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Banner advertising helps companies retain
customers by bringing them back to a company's Web
site faster and encouraging them to spend more.
Total spending on Internet advertising now
exceeds spending on some traditional media, but
despite the quick adoption of online marketing by
many firms, remarkably little is known about the
potential payoffs of such efforts.
Most online advertising exists in the form of
banner ads, which combine graphics, text, and a
link to an advertiser's Web site. Consumers access
the advertiser's site by clicking on the banner
ad, which is referred to as
"clickthrough." In the early days of
e-commerce, the fact that consumer behavior in
response to advertising could be measured
instantaneously and objectively by calculating the
clickthrough rate was seen as an exciting
development. However, clickthrough rates typically
have been less than one percent of all exposures.
In addition, these rates only measure visits to a
site, ignoring actual purchasing behavior.
Previous research has shown that few visits
translate into actual purchases.
University of Chicago Graduate School of
Business professors Pradeep K. Chintagunta,
Jean-Pierre Dubé, and Puneet Manchanda, together
with doctoral student Khim Yong Goh suggest that,
as in traditional advertising, exposure to banner
ads may result in purchase behavior after a
temporal gap.
"Most theories of advertising note that
the effects of advertising are not
immediate," says Manchanda. "We
therefore wanted to link individual exposure to
banner advertising to individual behavior while
allowing for a temporal gap. Our approach expands
upon the work of previous studies that have only
documented attitudinal changes as a function of
exposure to Internet advertising."
The authors report their findings in their
recent study, "The Effects of Banner
Advertising on Consumer Inter-purchase Times and
Expenditures in Digital Environments."
The authors find that banner ads are effective
for bringing existing customers back to a Web site
sooner to make additional purchases. Thus, in any
given period of time, current customers who were
exposed to banner advertising are likely to spend
more money than customers who were not. The
authors also suggest that the industry-wide
practice of judging banner ads by the number of
clicks they generate understates the effectiveness
of banner ad campaigns.
"If you just measure clicks, you are not
capturing the real effect of advertising,"
says Dubé. "What you want to see is whether
people are purchasing items."
Even though banner ads are typically regarded
as doorways to bring in new customers, the
long-term viability of a Web site depends on its
ability to retain customers. Many industry studies
have shown that retaining current customers,
relative to acquiring new customers, is more
profitable to a firm over the lifetime of the
customer. For online firms, the question then
becomes whether banner advertising can modify the
behavior of repeat customers as they become more
experienced with the firm's Web site.
"Online advertising budgets have been
shrinking since the dot-com bust," says Dubé.
"It's a known fact that it's cheaper to
market to a current customer than a new customer.
Our study shows you can use banner ads to
stimulate business in your repeat customer
base."
Following the Cookie Trail
What distinguishes Internet advertising from
traditional advertising is the ability to match
individual advertising exposure to individual
consumer behavior. If a consumer sees a television
commercial for a product, it is very difficult to
then match up the commercial with whether or not a
consumer purchases the advertised product in a
store. The Internet allows researchers to put the
whole story together, from awareness building
through actual purchasing, going beyond what is
possible in the traditional world.
The technology that makes this possible is
based on small files called "cookies"
that are stored on an individual consumer's
computer once they visit a Web site. By keeping
track of cookies, firms have detailed data on
when, where, and to how many ads each individual
cookie was exposed. This advertising data can then
be matched up with purchases made via that
computer. Advertisers can therefore return to
their clients and let them know which cookie
actually resulted in a purchase, and how many
dollars that cookie generated.
Beyond Clicks
Chintagunta, Dubé, Manchanda, and Goh use data
from an Internet-only firm that sold healthcare
and beauty products as well as nonprescription
drugs. Their data spans a period of three months
during the third quarter of 2000. Most data used
for studying online environments feature browsing
behavior only. Their new dataset is unique because
the authors are able to measure individual
stimulus (advertising) as well as response
(purchase visits and dollars spent).
The majority of the company's banner ads
focused on brand-building, and typically consisted
of the name of the Web site and a line describing
the benefits of purchasing from the site. More
than 80 percent of the company's advertising
activity during this period was on portal and
alliance Web sites such as Yahoo!, America Online,
Women.com, iVillage.com, Healthcentral.com, and
E*Trade. A given banner ad typically appeared on
these sites over several weeks.
To ensure that they only included repeat
customers in their analysis, the authors used data
from customers that had made at least two
purchases from the site. The final sample
consisted of 2,192 cookies.
Industry measures such as clickthrough only
account for direct action, rather than measuring
the awareness building that takes place over an
advertising campaign. The authors therefore
allowed for the possibility of customers seeing an
ad, mulling it over, and then returning to make a
purchase after a period of time.
The behavior of repeat customers was measured
using statistical models that captured purchase
timing (when to visit) and purchase expenditure
(how much to spend on a purchase visit). The
authors measured the effect of the following
advertising variables: the time between purchases
and dollars spent; the amount of advertising
exposure; the time since consumers last saw an ad;
where they saw the ad; and the ad copy and
graphics they saw for each banner (the
"creative").
The authors find that seeing the ads more
frequently brought customers back to shop sooner.
The more recently consumers saw an ad, the faster
they came back to buy. Exposure to banner ads at
more Web sites also had a similar effect. However,
exposure to a higher number of ads with different
creative treatments delayed consumers' return to
the Web site. For purchase expenditure, the effect
of advertising is small. Instead, the best
predictor of current expenditure tended to be the
amount spent on the last shopping occasion.
The authors also find differences among the
shopping behavior of repeat customers. Their data
and statistical model indicate that the Web site's
customers can be classified into three different
segments. Customers in these segments are affected
differently by the frequency of banner
advertising, how recently they saw the banner ads,
and the monetary value of their past purchases.
The largest segment consists of loyal but
infrequent shoppers, followed by a segment
comprised of relatively frequent purchasers. There
is also a small segment of impulse shoppers who
tend to shop on the same day that they are exposed
to a banner ad.
Overall, for most consumers in the sample, the
authors find evidence of a temporal lag between
exposure and action. They speculate that this gap
exists because banner advertising acts as a brand
building tool and reminds consumers to visit a
site.
Ingredients of a Good Campaign
The study provides insights into the nature of
consumer response to banner advertising. First,
the authors find evidence of temporal differences
between exposure and behavior for a majority of
the consumers in the sample. This result implies
that managers can correctly evaluate the
effectiveness of advertising campaigns only if
they account for this temporal gap.
Second, the time since last exposure and the
number of creatives has a much larger effect on
purchase timing relative to the number of
exposures. Regarding advertising copy, exposing
the same consumer to several unrelated creatives
may be less beneficial than a single creative,
assuming that all the creatives are of the same
quality.
"More companies are starting to realize
that redundancy is a good thing for their online
advertising campaigns," says Dubé. "If
you have a single, effective message, it's easier
for consumers to extract pertinent information
from your banner ad even as they are inundated
with ads from other sites."
In terms of the timing of advertising, it may
be more useful to expose consumers to a series of
evenly spaced ads rather than massed exposures.
Given the strong same day purchase effect
resulting from advertising exposure, advertisers
can potentially use banner advertisements to
smooth out sales and run special promotions.
Finally, there seem to be strong positive
benefits from ensuring that customers are exposed
to the same advertisement across many Web sites.
"For the category of frequently purchased,
nonseasonal products in our study, steady and
consistent advertising on many different Web sites
is the right managerial approach," says
Manchanda.
In terms of the dollars spent on a visit,
exposure to a variety of creatives increases
dollars spent while advertising across many sites
decreases dollars spent. However, in contrast,
exposure to more creatives delays repeat visits
while exposure on more sites brings consumers back
sooner. Therefore, managers need to optimize the
number of creatives and advertising sites by
making the trade-off between quicker visits and
lower expenditure per visit, or slower visits and
higher expenditure per visit.
** Editor's Note: This article first
appeared in the June 2004 issue of Capital
Ideas, a magazine that summarizes research
conducted by the faculty of the University of
Chicago Graduate School of Business.
Pradeep K. Chintagunta is Robert Law
Professor of Marketing at the University of
Chicago Graduate School of Business.
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