Faculty of Economics and Business Administration Publications Database

Return on Quality Improvements in Search Engine Marketing

Abou Nabout, Nadia
Volume: 26
Number: 3
Pages: 141 - 154
Month: August
ISSN-Print: 1094-9968
Link External Source: Online Version
Year: 2012
Keywords: Search engine marketing; Keyword advertising; Online marketing
Abstract: In searchenginemarketing, such as on Google, advertisements'' ranking and prices paid per click result from generalized, second-price, sealed bid auctions that weight the submitted bids for each keyword by the quality of an advertisement. Conventional wisdom suggests that advertisers can only benefit from improving their advertisement''s quality. With an empirical study, this article shows that qualityimprovements have complex effects whose returns are actually unclear: 5% of all qualityimprovements to an advertisement lead to higher prices (measured by price per click) per keyword, 100% to a higher number of clicks, 53% to higher costs for searchenginemarketing, and 37% to lower profits. Qualityimprovements lead to higher weighted bids, which only lower prices if they do not improve the ranking of the advertisement. Otherwise, better ranks likely lead to higher prices. A decomposition method can disentangle these effects and explain their effects on searchenginemarketing costs and profits. Finally, the results indicate that advertisers benefit if they lower their bids after improvements to advertising quality.