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The effectiveness of different forms of online advertising for purchase conversion in a multiple-channel attribution framework

with Evert de Haan and Thorsten Wiesel, International Journal of Research in Marketing, 33(3), 2016, 491-507.

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Abstract:
The Internet has given rise to many new forms of advertising. Scientific studies have focused on individual reactions to specific advertising forms in isolation and have offered little guidance for aggregate-level budget allocation decisions, which are typically based on simple rules. This article compares the long-term effectiveness of nine forms of advertising—seven online and two offline—by means of a structural vector autoregressive model and restricted impulse responses. For five product categories, we investigate how these forms of advertising generate traffic, affect conversion, and contribute to revenue. We find that content-integrated advertising is the most effective form, followed by content-separated advertising and firm-initiated advertising. Although online advertising forms have similar power to drive traffic, content integration dominates content separation in the area of progression toward purchase. Last click attribution underestimates content-integrated activities and suggests online advertising budget allocations that yield 10%–12% less revenue than the status quo, whereas the model’s proposed online advertising budget allocation yields a 21% revenue increase over the status quo. These results highlight the payoffs for companies that integrate content into online media

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Like the ad or the brand? Marketing stimulates different electronic word-of-mouth content to drive online and offline performance

with Zeynep Aksehirli and Andrew Lackman, International Journal of Research in Marketing, 33 (3), 2016, 639-655.

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Abstract:

Electronic word-of-mouth (eWOM) is often tracked in volume and valence metrics, but the topic of conversation may vary from the brand to its advertising to purchase statements. How do these different topics affect company performance? And which specific marketing communication (online, TV, radio, print) obtains most of its performance impact by stimulating
eWOM topics? This paper quantifies the dynamic interactions among marketing, eWOM content, search, and online and offline store traffic for an apparel retailer. While it yields a similar online store traffic lift, advertising-related eWOM yields only half the offline store traffic lift of brand-related eWOM and of neutral eWOM about purchasing at the retailer. Paid search shows the highest elasticity in stimulating online conversations, but drives less business than offline marketing actions. While TV is the main paid driver of online store traffic, print is the main paid driver of offline store traffic for the studied retailer. Over a third of the offline store traffic effects materialize indirectly through eWOM and organic search. To avoid undercounting the benefits of paid marketing, managers should, therefore, track how their actions induce specific eWOM content metrics and how much these in turn drive performance.

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No Comment?! The Drivers of Reactions to Online Posts in Professional Groups.

with Robert Rooderkerk, Journal of Interactive Marketing, 35 , 2016, 1-15.

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Social media has moved beyond personal friendships to professional interactions in high-knowledge industries. In particular, online discussion forums are sponsored by firms aiming to position themselves as thought leaders, to gain more insight in their customer base and to generate sales leads. However, while firms can seed discussion by posts, they depend on the forum members to continue the discussion in the form of reactions to these posts. The goal of the current study is to investigate what features and characteristics drive the number of comments that a post receives on an online discussion forum. The empirical setting involves a global manufacturer connecting with health care professionals through a LinkedIn discussion forum. We project that (i) content characteristics, (ii) post characteristics, (iii) author characteristics, and (iv) timing characteristics jointly determine the number of comments a post receives. We show that the readability of the post, the controversiality of the content and the status of the post author have the highest elasticity on the number of comments. These results provide valuable insights for firms on how to build and maintain an attractive online forum through ongoing discussions.

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Truly Accountable Marketing: the right metrics for the right results

GfK-Marketing Intelligence Review, 7(1), Editorial and pages 8-15, 2015

Short Article

Abstract:
A recent study by researchers Germann, Lilien and Rangaswamy showed that companies who deploy marketing analytics obtain 21 % more Return on Assets (ROA) in competitive industries. Unfortunately, few companies appear able to deliver on this promise. In the absence of smarter organic growth, they tend to focus on mergers and acquisitions, which yield high risk and questionable returns (as detailed in Donald Lehmann’s article, p. 16). Marketing accountability is essential for sustained organic growth, but the challenges to it loom large. In my experience across categories and continents, the major steps in truly accountable marketing include defining the right results, using the right metrics and finally acting on the collected insights. As Peter Drucker put it back in 1967, “The question we must ask is not, ‘How many figures can I get?’ but ‘What figures do I need? In what form? When and how?’ We must refuse to look at anything else.”

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Fanning the Flames? How Media Coverage of a Price War Impacts Retailers, Consumers, and Investors

with Harald van Heerde and Els Gijsbrechts, Journal of Marketing Research, 52(5), 2015, 674-693

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This article explores how media coverage of a price war affects customer, retailer, and investor reactions over time. Using data covering a Dutch supermarket price war (2003–2005), the authors find that price reductions, especially deep reductions, trigger media coverage of the price conflict. This sets off a chain of reactions. Press messages have a significant effect on market share and abnormal stock returns, beyond retailers’ own price and advertising. Importantly, this study uncovers striking asymmetries regarding the kind of coverage to which stakeholders react: whereas consumers only respond to the tone of price-related press coverage, retailers and investors only react to its quantity. Next, media coverage feeds back into the retailers’ pricing actions: more media coverage triggers new price cuts in addition to those dictated by competitive reactions. As such, media coverage triggers a deeper spiral of price cuts, intensifying the competitive price battle. However, as the price war progresses, media coverage becomes less frequent and less favorable, which decelerates the downward price spiral.

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Building with Bricks and Mortar: The Revenue Impact of Opening Physical Stores in a Multichannel Environment

with Scott Neslin, Journal of Retailing, 91 (2), 2015, 182-197. Winner of the 2017 Davidson Best Paper Award.

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A crucial decision firms face today is which channels they should make available to customers for transactions. We assess the revenue impact of adding bricks-and-mortar stores to a firm’s already existing repertoire of catalog and Internet channels. We decompose the revenue impact into customer acquisition, frequency of orders, returns, and exchanges, and size of orders, returns, and exchanges. We use a multivariate baseline method to assess the impact of adding the physical store channel on these revenue components. As hypothesized, store introduction cannibalizes catalog sales and has much less impact on Internet sales. Also as hypothesized, returns and exchanges increase. Interestingly, transaction sizes of purchases, returns, and exchanges do not change. The “availability effect” produces a net increase in purchase frequency across channels. This more than compensates for increased returns, producing a net increase in revenues of 20% by adding the store channel. Our findings yield a deeper understanding of the revenue relation between channels, and of the dynamic cross-channel effects of marketing actions.

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The hare and the tortoise: do earlier adopters of online channels purchase more?

with Jing Li, Umut Konuş and Fred Langerak, Journal of Retailing, 91(2), 2015, 289-308.

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Earlier adopters of a product or service tend to be more valuable than later adopters. Does this empirical generalization equally apply to earlier adopters of a multichannel retailer’s new online channel too? This study segments customers on the basis of their responses to a new online channel and investigates the effects of their online channel adoption on purchase volumes across segments. The data cover 12.5 years of purchase history and individual transactions at a large multichannel French retailer of natural health products. Contrary to conventional wisdom, it is not innovators or early adopters, but rather the late majority segment that purchases more than the other segments, both before and after online adoption. Adoption of the firm’s new online channel does not influence purchase volumes of heavy shopper segments (late majority and innovators), whereas light shopper segments tend to increase their purchases after adopting this new channel.

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Paths to and off purchase: quantifying the impact of traditional marketing and online consumer activity

with Shuba Srinivasan and Oliver Rutz, Journal of the Academy of Marketing Science, 2015, 1-14.

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This study investigates the effects of consumer activity in online media (paid, owned, and earned) on sales and their interdependencies with the traditional marketing mix elements of price, advertising and distribution. We develop an integrative conceptual framework that links marketing actions to online consumer activity metrics along the consumer’s path to purchase (P2P). Our framework proposes that the path to purchase has three basic stages–learning (cognitive), feeling (affective), behavior (conative)—and that these can be measured with novel online consumer activity metrics such as clicking on a paid search ads (cognitive) or Facebook likes and unlikes of the brand (affective). Our empirical analysis of a fast moving consumer good supports a know–feel–do pathway for the low–involvement product studied. We find, for example, that earned media can drive sales. However, we find that the news is not all good as it relates to online consumer activity: higher consumer activity on earned and owned media can lead to consumer disengagement in the form of unlike. While traditional marketing such as distribution (60%) and price (20%) are the main drivers of sales variation for the studied brand, online owned (10%), (un)earned (3%), and paid (2%) media explain a substantial part of the path to purchase. It is noteworthy that TV advertising (5%) explains significantly less than online media in our case. Overall, our study should help strengthen marketers’ case for building share in consumers’ hearts and minds, as measured through consumer online activity and engagement.

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How Online Consumer Segments Differ in Long-term Marketing Effectiveness

with Oliver Rutz and Kerstin Reimer, Journal of Interactive Marketing, 28 (4), 2014, 271-284.

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Online commerce gives companies not only a growing global sales platform, but also powerful consumers enjoying 24/7 availability, choice proliferation and the power to opt in and out permission-based communication. Unfortunately, our knowledge is limited on long-term marketing effectiveness in this space and on how it differs across customer segments. Managers appear overwhelmed by the combination of rich online data on hundreds of thousands of customers and the typical aggregate-level data on offline marketing spending.

This paper is the first to investigate the long-term impact of coupon promotions, TV, radio, print, and Internet advertising across customer segments for a major digital music provider with over 500,000 customers. We first segment customers and subsequently analyze how these segments respond in the long run to different marketing activities when purchasing music downloads. Our findings reveal that the effectiveness of marketing differs across segments, while standard segmentation approaches fail to identify the most valuable catches in a sea of consumers. In contrast to empirical generalizations on consumer packaged goods, heavy users of digital music products are least sensitive to price and most sensitive to TV advertising and to multiple touch points. Light users, the majority of consumers, are price-sensitive and tend to opt-out of targeted communication. Our research enables managers in the digital media space to target high-value customer segments with the most effective actions.

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Consumer Attitude Metrics For Guiding Marketing Mix Decisions

with Dominique M. Hanssens, Shuba Srinivasan, Marc Vanhuele and Gokhan Yildirim, Marketing Science, 33 (4), July-August, 2014, 534-550

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Marketing managers often use consumer attitude metrics such as awareness, consideration, and preference as performance indicators because they represent their brand’s health and are readily connected to marketing activity. However, this does not mean that financially focused executives know how such metrics translate into sales performance, which would allow them to make beneficial marketing mix decisions. We propose four criteria—potential, responsiveness, stickiness, and sales conversion—that determine the connection between marketing actions, attitudinal metrics, and sales outcomes.

We test our approach with a rich data set of four-weekly marketing actions, attitude metrics, and sales for several consumer brands in four categories over a seven-year period. The results quantify how marketing actions affect sales performance through their differential impact on attitudinal metrics, as captured by our proposed criteria. We find that marketing–attitude and attitude–sales relationships are predominantly stable over time but differ substantially across brands and product categories. We also establish that combining marketing and attitudinal metrics criteria improves the prediction of brand sales performance, often substantially so. Based on these insights, we provide specific recommendations on improving the marketing mix for different brands, and we validate them in a holdout sample. For managers and researchers alike, our criteria offer a verifiable explanation for differences in marketing elasticities and an actionable connection between marketing and financial performance metrics.

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Social Media Metrics – A Framework and Guidelines for Managing Social Media

with K. Peters, Y. Chen, A.M. Kaplan and B. Ognibeni, Journal of Interactive Marketing, 27 (4), 2013, 281-298.

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Social media are becoming ubiquitous and need to be managed like all other forms of media that organizations employ to meet their goals. However, social media are fundamentally different from any traditional or other online media because of their social network structure and egalitarian nature. These differences require a distinct measurement approach as a prerequisite for proper analysis and subsequent management. To develop the right social media metrics and subsequently construct appropriate dashboards, we provide a tool kit consisting of three novel components. First, we theoretically derive and propose a holistic framework that covers the major elements of social media, drawing on theories from marketing, psychology, and sociology. We continue to support and detail these elements — namely ‘motives,’ ‘content,’ ‘network structure,’ and ‘social roles & interactions’ — with recent research studies. Second, based on our theoretical framework, the literature review, and practical experience, we suggest nine guidelines that may prove valuable for designing appropriate social media metrics and constructing a sensible social media dashboard. Third, based on the framework and the guidelines we derive managerial implications and suggest an agenda for future research.

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Winning Hearts, Minds and Sales: How Marketing Communication Enters the Purchase Process in Emerging and Mature Markets

with Selin Erguncu and Gokhan Yildirim, International Journal of Research in Marketing, 30 (1), 57-68, 2013.

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Consumers differ in the way their minds and hearts respond to marketing communication. Recent research has quantified effectiveness criteria of mindset metrics, such as brand consideration and liking, in the pur-
chase process for a mature market. This paper develops and illustrates our conceptual framework of how mindset effectiveness differs between an emerging market and a mature market. We propose that the re-
sponsiveness, stickiness and sales conversion of mindset metrics depend on the regulative, cultural and economic systems that provide structure to society. In particular, we focus on regulative protection, collectivism and income. First, we propose that a lack of regulative protection leads consumers to be more attentive to, and thus more aware of, marketing communication. Second, we propose that consumers living in a collectivist culture are less responsive to advertising in their consideration and liking of the advertised brand. Finally, we propose that lower income among consumers reduces the sales conversion of brand liking. We examine our predictions empirically with data for the same brands during the same time period in Brazil and the United Kingdom. First, we find that brand liking has a higher responsiveness to advertising, a higher stickiness and a higher sales conversion in the U.K. than it does in Brazil. Thus, the advice to focus on the emotional brand connection is more appropriate in the analyzed mature market versus the emerging market. In contrast, knowing the brand is more important to purchase in Brazil and is more responsive to advertising. These first findings establish an intriguing research agenda on winning hearts and sales in emerging and mature markets.

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The Formation, Evolution, and Replacement of Price-Quality Relationships

with Richard D’Aveni, Journal of the Academy of Marketing Science, October, 2014, 1-20

Full Article

Abstract:
Consumers differ in the way their minds and hearts respond to marketing communication. Recent research has quantified effectiveness criteria of mindset metrics, such as brand consideration and liking, in the purchase process for a mature market. This paper develops and illustrates our conceptual framework of how mindset effectiveness differs between an emerging market and a mature market. We propose that the responsiveness, stickiness and sales conversion of mindset metrics depend on the regulative, cultural and economic systems that provide structure to society. In particular, we focus on regulative protection, collectivism and income. First, we propose that a lack of regulative protection leads consumers to be more attentive to and thus more aware of, marketing communication. Second, we propose that consumers living in a collectivist culture are less responsive to advertising in their consideration and liking of the advertised brand. Finally, we propose that lower-income among consumers reduces the sales conversion of brand liking.

We examine our predictions empirically with data for the same brands during the same time period in Brazil and the United Kingdom. First, we find that brand liking has a higher responsiveness to advertising, a higher stickiness, and a higher sales conversion in the U.K. than it does in Brazil. Thus, the advice to focus on the emotional brand connection is more appropriate in the analyzed mature market versus the emerging market. In contrast, knowing the brand is more important to purchase in Brazil and is more responsive to advertising. These first findings establish an intriguing research agenda on winning hearts and sales in emerging and mature markets.

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Do Display Ads Influence Search? Attribution and Dynamics in Online Advertising

with Pavel Kireyev and Sunil Gupta, International Journal of Research in Marketing, 33(3), 2016, 475-490.

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As firms increasingly rely on online media to acquire consumers, marketing managers feel comfortable justifying higher online marketing spend by referring to online metrics such as click‐through rate (CTR) and cost per acquisition (CPA). However, these standard online advertising metrics are plagued with attribution problems and do not account for dynamics. These issues can easily lead firms to overspend on some actions and thus waste money, and/or underspend in others, leaving money on the table.

We develop a multivariate time series model to investigate the interaction between paid search and display ads, and calibrate the model using data from a large commercial bank that uses online ads to acquire new checking account customers. We find that display ads significantly increase search conversion. Both search and display ads also exhibit significant dynamics that improve their effectiveness and ROI over time. Finally, in addition to increasing search conversion, display ad exposure also increases search clicks, thereby increasing search advertising costs. After accounting for these three effects, we find that each $1 invested in display and search leads to a return of $1.24 for display and $1.75 for search ads, which contrasts sharply with the estimated returns based on standard metrics. We use these results to show how optimal budget allocation may shift dramatically after accounting for attribution and dynamics. Although display benefits from attribution, the strong dynamic effects of search call for an increase in search advertising budget share by up to 36% in our empirical context.

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What is special about marketing organic products? How organic assortment, price, and promotions drive retailer performance

with Ram Bezawada, Journal of Marketing, 77 (1), 31-51, January 2013

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Higher sales and margins are key goals for retailers promoting emerging products, such as organics, but little is known about their marketing effectiveness and their cross-effects on conventional product sales. Extant research reports conflicting results about price and promotional sensitivity for organic products and does not address the impact of organic assortment. This article calculates long-term own- and cross-elasticities of organic and conventional product sales in response to changes in assortment, price, and promotions. Using a rich data set of 56 categories, the authors test hypotheses on how different costs and benefits of organic products affect these elasticities. They find that enduring actions, such as assortment and regular price changes, have a higher elasticity for organics than for conventional products. In contrast with common wisdom, even “core” organic consumers are sensitive to these actions. Increasing organic assortment and promotion breadth yields higher profits for the total category, as do more frequent promotions on conventional products. The category comparison yields specific advice with regard to where larger assortment and lower prices versus more and deeper promotions are most effective.

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Assessing Consequences of Component Sharing Across Brands in the Vertical Product Line in the Automotive Market

with Peter Verhoef and Mirjam Tuk, Journal of Product Innovation Management, 29 (4), 559-572, 2012

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Component sharing may look great in the boardroom but not in the showroom. Indeed, savings on research and development and production costs could be offset by a plunge in customer brand attractiveness. The central objective of this paper is to investigate consumer and market responses toward component sharing between brands. More specifically, by combining experimental with econometric studies, this paper investigates the impact of component sharing on customer evaluation of luxury, volume, and economy brands offered in a car manufacturer’s vertical product line. An experimental study in which component sharing between automotive brands was made explicit aimed to understand the impact of brand combinations and type of sourcing on the evaluations of the two brands sharing components. This experimental study shows that the evaluation of luxury brands sharing with a volume brand suffers more than when a volume brand shares components with an economy brand. This experimental study was executed for two different brand combinations including one luxury, one volume, and one economy brand: (1) Audi, Volkswagen, and Skoda; and (2) Lexus, Toyota, and Suzuki. The evaluation of an economy brand benefits more from sharing with a volume brand than a volume brand suffers from sharing with an economy brand. The magnitude of these effects depends on several factors, such as component type, the source of the component sharing, and the salience of component sharing to the consumers. One important limitation of the experiment is that component sharing is made rather salient, and no behavioral effects of component sharing are studied. Therefore, a second was executed in which market share data on brands of the Volkwagen company (i.e., Audi, Volkswagen, Seat, and Skoda) were collected, while also data on the component-sharing practices between these brands were gathered. A market share model was estimated in which market shares of the four studied brands were explained by component-sharing practices and some control variables (i.e., price, model changes) in an exploratory fashion. The explorative examination of market share effects confirms that luxury brands may suffer, while economy brands may benefit from component sharing. In sum, this research suggests that component sharing between brands has negative effects for the higher-end and positive effects for the lower-end brand. However, it also shows that sourcing matters. This study is considered as the first study investigating the phenomenon of component sharing, and it points to multiple future research issues, such as studying this phenomenon in other markets.

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Time Series Models of Pricing the Impact of Marketing on Firm Value

Handbook of Marketing and Finance , Shankar Ganesan ed., 2012 ISBN: 978-1849802727

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Marketers continuously engage in actions such as product launches and advertising that are aimed at generating profitable customer response and increasing key marketing assets such as customer satisfaction and brand equity. To the extent that these efforts are successful, they should enhance the financial outlook of the firm, which is of primordial interest to the investment community. However, the interpretation of the impact of these actions is not straightforward, because the effects tend to play out over time. As a result, it is quite possible that mispricing occurs, i.e. the investment community either overestimates or underestimates the future financial impact of a marketing action or marketing metric. The purpose of this chapter is to review time series methods as the primary research tool for evaluating the pricing of marketing actions and marketing assets. The main message here is: what is mispricing, what are various forms (especially the difference between contemporaneous and lags), how can we detect, what does it mean for investors/managers, and what do researchers do with the mispricing information? We discuss, in turn, methods for assessing the return (level) and the risk (volatility) of marketing for the investor, and we provide illustrative findings of each.

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Practice-Prize Paper: Marketing’s Profit Impact: Quantifying Online and Offline Funnel Progression

with Thorsten Wiesel and Joep Arts, Marketing Science, 30(4), 604-611, 2011 finalist for the ISMS – MSI Practice Prize.

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Inofec, a small- to medium-sized enterprise in the business-to-business sector, desired a more analytic approach to allocate marketing resources across communication activities and channels. We developed a conceptual framework and econometric model to empirically investigate (1) the marketing communication effects on off-line and online purchase funnel metrics and (2) the magnitude and timing of the profit impact of firm-initiated and customer-initiated contacts. We find evidence of many cross-channel effects, in particular, off-line marketing effects on online funnel metrics and online funnel metrics on off-line purchases. Moreover, marketing communication activities directly affect both early and later purchase funnel stages (website visits, online and off-line information, and quote requests). Finally, we find that online customer-initiated contacts have substantially higher profit impact than off-line firm-initiated contacts. Shifting marketing budgets toward these activities in a field experiment yielded net profit increases 14 times larger than those for the status quo allocation.

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