Santa Clara University

The Value of the Top Spot

In Search-Engine Advertising, it's Not Always Best

Professor Kalyanam

In the brave new world of internet advertising, one of the key questions is how to get the best return on search-engine- ads. For instance, if a searcher types in “sunglasses,” what’s the value of having the top advertising position in the ensuing search engine result?
    With the help of a major internet retailer, Kirthi Kalyanam, director of the Retail Management Institute at SCU’s Leavey School of Business has been researching that question. His finding is that in searches that use broad category descriptors such as “sunglasses,” there actually is a penalty attached to the top spot, which doesn’t generate the sales per click of the second and third-placed ads.
    “People have a lot of emotions about being at the top of the page,” he says, “and quite often you have to do a lot of explaining to the rest of the company if you’re not. But we can look at numbers and measure the effectiveness of position, and when you do that, being on top is not necessarily best. There can be a significant rate premium for the top spot, but it doesn’t always pay off in sales.”
    Kalyanam’s findings are reported in a working paper titled “The Sales Performance of Top Positions in Search Engine Marketing: The Effect of Brand and Price Terms.” While finding a penalty for the top spot in general searches, it concludes that as searches become more specific in brand and price terms, the penalty diminishes or goes away altogether.
    This has to do, he says, with two factors — where the searcher is in the purchase process and the ability of the search engine to display relevant results.
    When a person goes to Google and types in “sunglasses,” that individual could be a prospective buyer at the first step of the search or a student doing research for a term paper on how sunglasses work. The search engine has to take those possibilities into account, and in either case, the searcher is probably not ready to buy, so the top ad position will get a large number of clicks that result in no sale.
    However, if that same person then types in “discount sunglasses,” the search results will skew toward purchase information, and if a brand name is added, such as “discount Ray-Ban sunglasses,” the search narrows further and the prospect of a sale grows.
    “The more information Google gets, the easier it is to decipher the intent of the search, what the results need to show and what the relevant links are,” Kalyanam says.
    Before launching his inquiry, Kalyanam read more than 30 books on internet and search engine advertising, which showed that there was a difference of opinion among advertisers — but not much hard data — on the value of the top ad position on a search page.
    Compiling that data took nearly a year, Kalyanam says, and there was such a torrent of information that he likens it to “drinking out of a fire hose.”  But by looking at such measurements as Conversion Rate (CR), which shows how many views of an ad result in a sale; and Average Order Value (AOV), it became clear that the top spot on the search page underperformed in general searches but did better with brand and price-specific searches.
    “For the first time in marketing history,” Kalyanam says, “search engines can help us understand consumer vocabulary and this will enable new marketing possibilities.”

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