ranking.
f. Non-branded Keyword Rankings
i. Branded keywords have a higher ranking because search engine
understands and displays results relevant to the company. But with
non-branded keywords that do not include any company information.
Achieving higher ranking for non-branded keyword is the goal.
ii. This information can be obtained from google search console linked to
google analytics, In Acquisition report Search console Queries
29. 29
g. Backlinks and Linking Domains
i. Website’s Domain Authority score is dependent on backlinks and
linking domains.
ii. The number of linking domains and number of individual websites that
link to your website.
Future SEM campaigns and their structure can utilize sites like Kayak, as kayak is search
engine for travel related searches. It advertises ads related to other travel sites which can be
used for booking from these sites. Advertisers can place ads on kayak for better visibility of
their brand. This can be more useful for the brand as the chances of conversion are higher as
the site “Kayak” collects much larger traffic compared to other ordinary websites.
Discussion
It can be inferred from the case above, that there are multiple bidding strategies that needs to
be acquired by advertisers for different search engines – google, yahoo, Microsoft and bing.
Each search engine has its own bidding strategies from which advertisers can choose as per
their choice of KPI for performance evaluation. Google Ads uses following bidding
strategies:
• CPC (automated and manual cost per individual click)
• Enhanced CPC
• CPM (cost per mille)
• Target ROAS (targeted return on ad spend)
• Target CPA (targeted cost per acquisition)
• Maximise conversions
• Maximise clicks
30. 30
• Target Outranking share
• Target Impression Share
Depending upon the Search Engine Platform used for advertisement has a set of pros and
cons linked to it. With Google Ads you can target global audience, but it gets quickly
expensive which is a problem for lower budget businesses. Google Ads price range between
$1 - $100 so it can used for reaching varying level of Impact.
Microsoft and Bing Ads on the other hand uses following bidding strategies:
• Enhanced and Manual CPC
• CPM
• MaxClicks
• MaxConversions
• Target ROAS
• Target CPA
As Analysed from the case above, following are some of the pros and cons of using
Microsoft Ad Network:
• With less competition comes a better chance of getting your ads to stand out on the
Bing Ad network.
Cons:
• That smaller reach might not be for everyone, especially if your strategy is getting the
most amount of clicks/views possible.
• Microsoft Ads is not immune to click fraud either, with around 20% of all clicks on
this ad platform being ‘invalid clicks’.
the average CPC is about $2.20 for Microsoft Ads.
31. 31
Similarly for Yahoo Ad Network following bidding strategies can be applied by advertisers:
• Manual CPC
• Enhanced CPC
• Maximise clicks
• Maximise conversions
• Target CPA
While some of the pros and cons of Yahoo Ads are :
• Affordable SERP ads and the option to create native ads on some of the world’s most
popular websites? It’s definitely an attractive package.
Cons:
It doesn’t quite have the reach of Microsoft Bing Ads, with no network of publisher
sites available.
• Many reports suggest that video ads are not that effective on Yahoo Gemini.
While the bright side of Yahoo Ads as suggested by data that Yahoo Gemini aka Verizon
Media Native offers a slightly cheaper CPC than Bing Ads with a slightly higher CTR.
Case II: An Illustrative Case on Financial Implications of Advertising with Hula Island Shop
This case study is about Hula Island (a boutique Internet shop) that specializes in hand-
painted glassware and Hawaii themed products. Company is a pure internet shop and uses
Internet advertising services with a variety of options each having different pricing structures
and outcomes.
32. 32
Most items at hula are priced between $15 - $30 and each customer generates approximately
3.50$ of immediate profits and $25 in lifetime profits.
As a result, hula has a loyal customer base. Hula is a business with approximately $300,000
in annual sales and roughly $48000 in annual profits.
Hula Island Income Statement:
The advertisement is supposed to generate clicks, which means the eyeballs that look at
company’s website.
The average number of page views per visitor is another measure of campaign success
because larger page views indicate a good customer match has occurred. Converting is the
number of customers who purchase a product.
Hula runs many advertising campaigns and has applied three approaches in the past:
1. Purchase an advertisement in a monthly online magazine.
2. Purchase a pay per click advertisement on an affiliated retail store’s website.
Unit Sales 13,926
Revenues $292,446
Less:
Rent 24,000
COGS 146,227
Labor 17,408
Shipping and Taxes 57,097
Profits $47,714
Averageprofit/order $3.43
Hula Island IncomeStatement—By Month
June* July Aug Sept Oct Nov Dec Jan Feb Mar Apr May
Unit Sales 731 981 973 1,301 959 1,245 2,359 1,700 850 769 1,218 840
Revenues $15,351 $20,601 $20,433 $27,321 $20,139 $26,145 $49,539 $35,700 $17,850 $16,149 $25,578 $17,640
Less:
Rent 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000
COGS 7,676 10,301 10,217 13,661 10,070 13,073 24,770 17,850 8,925 8,075 12,789 8,820
Labor 914 1,226 1,216 1,626 1,199 1,556 2,949 2,125 1,063 961 1,523 1,050
Ship/Taxes 2,997 4.022 3,989 5,334 3,932 5,105 9,672 6,970 3,485 3,153 4,994 3,444
Profits $1,764 $3,052 $3,011 $4,700 $2,938 $4,411 $10,148 $6,755 $2,377 $1,960 $4,272 $2,326
33. 33
3. Purchase a search engine advertisement in an auction.
Cost and predicted outcomes for each advertising option:
Discussion
Hula has three options of advertising: monthly online magazine, Affiliated retail store, Search
engine auction with profit margins for short run as $379, $606, $411 and lifetime as $2712,
$4335, $2940 respectively.
Gross Profit = Sales - COGS- Marketing cost
Gross Profit Margin = ((Sales-COGS-Marketing cost)/Cost)*100.
Hula should choose ratio of total expected profits to advertising cost to determine the
benefits from an advertising campaign, it is also called Gross Profit Margin when multiplied
by 100 . Gross profit margin is what allows company to function. The higher the percentage
the more the company can grow and lower percentage implies company is close to negative
cash flow. To determine benefits from a campaign, it would be better to use lifetime profits
as it is a better indicator of customer worth over a lifetime compared to current customer
value.
Costs Option 1 Monthly OnlineMagazine Option 2 Affiliated Retail Store Option 3 Search EngineAuction
Variable $0.00 $0.25/click $0.005/click
Fixed $500 $50 Auction
Outcomes
Expected Clicks 1,550 5,780 84,000
AveragePageviews 20 5 1.5
PercentageofClicks Converted 7.00% 3.00% 0.14%
34. 34
From the three options, Affiliated retail store advertising is found preferred option for
advertising. To be able to prepare the cash budget for hula on a monthly basis for June 2014
to May 2015. Incremental cash for each month is half the sum of previous and current month
sales. The fixed cost paid during each month is Rent of 2000$ and a variable cost of 1.25$ per
order and a total of shipping and taxes which amounts to 4.10 per order is used to calculate
the cash out for each month as shown below:
Due to the tight budget and small margin of error, Small businesses tends to use cash
accounting as revenue or expense is recorded when cash exchanges hands. It is considered
that the best time for Hula to pay for an advertising campaign is in the month of December
when the company has earned a maximum cash out of 37000$ which can be used for
advertising expense.
Hula Island should use multiple different options for advertisement campaigns which
depends on the break-even analysis of the organization, which is the minimum sales required
35. 35
to decide the advertisement expenditure. Break-Even Model conceptually works on Net
Present Value when making multi period financial decisions. It takes into account all the cash
flow generated with the expenditure and considers time value of money.
SCOPE AND LIMITATIONS
The study is primarily dependent on secondary data, it is possible to research this subject
using Qualitative methods like focused groups, interviews and surveys to the advertisers in
media companies and by collecting click-through data and evaluating the relevant factors that
influence conversion rate.
Similarly, the other part which is based on understanding firms investment decisions on
advertisement can also use a Quantitative approach of modelling and provide and further
elaborate on this study using hypothesis the cause of using customer lifetime value as a way
of understanding customer worth in a firms Net-profit analysis.
IMPLICATIONS
Therefore, it can be established that conversion is inter-related to the bidding strategy applied
by the advertiser like CPC (cost per click), CPA (cost per acquisition), target impression rate
etc. along with the pricing mechanism available for advertiser based on the search engine.
It is useful for the advertisers to know that there is a positive relation between conversion,
bidding strategy and price mechanisms of the search engine so as to make an effective
decision while bidding.
36. 36
Also, As the advertisement expenditure of a firm should be based on NPV (Net Present
Value) as described by break even model and customer lifetime profit value and any
decisions regarding investment must take into account both the influencing factors to
achieve best outcome of their investment.
It can be useful for a firm to know the relationship between break even model and customer
lifetime value while making investment decisions related to advertisement.
CONCLUSION
Using above framework around paid search and organic search which focuses on how the
keyword attributes affect click through rate and what are the factors related to keywords -
branded keywords that have higher CPC, kind of evidence in advertisement – statistical,
expert or causal evidence that result in higher CTR. Also based on understanding developed
on search engine pricing for advertisers who bid through auction- multiple keyword auction
is more profitable and result in higher click across keywords, how sponsored keyword
auctions affect consumer decision.
On analyzing the case it is found that different search engines have different bidding
strategies to appear at the top of search results which could be utilized by advertisers. Some
of the most popular bidding strategies are CPC (cost per click), CPM (cost per million/cost
per thousand), CPA (cost per acquisition), maximize conversion, maximize clicks, target
impression shares etc.
37. 37
Also, there are different pricing mechanisms available for advertisers based on search engines
which varies from 1$-3$ depending on the keywords for google Ads, CPC for Microsoft Ad
is around 2.20$, Yahoo offers a slightly cheaper CPC than Bing Ads than a slightly higher
CTR.
Some of the most popular advertising strategies are Pay-per-click, Social Media Ads,
Influencer Marketing, Banner Ads, Ad Retargeting.
Important KPIs to track conversion are Number of new users and increase in sessions,
Organic Conversion, Page Speed, impressions and clicks, non-branded keyword ranking,
backlinks and linking domain.
Therefore, it can be established that Conversion rate will increase with the use of Paid search
advertising.
On further exploring literature on investment decisions of the firms related to advertising, it
found two main reasons of utilizing advertising as an investment for the firm. Firstly,
advertisement is found to have a positive effect on firms’ market value by providing
information to equity investors on expected cash flow and capital budgeting is more
appropriate framework compared to marginal analysis for financial analysis and assessing
expenditures. Secondly, advertisement can be considered as a multi period investment and
allocating funds to advertisement should utilize economic fundamentals of marketing.
ROI model can be used to estimate advertisement contribution to cash flow with Net present
value (NPV) framework. Cash flow = net income + change in depreciation
Break even decision model is also used to analyze the advertisement expenditure, break even
sales is the minimum required sales to justify advertisement expenditure.
38. 38
The break-even model analysis works on net present value (NPV), which is the minimum
sales required to make decision on advertisement expenditure.
On analyzing, it is found that there are different approaches to advertisement campaign like
in monthly online magazine, retail store website, search engine advertisement in auction. To
determine the benefits from a campaign one must use lifetime profits as it is better indicator
of customer worth. Therefore, current cash of the firm can be used to make investment
decision.
APPENDIX
Ad
formats(spread)
Bidding Strategies Pros & Cons Pricing
Google
Ads
• Search
engine
results
pages
(SERPs)
• Display
Network
(ads and
videos
on
partner
• CPC
(automated
and manual
cost per
individual
click)
• Enhanced
CPC
• CPM (cost
per mille)
• Pros: pay
per click
on Google
Ads means
you will be
able to
target
nearly any
global
• The CPC
of
Google
Ads
varies
massivel
y, from a
few
cents to
well over
$100.
39. 39
Ad
formats(spread)
Bidding Strategies Pros & Cons Pricing
websites
via the
AdSense
platform
)
• YouTub
e
advertisi
ng
• Google
Play app
store
advertisi
ng
• Gmail in
app
advertisi
ng
• Google
Shops
advertisi
ng
• Target ROAS
(targeted
return on ad
spend)
• Target CPA
(targeted cost
per
acquisition)
• Maximise
conversions
• Maximise
clicks
• Target
Outranking
share
• Target
Impression
Share
demograph
ic.
• Cons:
Google
Ads can be
hard to get
right and
can
quickly get
expensive
for certain
industry
keywords.
The
average
is
between
$1 - $3
(dependi
ng on
industry,
keyword
etc).
40. 40
Ad
formats(spread)
Bidding Strategies Pros & Cons Pricing
Micros
oft
Ads/Bin
g Ads
• Xbox
• Window
s App
store
• MSN
• Outlook
Email
• Website
s for
display
and
native
advertisi
ng
managed
by
various
sales
partners
• Enhanced
and Manual
CPC
• CPM
• MaxClicks
• MaxConversi
ons
• Target ROAS
• Target CPA
• Pros: With
less
competitio
n comes a
better
chance of
getting
your ads to
stand out
on the
Bing Ad
network.
• Cons: That
smaller
reach
might not
be for
everyone,
especially
• the
average
CPC
shows as
about
$2.20.
41. 41
Ad
formats(spread)
Bidding Strategies Pros & Cons Pricing
if your
strategy is
getting the
most
amount of
clicks/view
s possible.
• Microsoft
Ads is not
immune to
click fraud
either, with
around
20% of all
clicks on
this ad
platform
being
‘invalid
clicks’.
42. 42
Ad
formats(spread)
Bidding Strategies Pros & Cons Pricing
Yahoo • Native
image
ads
• Native
video
ads
• App
install
ads
• Carousel
ads
• Tumblr
sponsore
d ads
• Ads in
Yahoo!
Mail
• Moment
s Ads
• Manual CPC
• Enhanced
CPC
• Maximise
clicks
• Maximise
conversions
• Target CPA
• Pros:
Affordable
SERP ads
and the
option to
create
native ads
on some of
the world’s
most
popular
websites?
It’s
definitely
an
attractive
package.
• Cons: It
doesn’t
quite have
• Data
suggests
that
Yahoo
Gemini
aka
Verizon
Media
Native
offers a
slightly
cheaper
CPC
than
Bing
Ads with
a slightly
higher
CTR.
43. 43
Ad
formats(spread)
Bidding Strategies Pros & Cons Pricing
the reach
of
Microsoft
Bing Ads,
with no
network of
publisher
sites
available.
• Many
reports
suggest
that video
ads are not
that
effective
on Yahoo
Gemini.
44. 44
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