The effect of ad rank on the performance of keyword advertising campaigns

The goal of this research is to evaluate the effect of ad rank on the performance of keyword advertising campaigns. We examined a large-scale data file comprised of nearly 7,000,000 records spanning 33 consecutive months of a major US retailer’s search engine marketing campaign. The theoretical foundation is serial position effect to explain searcher behavior when interacting with ranked ad listings. We control for temporal effects and use one-way analysis of variance (ANOVA) with Tamhane’s T2 tests to examine the effect of ad rank on critical keyword advertising metrics, including clicks, cost-per-click, sales revenue, orders, items sold, and advertising return on investment. Our findings show significant ad rank effect on most of those metrics, although less effect on conversion rates. A primacy effect was found on both clicks and sales, indicating a general compelling performance of top-ranked ads listed on the first results page. Conversion rates, on the other hand, follow a relatively stable distribution except for the top 2 ads, which had significantly higher conversion rates. However, examining conversion potential (the effect of both clicks and conversion rate), we show that ad rank has a significant effect on the performance of keyword advertising campaigns. Conversion potential is a more accurate measure of the impact of an ad’s position. In fact, the first ad position generates about 80% of the total profits, after controlling for advertising costs. In addition to providing theoretical grounding, the research results reported in this paper are beneficial to companies using search engine marketing as they strive to design more effective advertising campaigns.