Effectiveness of Paid Search Advertising: Experimental Evidence

19 Pages Posted: 4 Oct 2016 Last revised: 7 Oct 2016

Daisy Dai

Lehigh University

Michael Luca

Harvard Business School - Negotiations, Organizations & Markets Unit

Date Written: October 1, 2016

Abstract

Paid search has become an increasingly common form of advertising, comprising about half of all online advertising expenditures. To shed light on the effectiveness of paid search, we design and analyze a large-scale field experiment on the review platform Yelp.com. The experiment consists of roughly 18,000 restaurants and 24 million advertising exposures – randomly assigning paid search advertising packages to more than 7,000 restaurants for a three-month period, with randomization done at the restaurant level to assess the overall impact of advertisements. We find that advertising increases a restaurant’s Yelp page views by 25% on average. Advertising also increases the number of purchase intentions – including getting directions, browsing the restaurant’s website, and calling the restaurant – by 18%, 9%, and 13% respectively, and raises the number of reviews by 5%, suggesting that advertising also affects the number of restaurant-goers. All advertising effects drop to zero immediately after the advertising period. A back of the envelope calculation suggests that advertising would produce a positive return on average for restaurants in our sample.

Suggested Citation

Dai, Daisy and Luca, Michael, Effectiveness of Paid Search Advertising: Experimental Evidence (October 1, 2016). Harvard Business School NOM Unit Working Paper No. 17-025. Available at SSRN: https://ssrn.com/abstract=2847084

Daisy Dai

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States

Michael Luca (Contact Author)

Harvard Business School - Negotiations, Organizations & Markets Unit ( email )

Soldiers Field Road
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=602417

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