Some marketers believe organic and paid-search or sponsored listings are always required to rank well in search results. Now research from a top university suggests that the less organic information found online about some product or categories in e-commerce sites like Amazon, eBay and FlipKart, the more difficult it becomes to rank high for a product in organic listings.
Adding sponsored listings, however, to a category like clothing, which typically lacks information about specific details, can help to push the products clearly into view.
When markets have a solid organic and paid-search or sponsored ad strategy, clothing ads typically perform 25% better, specifically in FlipKart, one of India’s online marketplace, compared with organic listings alone.
“The category determines how useful the ads are for advertisers, as well as for consumers,” said Columbia Business School Professor Kinshuk Jerath. “It’s interesting to see how much uncertainty consumers have for a category. It’s the way advertisers and platforms will and can express online the attributes of products of the category.”
He said it makes it difficult for the platform and the consumer to express how a piece of clothing feels like on someone's body. “For example, you can’t feel the texture of the fabric and it’s more difficult to describe how it feels,” he said.
The research from Columbia Business School, supported by the Chazen Institute, suggests when using this strategy with a category like electronics, where product information is abundant, paid or sponsored ads typically perform worse, receiving between 5% to 20% fewer clicks, and 25% to 30% fewer conversions.
The data shows how sponsored product ads perform in relation to organic listings, and weighs the costs and benefits for consumers and marketers.
Professor Jerath and co-authors from the University of California, Irvine, and Carnegie Mellon University analyzed data from more than two million users on FlipKart, one of India’s large online marketplaces. The analysis uses popular product categories such as clothing and electronics. The two categories account for approximately 90% of sales on FlipKart.
The paper, Information Asymmetry and Relevance of Sponsored Listings in Online Marketplaces, sheds light on the effectiveness of sponsored listings compared to the organic listings they displace and how this varies by product category.
Depending on the product category, sponsored listings can enhance the effectiveness of consumer searches and increase sales conversion rates as well as marketplace profit, according to the study. The research was supported by The Chazen Institute at Columbia Business School.
Vibhanshu Abhishek, associate professor of Information Systems at the University of California, Irvine, and Siddhartha Sharma, PhD student at Carnegie Mellon University, also participated in the research.
The findings in the paper, according to the researchers, have important implications for e-commerce managers.
One possible implication of the study is regardless of the product category, sponsored products are only supplementing the core business of transactions by generating more revenue.
Allowing for sponsored listings also seems a way to solve “the classic cold start problem” of recommending goods. Rather than running costly experiments with a large number of users to identify products, paid and sponsored search serves as a tool for consumers to find new products.
Marketers who are concerned about enhancing the consumer experience may want to use relevance in addition to the bidding and quality-score adjustment, when deciding what the winner of the auctions is in searches related to product categories.