Experimentation and Performance in Advertising: An Observational Survey of Firm Practices on Facebook
Expert Systems with Applications, Forthcoming
42 Pages Posted: 18 Jun 2020
Date Written: May 23, 2020
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: Suggested Citation