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Competing “Creatively” in Sponsored Search Markets: The Effect of Rank, Differentiation Strategy, and Competition on Performance

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  • Animesh Animesh

    (Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada)

  • Siva Viswanathan

    (Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742)

  • Ritu Agarwal

    (Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742)

Abstract

Although efficiency-enhancing features of online markets have been well studied, much less is known about firms' differentiation strategies in these competitive markets or the outcomes of such differentiation. This study examines competition among firms in online sponsored search markets---one of the fastest growing and most competitive of online markets. We develop and test a model that predicts the clickthrough rate (CTR) of a seller's listing in a sponsored search setting. Drawing on consumer search theory and competitive positioning strategies, we theorize that CTR is jointly driven by a seller's positioning strategy as reflected by the unique selling proposition (USP) in its “ad creative,” by its rank in a sponsored search listing, and by the nature of competition around the focal firm's listing. We use data from a field experiment conducted by a leading firm in the mortgage industry where the firm varied its rank and USP dynamically. Results suggest that sponsored search listings can act as effective customer segmentation mechanisms, consistent with a model of consumer search in directional markets. We further find that the effect on CTR of a firm's positioning strategy and its rank in a listing is strongly moderated by its ability to differentiate itself from adjacent rivals. We discuss the implications of our findings for sellers' strategies in sponsored search markets and for extending the understanding of consumer search behavior in directional markets.

Suggested Citation

  • Animesh Animesh & Siva Viswanathan & Ritu Agarwal, 2011. "Competing “Creatively” in Sponsored Search Markets: The Effect of Rank, Differentiation Strategy, and Competition on Performance," Information Systems Research, INFORMS, vol. 22(1), pages 153-169, March.
    • Handle: RePEc:inm:orisre:v:22:y:2011:i:1:p:153-169
    DOI: 10.1287/isre.1090.0254
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    5. Klapdor, Sebastian & Anderl, Eva M. & von Wangenheim, Florian & Schumann, Jan H., 2014. "Finding the Right Words: The Influence of Keyword Characteristics on Performance of Paid Search Campaigns," Journal of Interactive Marketing, Elsevier, vol. 28(4), pages 285-301.
    6. Darius Schlangenotto & Martin Poniatowski & Dennis Kundisch, 2018. "What Drives Paid Search Success: A Systematic Literature Review," Working Papers Dissertations 31, Paderborn University, Faculty of Business Administration and Economics.
    7. Xiaomeng Du & Meng Su & Xiaoquan (Michael) Zhang & Xiaona Zheng, 2017. "Bidding for Multiple Keywords in Sponsored Search Advertising: Keyword Categories and Match Types," Information Systems Research, INFORMS, vol. 28(4), pages 711-722, December.
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    10. Claussen, Jörg & Kretschmer, Tobias & Mayrhofer, Philip, 2010. "Incentives for Quality over Time – The Case of Facebook Applications," Discussion Papers in Business Administration 12500, University of Munich, Munich School of Management.
    11. Agam Gupta & Arqum Mateen & Divya Sharma & Uttam K. Sarkar & Vinu Cheruvil Thomas, 2019. "Combating incumbency advantage of network effects: The role of entrant’s decisions and consumer preferences," Competition and Regulation in Network Industries, , vol. 20(1), pages 3-32, March.
    12. Carsten D. Schultz, 2020. "The impact of ad positioning in search engine advertising: a multifaceted decision problem," Electronic Commerce Research, Springer, vol. 20(4), pages 945-968, December.
    13. Philipp Herrmann & Michael Mueller, 2014. "Is it Always Best to be on Top? The Effect of Ad Positioning on Key Performance Indicators in Search Engine Advertising," Working Papers Dissertations 09, Paderborn University, Faculty of Business Administration and Economics.
    14. Park, Chang Hee & Agarwal, Manoj K., 2018. "The order effect of advertisers on consumer search behavior in sponsored search markets," Journal of Business Research, Elsevier, vol. 84(C), pages 24-33.
    15. Darius Schlangenotto & Dennis Kundisch & Nancy V. Wünderlich, 2018. "Is paid search overrated? When bricks-and-mortar-only retailers should not use paid search," Electronic Markets, Springer;IIM University of St. Gallen, vol. 28(4), pages 407-421, November.
    16. Anindya Ghose & Panagiotis G. Ipeirotis & Beibei Li, 2014. "Examining the Impact of Ranking on Consumer Behavior and Search Engine Revenue," Management Science, INFORMS, vol. 60(7), pages 1632-1654, July.
    17. Przemys?aw Jeziorski & Sridhar Moorthy, 2018. "Advertiser Prominence Effects in Search Advertising," Management Science, INFORMS, vol. 64(3), pages 1365-1383, March.
    18. Joseph Golden & John Joseph Horton, 2021. "The Effects of Search Advertising on Competitors: An Experiment Before a Merger," Management Science, INFORMS, vol. 67(1), pages 342-362, January.
    19. Jörg Claussen & Tobias Kretschmer & Philip Mayrhofer, 2013. "The Effects of Rewarding User Engagement: The Case of Facebook Apps," Information Systems Research, INFORMS, vol. 24(1), pages 186-200, March.
    20. Gallego, Guillermo & Li, Anran & Truong, Van-Anh & Wang, Xinshang, 2020. "Approximation algorithms for product framing and pricing," LSE Research Online Documents on Economics 101983, London School of Economics and Political Science, LSE Library.
    21. Feng Wang & Li Zuo & Zhi Yang & Yueyan Wu, 2019. "Mobile searching versus online searching: differential effects of paid search keywords on direct and indirect sales," Journal of the Academy of Marketing Science, Springer, vol. 47(6), pages 1151-1165, November.
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