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When It Comes To Online Advertising--Do Display Ads Cause People To Search More?

                                                                        By John D. Verlin

 Are they worth it? I mean display ads--those various sized banner ads that keep popping up on the side of a website (or top, bottom, etc).


With metrics like CTR (click-through rates) and CPA (click through acquisition), Google and others have made it easier for marketing directors to justify the ad spending in comparison to television and other medias.

But what proof do we have other than these metrics that they are cost-effective and can produce a reasonable ROI for a client?

A study was done at Harvard Business School using a bank's online advertising as the model.

Prof. Sunil Gupta indicates the following determination in his Harvard Business School "Working Knowledge" post concerning observations and conclusions:

"these metrics suffer from two fundamental problems: (a) they do not account for attribution, since they give credit to the last click and ignore the impact of other ad formats that may have helped a consumer move down the conversion funnel, and (b) they ignore the dynamics, since they only account for the immediate impact of ads. As firms spend more of their ad dollars on online search and display, managers and researchers alike recognize a need for more careful attribution adjustment that takes into account the journey consumers follow before conversion as well as account for the impact of ads over time."



He indicates that the research examined a bank's advertising using display ads seeking to get new customers of checking accounts. They discovered that the ads produced not only clicks--but search applications over a two week period.

Their conclusion: search ads showed significant dynamic effects on search applications that made them very cost effective in the long run. 

Key concepts include:
  • Classic metrics used in practice are highly biased since they do not account for the effects documented in this study. As a result, firms may be making suboptimal budget allocation decisions.
  • Managers should carefully consider the interaction and dynamic effects of search and display advertising.
  • In the study, revised measures of ad effectiveness lead to a very different budget allocation than the one used currently by the firm.
  • Even though the proposed allocation gives credit to display due to its effect on search applications, the search ad budget should be increased by 36% from its current level due to its strong dynamic effects. The display ad budget should be decreased by 31%.
Thus, he concludes from this study that,  they 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.

These results mirror a study years ago that I was privy to, showing how newspaper ad response was seen by the client as being very successful--and to continue or increase the print ad budget.

 However, the ad agency reminded the client that they had also scheduled a radio campaign--telling listeners to go look for the print ad in the newspaper--and suddenly the dynamic became more clear.

 The radio budget was increased as it was clearly demonstrated to be the driver of results--and demonstrates how a media mix can be very effective.

 The same can be said from the online advertising dynamics as well. Ideally--you combine traditional media with the digital media to gain a greater dynamic response.

 I'd love to know any case studies you might have experienced with your online advertising and if it agrees with this Harvard Business study.

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