Dynamics in Clickthrough and Conversion Probabilities of Paid Search Advertisements

Tinbergen Institute Discussion Paper 2019-056/III

40 Pages Posted: 22 Aug 2019

See all articles by Anoek Castelein

Anoek Castelein

Erasmus University Rotterdam (EUR)

D. Fok

Econometric Institute - Erasmus University Rotterdam; Erasmus Research Institute of Management (ERIM); Tinbergen Institute Rotterdam

Richard Paap

Erasmus University Rotterdam (EUR) - Department of Econometrics; Tinbergen Institute; Erasmus Research Institute of Management (ERIM)

Date Written: August 19, 2019

Abstract

We develop a dynamic Bayesian model for clickthrough and conversion probabilities of paid search advertisements. These probabilities are subject to changes over time, due to e.g. changing consumer tastes or new product launches. Yet, there is little empirical research on these dynamics. Gaining insight into the dynamics is crucial for advertisers to develop effective search engine advertising (SEA) strategies. Our model deals with dynamic SEA environments for a large number of keywords: it allows for time-varying parameters, seasonality, data sparsity and position endogeneity. The model also discriminates between transitory and permanent dynamics. Especially for the latter case, dynamic SEA strategies are required for long-term profitability.

We illustrate our model using a 2 year dataset of a Dutch laptop selling retailer. We find persistent time variation in clickthrough and conversion probabilities. The implications of our approach are threefold. First, advertisers can use it to obtain accurate daily estimates of clickthrough and conversion probabilities of individual ads to set bids and adjust text ads and landing pages. Second, advertisers can examine the extent of dynamics in their SEA environment, to determine how often their SEA strategy should be revised. Finally, advertisers can track ad performances to timely identify when keywords’ performances change.

Keywords: Clickthrough, Conversion, Search engine advertising, Dynamic, Endogeneity, Time-varying parameters, Bayesian

JEL Classification: C32, C33, C11

Suggested Citation

Castelein, Anoek and Fok, Dennis and Paap, Richard, Dynamics in Clickthrough and Conversion Probabilities of Paid Search Advertisements (August 19, 2019). Tinbergen Institute Discussion Paper 2019-056/III. Available at SSRN: https://ssrn.com/abstract=3439291 or http://dx.doi.org/10.2139/ssrn.3439291

Anoek Castelein (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Dennis Fok

Econometric Institute - Erasmus University Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1333 (Phone)
+31 10 408 9162 (Fax)

Tinbergen Institute Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Richard Paap

Erasmus University Rotterdam (EUR) - Department of Econometrics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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