From generic to Branded: A Model of Spillover in paid search advertising By Oliver J. Rutz and Randolph E. Bucklin Presented by Gretchen Ross April 11, 2017

Research Question To what extent does a spillover effect occur from a generic to branded search? If spillover happens, what are the implications for paid search ad campaigns and consumer search behavior?

Search Process A consumer searches for a hotel, impression made, click, and then reserve Impression- passive exposure Click-active option leads to more information Hotels find generic terms to bid on for sponsored link and are costly Branded names restricted so lower cost

Should Managers use Generic or Branded Keywords? What about spillover?

Spillover Effects Generic keyword search “spills over” to branded keyword search Consumers may not be aware that the specific brand is relevant until using a generic keyword Awareness vs. Awareness of relevance Consumer may be aware of the brand- awareness Consumer may not be aware that the brand is relevant to his/her search- awareness of relevance Using a generic search keyword leads to exposure to branded information thereby increasing awareness of relevance. Awareness of relevance leads to more brand related searches. Awareness decays over time- assume latent, unmeasured construct for awareness Authors use Nerlove-Arrow approach because do not have measures for awareness of relevance

Model Specification Multivariate time-series, Dynamic linear model (DLM) Capture using Nerlove and Arrow (1962) idea of the leaky-bucket model Used in previous marketing models for goodwill decay Awareness is a function of generic search activity which enhances/carryover awareness At the aggregate level, consumers buy or not and want to look at latent construct of awareness as a way to explain behavior At= awareness at time t, GENt= generic search activity at time t, αA=carryover rate of awareness, and βgen=estimated parameter

Model Specification continued Five outcome variables: NS- average number of searches per keyword per day Spillover coefficient ϒ added, I accounts for seasonality. Might increase with increase in awareness CTR- click-through rate Spillover nonnegative CR- conversion rate POS- average position served Can only approximate as function of carryover, current CPC, last period’s CTR, and seasonality CPC- average cost per click Function of current advertising and past CTR

Bayesian DLM Equations for NS, CTR, CR, POS, CPC, and A are integrated into framework DLM good for dynamic evolution, underlying mechanics, and latent awareness Link outcome variables through intervening awareness variable to observed quantities of branded impressions, branded clicks, branded reservations, POS, and total branded cost Find correlation between lagged generic activity and branded activity and no reverse spillover

Other Models- ARDL and VAR Autoregressive Distributed Lag (ARDL) No latent construct for awareness Branded search depends on lagged values, seasonal effects, and lagged generic search activity Could not separate NS, CTR, and CR Vector Autoregressive (VAR) No interaction of different search activity variables Variables treated as endogenous

Empirical Application Daily information for a major lodging chain on keywords Includes generic or branded designation, cost information, average position, number of impressions, clicks, and reservations Data from Google (March 1, 2014-December 20, 2014) and Yahoo (May 6, 2004- August 31, 2004) Estimate DLM, Autoregressive Distributed Lag (ARDL), and Vector Autoregressive (VAR) in Bayesian framework models

DLM Model Outperforms Alternatives

Summary of Results Awareness has significantly positive impact on current branded searches Generic clicks (compared to impressions) have significant positive impact on awareness Therefore, a user that clicks on ad leads to an increase in branded searches through awareness

No Reverse Spillover Found- Generic affects branded

No Omitted Variable Bias Found

Magnitude of Spillover Effect

Conclusions Demonstrate spillover effect from generic to branded search Generic clicks have a significant effect on awareness of relevance Awareness significantly affects the number of branded searches Strengths: Previous work does not address spillover Useful in practice- managers might utilize Weakness: No data on organic search- could potentially overestimate their effect