Documente Academic
Documente Profesional
Documente Cultură
www.emeraldinsight.com/0025-1747.htm
MD
52,5
Effects of online advertising on
automobile sales
Jianping Peng
Sun Yat-sen Business School, Sun Yat-sen University, Guangzhou, P.R. China
834
Guoying Zhang
Dillard College of Business Administration, Midwestern State University,
Wichita Falls, Texas, USA
Shaoling Zhang and Xin Dai
Sun Yat-sen Business School, Sun Yat-sen University,
Guangzhou, P.R. China, and
Jing Li
Xinhua College, Sun Yat-sen University, Guangzhou, P.R. China
Abstract
Purpose – The purpose of this paper is to explore the effects of online advertising spending on
automobile sales through both search and non-search advertising.
Design/methodology/approach – Sales data of the top 52 vehicle models were collected in two
consecutive years in China. The advertising spending data of both formats were collected from a
leading consulting company and a major search engine company. Then several empirical models
were proposed to evaluate the effects of online advertising on automobile sales. Two extended
models were further investigated for search advertising.
Findings – The results revealed that both formats of online advertising have significantly positive
effects on automobile sales. However, excessive spending on non-search advertising does not help
sales and a moderate budget is preferred. On the other hand, spending on search advertising has
no such constraint to improve the vehicle sales.
Practical implications – The empirical findings have proved the importance of online advertising
to the automobile companies and thus can help companies improve their decision making in online
advertising allocation strategies.
Originality/value – This study provides a better understanding of the relationship between
online advertising spending and automobile sales, and helps business to define sophisticated online
advertising strategies to improve sales performance.
Keywords Online advertising, China, Advertising, Non-search advertising, Search advertising,
Automobile sales
Paper type Research paper
1. Introduction
With the rapid development of new information channels – internet, smart phones,
mobile technology, people are changing the way to acquire and use information these
days. In 2009, China became the country with the largest number of internet users
worldwide. According to the 25th annual report from the China Internet Networking
Information Center (CNNIC, 2010), the number of internet users in China reached
384 million by the end of 2009. Further, due to the popularity of smart phones,
Management Decision
Vol. 52 No. 5, 2014
pp. 834-851 This study is based upon work supported by the National Natural Science Foundation of China
r Emerald Group Publishing Limited
0025-1747 under Grant Number 71072086 and the Ministry of Education of China, Humanities and Social
DOI 10.1108/MD-10-2012-0753 Sciences Grant Number 10YJA630124.
60.8 percent of internet users access Internet information using smart phones or Online
other portable client tools. From an organization’s perspective, the new information advertising
acquisition channel significantly affects traditional advertising formats as well as
other business operations.
With a limited advertising budget, marketing professionals always seek for
effective advertising strategies and channels. Online advertising has thus been one
of the most attractive channels due to its advantages of rich content provision, strong 835
interactivity, precise targeting, and low operating cost. According to iResearch, an
advertising agent in China, global advertising market reached 443.7 billion in 2009,
10.2 percent lower than that in 2008. However, online advertising stood out as the only
channel with increasing revenue of 54.1 billion, a 2.3 percent increase over 2008.
Further, online advertising in China generated revenue of 20.7 billion RMB[1] in 2009, a
22.0 percent increase over 2008 (iResearch, 2010). It is evident that online advertising
grows to be a major marketing channel for business in China.
In this study, we extend our investigation on the effect of online advertising on
automobile sales. The automobile industry is a pillar industry and a major contributor
to China’s gross domestic product. In 2009, the automobile industry in China
experienced an unprecedented growth, which presented challenges to traditional sales
and marketing practices in the industry. According to the Association of Automobile
Industry of China, the automobile sales in 2009 reached a total volume of 13.6 million
vehicles, a 46 percent increase over 2008. China has thus become a huge market for
automobile sales. The maturity of the automobile market also embraces changes in
ways of how consumers learn about vehicles, elevate brand awareness, and make
purchase decisions. The traditional channels to gather information about vehicles have
changed dramatically. Internet, instead of TV commercials and magazines, has become
a predominant platform for consumers to gather product information and obtain
purchase recommendation (Peterson et al., 1997). In fact, consumers are always active
in searching relevant information through search engines, clicking through banner
advertising on vehicles, and even interacting with manufacturers in various online
platforms.
Online advertising is an important channel for automobile manufacturers because
of its large audience coverage and efficient communication format. According to the
iResearch Consulting, the automobile advertising expenditure reached $1.5 billion
RMB in 2009 in China, ranking the second among all the industries that apply online
advertising (iResearch, 2010). Beyond the total spending increasing, automobile online
advertising has also been experimenting with various formats: virtual exhibition,
public online forum, video display, search engine, mobile application, etc. It is found
that online advertising is no longer effective by simply using banner displays on
web-pages (Dreze and Hussherr, 2003); utilization and combination of various online
formats are essential for successful advertising. Consequently, it is important for
automobile industry to understand how to evaluate the effectiveness of various online
advertising formats, and hence achieve the desired return on investment.
However, online advertising in the automobile industry in China is still in its
experimenting stage. Most automobile companies are still in lack of precise
measurement of online advertising effects; furthermore, they are not able to verify the
contribution of advertising to automobile sales. In other words, automobile
manufacturers need theoretical guidance on how to effectively conduct online
advertising to improve business performance. To our best knowledge, the current
literature body has very few quantitative studies in investigating the effectiveness of
MD online advertising in the automobile industry. This study thus provides an exploration
52,5 of the relationship between online advertising and vehicle sales.
According to a 2010 revenue report by the Interactive Advertising Bureau, online
advertising is widely presented through the following formats: search engine, display
banner, classified, rich media, digital video, online sponsorship, etc. Among these
formats, the top three are search engine, display banner, and classified, each with a
836 revenue portion of 47, 23, and 10 percent, respectively. In order to provide a refined
analysis of online advertising with regards to its formats, this study adopts the
categorization used by the iResearch Consulting for its industry-level analysis: non-
search format advertising (including display banner, classified, rich media, digital
video, online sponsorship, etc.) and search format advertising (the advertisement listed
together with keywords search results). The justification for this classification can be
explained by different consumer behavior modes. Consumers often obtain advertising
information in two different approaches: pull and push. The pull approach actively
searches and seeks for product or service information, and then the related advertising
will be presented together with the search results through search engines. On the other
hand, the push approach simply exposes product or service information to consumers.
In other words, the pull approach corresponds to search format advertising, while the
push approach represents non-search format advertising.
This research extends efforts in collecting the data of automobile sales and online
advertising spending, establishing robust empirical models to capture the relationship
between sales and spending, and analyzing the effects of both search and non-search
advertising on automobile sales. Our study aims at providing theoretical guidance and
empirical evidence to automobile manufacturers on how to effectively conduct online
advertising. Specifically, the study investigates the effectiveness of online advertising,
and answers the following research questions:
RQ2. Among various online advertising formats, we focus on two of them for
analysis: search format and non-search format. Do they both have impacts on
automobile sales? If so, are the impacts different?
This study collected sales volume data of the top 52 popular vehicle models in
China in the year 2008 and 2009, and compiled the data of corresponding online
advertising spending categorized by search and non-search formats. Non-search
spending information was collected from a leading consulting company and
search advertising spending information was collected from a major search engine
company. Empirical models were established to analyze the relationship between
sales and online advertising spending. It is found that both formats of online
advertising have significantly positive effects on automobile sales. However, search
advertising has a linear relationship with sales, and non-search advertising shows
a non-linear impact on vehicle sales. Two extended models were further investigated
using monthly data and the keywords search to validate the results from the search
advertising model.
The paper proceeds as follows: Section 2 briefly summarizes the related works.
Section 3 elaborates the research questions, explains the data collection, and proposes
empirical models to address the research questions. Model estimations, analysis, and
discussions are presented in Section 4. Two extended models to incorporate monthly
data and keywords search frequency are further investigated in Section 5. Section 6 Online
concludes the results with limitations and future research directions. advertising
2. Literature review
2.1 Online advertising
Starting from the 1960s when such traditional advertising as TV commercials was
popular, researchers have started to discuss the measurement of advertising 837
effectiveness (Clarke, 1976; Corkindale, 1983; King, 1968). Ever since the debut of
banner advertisement on the web sites in 1994, scholars have shown great interest in
examining the effectiveness of online advertising (Rialp et al., 2010). Among the related
studies, Eighmey and Farnall (2000) formally defined online advertisement as the
commercials utilizing the Internet for posting and propagating; in other words, it is an
internet-based advertisement using digital technology for production and publication.
This study adopts the categorization used by the iResearch Consulting for its industry-
level analysis: non-search format advertising and search format advertising.
2.1.1 Non-search advertising. A lot of prior research on non-search format
advertising has focussed on its click-through rate. Using click-through rate as the
measurement of advertising effectiveness, several studies have explored the factors
that influence the advertising effectiveness. Tsang and Tse (2005) found that animated
color, text and graphics have significant effects on the click-through rate. Robinson
et al. (2007) reported that a larger banner size is associated with a higher level of
click-through rate. Lohtia et al. (2003) found that the use of the emotional appeal
increases the click-through rate, while the presence of promotional incentive does not
improve the click-through rate.
More recently, a few scholars have started to compare the effects of different types of
non-search format advertising. Breuer et al. (2011) argued that banner advertising has
weaker long-term effects than other non-search advertising types.
2.1.2 Search advertising. There are two main research streams in this field.
One stream has focussed on recommending search advertising as a new format of
marketing. The other stream investigates on how to effectively set search keywords.
We list several examples here. Chen and Li (2009) recommended using search
advertising to maximize the marketing effect. Luo et al. (2011) indicated that search
advertising could influence users’ brand recall and recognition. Ghose and Yang (2007)
adopted a hierarchical Bayesian model to analyze the effect of choice of keywords on
the profitability of advertising. Yang et al. (2011) recommended that advertisers need to
concentrate on the top 100 keywords, because the success of search format advertising
mainly comes from these top keywords rather than those in the long tail (Skiera et al.,
2010). Gopal et al. (2011) also used a game theoretic analysis to reveal the appropriate
budget range for search advertising.
The importance of online advertising is expected to further grow in today’s digital
world (Brackett and Carr, 2001; Hollis, 2000; Sharma and Sheth, 2004), however, we
have not found any prior studies incorporating both non-search and search advertising
and investigating their relationships with sales. We believe that examining the
effectiveness of these two online advertising formats is important to enrich both
academic research and industrial practice.
3. Research design
“Vehicle” or “automobile” in this study refers to the vehicles for residential use in
China. The reasons for choosing this product as the research object are described as
follows. First, vehicle consumption reached ten million in 2009 in China, which
presented the importance of studying this market. Second, the automobile market in
China is a buyer’s market, and the sales performance is strongly related with marketing
and advertising, regardless of the production capacity. Third, vehicle is a relatively
high-value product; hence, pre-purchase effort and time extended by consumers are
relatively significant compared to other consumption products. In this market,
consumers heavily rely on the internet to acquire quality information on products and
services. According to the data from the iResearch Consulting, about 75.9 percent of
internet users in China utilize the internet to understand the automobile market, and
the internet is the most important information channel to shape consumers’
purchasing decision. Based on the above reasons, the research object is chosen to be the
vehicles for residential use in China. The effect of online advertising on vehicle sales is
further analyzed.
Here, the index i represents a specific vehicle model. y is the sales volume of this model
in year 2009; x1 is the sales volume of this model in year 2008; and D is a control
variable denoting the highest unit selling price of this vehicle model in year 2009. This
benchmark model provides a base for further investigating the impacts of online
advertising spending on vehicle sales. In the following two sections, models with non-
search and search advertising are further introduced.
The general assumption is that advertising effect is often positive to business
performance. When market demand is not saturated, given all other conditions the
same, advertising spending should have a non-negative impact on product sales.
In other words, the more investment in advertising, the higher the sales are.
Furthermore, based on the previous literature (Wittink, 1977; Rao and Miller, 1975;
Vakratsas et al., 2004), it is claimed that the relationship between sales and advertising
can often be represented as an S-shape curve. In other words, advertising does improve
Here, the index i represents a specific vehicle model. y is still the sales volume of this
model in year 2009; and x1 is the sales volume of this model in year 2008; xNS is the
non-search advertising spending on this vehicle model in year 2009. D denotes the
highest unit selling price of this model in year 2009. All the b’s are corresponding
coefficients.
In Model I, the spending on non-search advertising is included with both a linear
and a quadratic term. The linear term can explain a direct linear relationship between
spending on non-search advertising and sales revenue. The quadratic term can further
depict a marginal effect of such relationship.
3.2.3 Search advertising. The data used for analyzing search advertising were
collected from one major search engine advertising company. Similar to the model
with non-search advertising, we add the spending of search advertising as well as its
quadratic form into the benchmark model. This Model II can thus be expressed as:
Here, the index i represents a specific vehicle model. y is still the sales volume of a this
model in year 2009; and x1 is the sales volume of this model in year 2008; xS is the
search advertising spending on this model in year 2009. D still denotes the highest unit
selling price of this model in year 2009. All the b’s are corresponding coefficients.
With Model I adding the non-search advertising spending and Model II adding the
search advertising spending to the benchmark model, we further explored a possibility
of combining both Models I and II. However, due to the significant correlation between
search and non-search advertising spending, the combination model suffers from
multi-collinearity problem (see detail results in the Appendix). Therefore, we focus on
presenting the results derived from Models I and II in the following section.
Here, y it is the tth monthly sales of the ith vehicle model in year 2009; and x1it is the
tth monthly sales of the ith vehicle model in year 2008. xSit is the tth monthly spending
on search advertising for that ith vehicle model in year 2009. Di is a control variable
denoting the highest unit selling price of the ith vehicle model of year 2009. Finally,
t is a control variable indicating a specific month in 2009.
SPSS was used to estimate Model III to derive the relationship between monthly
search advertising spending and vehicle sales. The results from Model III do validate
Model II, however, there are multi-collinearity problems in Model III. The VIF values of
search advertising spending term and its quadratic term are 45. We solved this multi-
collinearity by eliminating insignificant variables. Since the quadratic term of search
advertising spending is not significant in both Models II and III, we took out this term
and re-estimated the revised Model III. The results are presented in Table III.
The revised Model III is also significant (R2 ¼ 0.612). The monthly sales of year 2008
again turns out to be a significantly positive independent variable, and the monthly
spending on search advertising also has positively significant effect on vehicle sales.
The model can explain 61.2 percent of the dependent variable’s variance. This result
Model IV with only Zit Model IV With both Zit and x1itZit terms
Model Standardized coefficient VIF Standardized coefficient VIF
References
Ashley, R., Granger, C.W.J. and Schmalensee, R. (1980), “Advertising and aggregate consumption:
an analysis of causality”, Econometrica, Vol. 48 No. 5, pp. 1149-1167.
Boyd, R. and Seldon, B.J. (1990), “The fleeting effect of advertising: empirical evidence from a
case study”, Economics Letters, Vol. 34 No. 4, pp. 375-379.
Brackett, L.K. and Carr, B.N. (2001), “Cyberspace advertising vs other media: consumer vs.
mature student attitudes”, Journal of Advertising Research, Vol. 41 No. 5, pp. 23-32.
Brettel, M. and Spilker-Attig, A. (2010), “Online advertising effectiveness: a cross-cultural
comparison”, Journal of Research in Interactive Marketing, Vol. 4 No. 3, pp. 176-196.
Breuer, R., Brettel, M. and Engelen, A. (2011), “Incorporating long-term effects in determining
the effectiveness of different types of online advertising”, Marketing Letters, Vol. 22 No. 4,
pp. 327-340.
Broadbent, S. (2001), Advertising Budgeting, World Advertising Research Centre, London.
Brown, R.S. (1978), “Estimating advantages to large-scale advertising”, The Review of Economics
and Statistics, Vol. 60 No. 3, pp. 428-437.
Chen, L.G. and Li, Y.J. (2009), “Allocating budget across portals in search engine advertising”,
Proceedings of International Conference on Management Science and Engineering,
pp. 679-685.
Clarke, D.G. (1976), “Econometric measurement of the duration of advertising effect on sales”,
Journal of Marketing Research, Vol. 13 No. 4, pp. 345-357.
CNNIC (2010), “The 25th survey report”, China Internet Network Information Center, Beijing,
available at: www1.cnnic.cn/IDR/
Corkindale, D. (1983), “A manager’s guide to measuring the effects of advertising”, Marketing Online
Intelligence & Planning, Vol. 1 No. 2, pp. 3-30.
advertising
Dreze, X. and Hussherr, F.X. (2003), “Internet advertising: is anybody watching?”, Journal of
Interactive Marketing, Vol. 17 No. 4, pp. 8-23.
Eighmey, J. and Farnall, O. (2000), “The relationships among informativeness, user
enjoyment, and marketing perceptions of commercial sites on the internet”,
Proceedings of the Conference-American Academy of Advertising, Pullman, WA, 849
pp. 231-232.
Ghose, A. and Yang, S. (2007), “An empirical analysis of paid placement in online
advertising”, Proceedings of the Ninth International Conference on Electronic
Commerce, pp. 95-96.
Gluhovsky, I. (2010), “Forecasting click-through rates based on sponsored search advertiser
bids and intermediate variable regression”, ACM Transactions on Internet Technology
(TOIT), Vol. 10 No. 3, pp. 2-28.
Gopal, R., Li, X. and Sankaranarayanan, R. (2011), “Online keyword based advertising: impact of
ad impressions on own-channel and cross-channel click-through rates”, Decision Support
Systems, Vol. 52 No. 1, pp. 1-8.
Hansen, F., Hansen, L.Y. and Grønholdt, L. (2002), “Modeling purchases as a function
of advertising and promotion”, International Journal of Advertising, Vol. 21 No. 1,
pp. 115-135.
Hollis, N. (2000), “Ten years of learning on how online advertising builds brands”, Journal of
Advertising Research, Vol. 45 No. 2, pp. 255-268.
iResearch (2010), “iResearch China online advertising research report (in Chinese version)”,
iResearch Consulting Group, Beijing, available at: www.iresearchchina.com/reports/
Jones, J.P. (1997), “What does effective frequency mean in 1997?”, Journal of Advertising
Research, Vol. 37 No. 4, pp. 14-20.
Kim, C., Park, S., Kwon, K. and Chang, W. (2012a), “An empirical test to measure the
effectiveness of online advertising in online marketplaces using a hierarchical Bayes
model”, Expert Systems with Applications, Vol. 39 No. 1, pp. 117-128.
Kim, C., Park, S., Kwon, K. and Chang, W. (2012b), “An empirical test to forecast the sales
rank of a keyword advertisement using a hierarchical Bayes model”, Expert Systems
with Applications, Vol. 39 No. 17, pp. 12727-12742.
King, S. (1968), “Measuring advertising effectiveness”, Management Decision, Vol. 2 No. 1,
pp. 20-23.
Kulkarni, G., Kannan, P.K. and Moe, W. (2012), “Using online search data to forecast new product
sales”, Decision Support Systems, Vol. 52 No. 3, pp. 604-611.
Lambin, J.J. (1976), Advertising, Competition and Market Conduct in Oligopoly Over Time:
An Econometric Investigation of Western European Countries, North-Holland Pub Co.,
Amsterdam and New York, NY.
Lohtia, R., Donthu, N. and Hershberger, E.K. (2003), “The impact of content and design elements
on banner advertising click-through rates”, Journal of Advertising Research, Vol. 43 No. 4,
pp. 410-418.
Luo, W., Cook, D. and Karson, E.J. (2011), “Search advertising placement strategy: exploring
the efficacy of the conventional wisdom”, Information & Management, Vol. 48 No. 8,
pp. 404-411.
McDonald, C. (1997), “From frequency to continuity: is it a new dawn?”, Journal of Advertising
Research, Vol. 37 No. 4, pp. 21-25.
MD Ozga, S. (1960), “Imperfect markets through lack of knowledge”, Quarterly Journal of Economics,
Vol. 74 No. 1, pp. 29-52.
52,5
Palda, K.S. (1965), “The measurement of cumulative advertising effects”, The Journal of Business,
Vol. 38 No. 2, pp. 162-179.
Peles, Y. (1971), “Rates of amortization of advertising expenditures”, Journal of Political
Economy, Vol. 79 No. 5, pp. 1032-1058.
850 Peterson, R.A., Balasubramanian, S. and Bronnenberg, B.J. (1997), “Exploring the implications
of the internet for consumer marketing”, Journal of the Academy of Marketing Science,
Vol. 25 No. 4, pp. 329-346.
Rao, A.G. and Miller, P.B. (1975), “Advertising/sales response functions”, Journal of Advertising
Research, Vol. 15 No. 2, pp. 7-15.
Rialp, J., Prior, D. and Pergelova, A. (2010), “Assessing advertising efficiency”, Journal of
Advertising, Vol. 39 No. 3, pp. 39-54.
Robinson, H., Wysocka, A. and Hand, C. (2007), “Internet advertising effectiveness: the effect
of design on click-through rates for banner ads”, International Journal of Advertising,
Vol. 26 No. 4, pp. 527-541.
Seldon, B.J. and Doroodian, K. (1989), “A simultaneous model of cigarette advertising: effects of
demand and industry response to public policy”, The Review of Economics and Statistics,
Vol. 71 No. 4, pp. 673-677.
Sharma, A. and Sheth, J.N. (2004), “Web-based marketing: the coming revolution in marketing
thought and strategy”, Journal of Business Research, Vol. 57 No. 7, pp. 696-702.
Skiera, B., Eckert, J. and Hinz, O. (2010), “An analysis of the importance of the long tail in
search engine marketing”, Electronic Commerce Research and Applications, Vol. 9 No. 6,
pp. 488-494.
Studenmund, A.H. (2011), Using Econometrics: A Practical Guide, 6th ed., Pearson Custom
Publishing, Prentice Hall, Upper Saddle River, NJ.
Telser, L.G. (1962), “Advertising and cigarettes”, Journal of Political Economy, Vol. 70 No. 5,
pp. 471-499.
Tsang, P.M. and Tse, S. (2005), “A hedonic model for effective web marketing: an empirical
examination”, Industrial Management and Data Systems, Vol. 105 No. 8, pp. 1039-1052.
Vakratsas, D., Feinberg, F.M., Bass, F.M. and Kalyanaram, G. (2004), “The shape of advertising
response functions revisited: a model of dynamic probabilistic thresholds”, Marketing
Science, Vol. 23 No. 1, pp. 109-119.
Vidale, M.L. and Wolfe, H.B. (1957), “An operations-research study of sales response to
advertising”, Operations Research, Vol. 5 No. 3, pp. 370-381.
Wittink, D.R. (1977), “Exploring territorial differences in the relationship between marketing
variables”, Journal of Marketing Research, Vol. 14 No. 2, pp. 145-155.
Yang, Y., Wang, F., Zeng, D., Qin, R., Li, J. and Zhang, J. (2011), “On optimal budget allocation
for keyword auctions across search engines”, Science & Technology Review, Vol. 29 No. 4,
pp. 18-24.
Appendix
With Model I adding the non-search advertising spending and Model II adding the
search advertising spending to the benchmark model, we further explored a possibility of
combining both Models I and II. The model of combining both spending can be expressed
as the following:
yi ¼ b0 þ b1 x1i þ bNS xNSi þ bNS2 x2NSi þ bS xSi þ bS2 x2Si þ bD Di þ ei : ði ¼ 1; . . . ; 52Þ
The VIF analysis was also included in the above table. It was identified that this combination
model suffers from multi-collinearity problem with one VIF value 45 and another VIF very close
to 5 (Studenmund, 2011). Therefore, the paper focusses on discussing search and non-search
advertising spending, respectively.
Corresponding author
Shaoling Zhang can be contacted at: abao9@hotmail.com