Why smaller brands beat their big rivals on search ads

Alina Dizik | Sep 15, 2015

Sections Marketing

Digital advertising is big business. Companies will spend $58 billion for online ads in the US in 2015, more than 25 percent of it on buying up keywords on search platforms such as Google and Bing. But smaller brands get more clicks for their dollars than their big-name competitors from paid search marketing, according to Chicago Booth PhD candidate Andrey Simonov, Chicago Booth’s Chris Nosko, and Justin M. Rao of Microsoft Research.

Previous research has indicated that big brands like eBay probably don’t benefit much from buying up their own keywords. But in their study using Bing searches, Simonov, Nosko, and Rao find that lesser-known brands can not only benefit from paid search ads, they can also make life hard for their larger competitors. 

Women’s clothing retailer Ann Taylor can steal clicks away from Macy’s, for example, by bidding on keywords associated with the department store. On both Google and Bing, there are slots for four sponsored search terms at the top of the page, with organic search results underneath. By bidding on Macy’s keywords, Ann Taylor can capture some of the traffic headed for Macy’s and also push Macy’s organic link farther down the page. This can result in higher advertising costs for Macy’s by shifting clicks to its paid link (where clicks cost money) from its organic link (where clicks are free), the researchers find.

Smaller brands can capture about 20 percent of the traffic that would have gone to a competitor’s site by advertising in the top paid link to appear in a search—Ann Taylor can pay to appear at the top of a search for Macy’s. By contrast, a big-name brand gains almost nothing by bidding on their own keywords, although it may be forced to do so. “One reason for bidding on one’s own keyword,” the researchers write,” is to prevent competitors from doing so.”