The Effects of Bid Pulsing on Keyword Performance in Search Engines

ABSTRACT

The objective of this study is to empirically examine whether and how bid pulsing affects keyword auction performance in search engine advertising. In keyword auctions, advertisers can choose a “set and forget” fixed bidding amount (fixed bidding), or they can change the bid value based on certain types of rules (pulse bidding). A keyword auction data set from Yahoo! reveals that around 60 percent of advertisers frequently changed their bid value for a particular keyword category; moreover, such pulse-bidding behavior is observed throughout the entire time course for some companies. Both cross-sectional and longitudinal analyses on this data set demonstrate that when a company pulses its bid values, the ranking, the number of exposures, and the number of clicks of the target ad listing will all benefit; in addition, the average bid price will be lower. The results are consistent across four keyword categories. Among the three keyword categories that are in ascending order of level of competitiveness,the magnitude of the pulse-bidding effect also increases. The study extends search engine advertising literature by providing empirical evidence of pulse-bidding strategy under the generalized second price auction and by exploring the consequence of such strategy. Managerially, our results suggest that, keeping all other costs and the bidding environment the same, increasing the frequency and scale of bid pulsing will improve keyword performance; this is especially the case when bidding on a highly competitive keyword category.

KEY WORDS AND PHRASES:

• Generalized second price auctions
• keyword bidding
• keyword search
• pulse-bidding strategy
• search engine advertising
• keyword performance

Notes

1. These keyword categories are defined by the data provider, and no detailed information regarding these categories, such as how each category is defined or the identity of the keyword, could be obtained.

2. The bid value is aggregated with a granularity of a day. The numbers refer to the total bid value for a keyword by an advertiser (possibly across multiple auctions) within a day.

3. The pulse bidding defined here includes the situation wherein the advertiser kept its bid value the same for some bidding activities and changed it for other bidding activities. We did not find any advertiser that changed its bid value for all bidding activities (the “pure” pulse-bidding strategy).

4. The rank variable is set up in such a way that the larger the number, the lower the rank.

5. Other information might also be useful to gauge the level of competitiveness; yet due to the anonymity of the data, we do not have detailed information about the advertisers and the keyword categories.

6. We assume that Pulsing Strength is 1 percent.

Additional information

Notes on contributors

Savannah Wei Shi

SAVANNAH WEI SHI ([email protected]) is an assistant professor of marketing at the Leavey School of Business, Santa Clara University. She received her Ph.D. in marketing from the University of Maryland, College Park. Her research focuses on Internet marketing, dynamics in consumer decision making, and retail management.

Xiaojing Dong

XIAOJING DONG ([email protected]) is an associate professor of marketing at the Leavey School of Business, Santa Clara University. In her research, she develops empirical models to study how individual customers make decisions, and, using customer-level data, she evaluates how marketing efforts influence those decisions. Her work has covered a wide range of research areas and industries, including pharmaceutical, financial, online search, and online social networks.