Date of Original Version

8-2012

Type

Working Paper

Abstract or Description

Consumers are exposed to advertisers across a number of channels. As such, a conversion or a sale may be the result of a series of ads that were displayed to the consumer. This raises the key question of attribution: which ads get credit for a conversion and how much credit does each of these ads get? This is one of the most important questions facing the advertising industry today. Although the issue is well documented, current solutions are often simplistic; for e.g., attributing the sale to the most recent ad exposure. In this paper, we address the problem of attribution by developing a Hidden Markov Model (HMM) of an individual consumer's behavior based on the concept of a conversion funnel. We apply the model to a unique data-set from the online campaign for the launch of a car. We observe that different ad formats, e.g. display and search ads, affect consumers differently based on their states in the decision process. Display ads usually have an early impact on the consumer, moving him from a disengaged state to an state in which he interacts with the campaign. On the other hand, search ads have a pronounced effect across all stages. Further, when the consumer interacts with these ads (e.g. by clicking on them), the likelihood of a conversion increases considerably. Finally, we show that attributing conversions based on the HMM provides fundamentally different insights into ad effectiveness relative to the commonly used approaches for attribution. Contrary to the common belief that display ads as are not useful, our results show that display ads affect early stages of the conversion process. Furthermore, we show that only a fraction of online conversions are driven by online ads.

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