A Novel Approach for Bidding on Newly Set-Up Search Engine Advertising Campaigns

Publication: Scientific journalJournal articlepeer-review

Abstract

Advertisers setting up search engine advertising campaigns for the first time need to place bids on keywords, but typically lack experience and data to determine ranks that maximize a keyword's profit (generally referred to as a cold-start problem). This article aims at solving the problem of bidding on keywords in newly set-up search engine advertising campaigns. We suggest that advertisers collect data from the Google Keyword Planner to obtain precise estimates of the percentage increases in prices per click and clickthrough rates, which are needed to calculate optimal bids (exact approach). Together with the profit contribution per conversion and the conversion rate, the advertiser might then set bids that maximize profit. In case advertisers cannot afford to collect the required data, we suggest two proxy approaches and evaluate their performance using the exact approach as a benchmark.
The empirical study shows that both proxy approaches perform reasonably well-the easier approach to implement (proxy 2) sometimes performs even better than the more sophisticated one (proxy 1). As a consequence, advertisers might just use this very simple proxy when bidding on keywords in newly set-up SEA campaigns.
This research extends the stream of literature on how to determine optimal bids, which so far focuses on campaigns that are already running and where the required data to calculate bids is already available. This research offers a novel approach of determining bids when advertisers lack the aforementioned information.
Original languageEnglish
Pages (from-to)668 - 691
JournalEuropean Journal of Marketing
Volume49
Issue number5/6
DOIs
Publication statusPublished - 2015

Cite this