Experimentation and Performance in Advertising: An Observational Survey of Firm Practices on Facebook

Expert Systems with Applications, Forthcoming

42 Pages Posted: 18 Jun 2020

See all articles by Julian Runge

Julian Runge

Humboldt University of Berlin - School of Business and Economics; Facebook, Marketing Science Research

Steven Geinitz

Facebook, Marketing Science Research

Simon Ejdemyr

Facebook, Marketing Science Research

Date Written: May 23, 2020

Abstract

It is widely assumed that firms experiment with their online advertising to identify more profitable approaches to then increase their investment in more profitable advertising, increasing their overall performance. Generalizable evidence on the actual use of such experiment-based learning by firms is sparse. The study herein addresses this shortcoming – detailing the extent to which large advertisers are utilizing experimentation along with evidence on the benefits of doing so. The findings are gleaned from firms’ marketing and experimentation practices on a large online advertising platform and indicate that, while experimentation is utilized by some, adoption is far from perfect. Among the few firms making use of experiments, even fewer invest a significant share of their advertising spend in experimentation. This finding is surprising in light of broadly assumed regular experimentation by firms. Experimenting firms further experience higher concurrent and subsequent performance, suggesting that leading firms indeed successfully use experiment-based learning to improve their advertising policies – and that many firms may fall short of their potential by not (yet) using experiments in advertising.

Keywords: Firm experimentation, exploration, online advertising, organizational learning, reinforcement learning

Suggested Citation

Runge, Julian and Geinitz, Steven and Ejdemyr, Simon, Experimentation and Performance in Advertising: An Observational Survey of Firm Practices on Facebook (May 23, 2020). Expert Systems with Applications, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3608998

Julian Runge (Contact Author)

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

Facebook, Marketing Science Research ( email )

Menlo Park, CA 94025
United States

Steven Geinitz

Facebook, Marketing Science Research ( email )

Menlo Park, CA 94025
United States

Simon Ejdemyr

Facebook, Marketing Science Research ( email )

Menlo Park, CA 94025
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
334
Abstract Views
1,049
rank
113,424
PlumX Metrics