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Effects of Online Advertising On Automobile Sales
Effects of Online Advertising On Automobile Sales
Effects of Online Advertising On Automobile Sales
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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
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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
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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
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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.
direct relationship between advertising spending and sales changes, and proposed an
optimal spending strategy. Ozga (1960) put forward a model not only considering
advertising, but also incorporating the impacts of word-of-mouth feedback on
products. Gluhovsky (2010) tested a triply monotone regression methodology to help
budget allocation in keyword bidding. Similarly, several recent studies have tried to use
the sales forecast to determine advertising spending allocation (Brettel and Spilker-
Attig, 2010; Kim et al., 2012a, b; Kulkarni et al., 2012). Brettel and Spilker-Attig (2010)
further suggested that advertising spending should be differentiated in different
countries because the targeted consumers in these countries often behave in
different ways. These studies motivate us to explore the relationship between online
advertising and sales.
In fact, some literature did explore the functional form of advertising-sales
relationship experimentally. Wittink (1977), Rao and Miller (1975), and Vakratsas et al.
(2004) found the evidence of an S-shaped function of the relationship between
advertising spending and sales. Hence, in this study, we also hypothesize that the
relationship between online advertising and sales is non-linear.
Based on prior research, various advertising strategies can be adopted by
advertisers. However, there is no empirical study in the extant literature evaluating the
effects of online search and non-search advertising on vehicle sales. Therefore, this
paper provides the current literature with an in-depth empirical analysis on the effects
of online advertising on automobile sales, both in search and non-search formats.
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.
3.1.1 Data from non-search advertising. The data from non-search format
advertising were collected from the reports generated by the iAdTracker system. The
iAdTracker is a proprietary system of the iResearch Consulting, a leading internet
consulting company in China. This system is one of the earliest developments in its kind.
The iAdTracker is in fact a network agent, automatically crawling online advertising
and uploading information to its server on a daily basis. The advertisements are further
labeled by 15 different formats in the database. The database are maintained with more
than 10,000 advertisers’ information and over three million records of online advertising
in a five-year period. There are about 130 web sites that the iAdTracker monitors
on a regular basis, ranging from portals to the content-provided web sites. Further,
the advertising information collected here covers 20 different industries. In all, the
iAdTracker is the most comprehensive system tracking non-search advertising in China.
This system has now been widely used by other internet media companies and
advertising agents, providing them with statistical data of online advertising.
According to the iAdTracker database, the transportation industry ranked the
second biggest in advertising spending among all the industries, and 80 percent of its
total industry spending is coming from automobile manufacturers. In the database
at the time of our data collection, the number of automobile manufacturers reached 64,
the number of vehicle models reached 108, and the count of advertisement records
reached 332,271. This study extracted a subset of the advertising data for 52 most
popular vehicle models in 2009. The data collected were served as the advertising
spending on non-search advertising.
3.1.2 Data from search advertising. By the end of 2009, search engine became one of
the top three internet applications (the other two were online music and online news),
and the utilization ratio of the search engine reached 73.3 percent, an increase of
5.3 percent from that of 2008 (CNNIC, 2010).
Currently, the number of users of the search engine is about 0.3 billion in China,
having an annual increase rate of 38.6 percent. In fact, online advertisers are fully
aware of search advertising advantages such as low cost of operating, the high
precision level of consumer targeting, and the visibility of marketing effects. According
to the iResearch, the spending on search advertising had an annual increase of
38.4 percent in 2009, and it accounted for over 50 percent of all online advertising
spending in China. It is also forecasted that in the future years, search advertising will
keep growing with an annual rate of 15.0 percent.
Search advertising has different operating mechanism from that of non-search
advertising. Search advertisement is often referred as the sponsored searches.
Companies place bids on keywords that are associated with their advertisements.
An advertisement will only be displayed to users if it wins the bid on the desired
keywords. Therefore, search advertising is a dynamic format of delivering relevant
messages to interested users. Specifically, according to a report published by a private
research center in 2009, search engine is the most influential tool throughout the entire
decision-making process of vehicle purchase.
MD We conducted intensive face-to-face interviews with a major search engine company
52,5 in China. With the search engine company’s help, the data of spending on search
advertising were collected. In order to keep consistency with the data collected from
non-search advertising, we compiled the advertising data specifically for the top
52 popular vehicle models in 2009. Interviews with other search engine companies
were also conducted. It was noted that search advertising spending on these 52 vehicle
840 models accounted for the majority of the total search advertising spending, and hence,
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is comprehensive enough to serve as the proxy for the spending on search advertising.
During these interviews, it was also noticed that most of the automobile manufacturers
as well as their advertising agencies still had limitations in understanding the effects of
search advertising, which further enhanced the motivation of this research.
3.1.3 Data collection of vehicle sales. The sales data of the 52 vehicle models in 2008
and 2009 were collected from the National Association of Automobile Market (NAAM)
of China. The NAAM is an organization to coordinate marketing efforts among
automobile manufacturers. In 2008, the National Civil department approved the
NAAM as a part of the National Association of Automobile Industry. The NAAM thus
became one of the most important sources for the market information about the
automobile industry. Every month, each automobile manufacturer reports information
to the NAAM on its production, sales, inventory, and market price. This information
is categorized not only by vehicle model, but also by vehicle trim, engine, and
transmission. The automobile manufacturers also benefit from the NAAM by
obtaining the aggregated information about the industry and the market.
We collected the data of vehicle sales from the NAAM. There were 238 vehicle
models with sales records in 2009, and the total sales volume is 8.4 million. The
identified 52 vehicle models in this research had a sales volume of over 60 percent of
the total sales. It was also reported that vehicles with engine displacement ranging
from 1.6 to 2.5 l had a market share of 70 percent. And 90 percent of the selected
52 models fell into this category. Nonetheless, these 52 vehicle models are the
dominating models in the China market in 2009. Since this population sampling
approach restricts the direct applicability of our results to all vehicle models in China
market, we would like to clarify that hereinafter the vehicle market refers to these
52 vehicle models. Nonetheless, this group of vehicle model represents the majority of
the vehicles sold in Chinese market.
In order to control individual effect for each vehicle model, we also collected the
highest unit selling price for each of these models from the automobile site of SINA
(a leading web portal in China). This information was further utilized for controlling
the inherent differences among these vehicle models. Finally, it should be emphasized
that all of the 52 vehicle models were advertised in both search and non-search
advertising during the study period.
Based on the data collected as mentioned above, Table I provides the correlation
matrix listing key variables for further analysis, namely, vehicle sales volume of
2009, sales volume of 2008, non-search advertising spending, search advertising
spending, and the highest unit price. Taking consideration of the variable’s variation
and range, data used here were all normalized using z-value standardization. It can be
observed that the vehicle sales in 2008 are positively correlated with the sales in
2009. Further, the highest unit price of a vehicle model is negatively correlated with the
sales in 2009. We capture these two features in our benchmark model. Interestingly,
at this point, we cannot find any significant correlation between online advertising
spending, neither non-search nor search format, and the sales in 2009. At the same
time, the spending in search advertising is positively correlated with the spending Online
in non-search advertising. advertising
3.2 Model
Based on our research questions, it is interesting to analyze how advertising spending
can help automobile manufacturers to improve vehicle sales. The relationship between
online advertising and vehicle sales is investigated here utilizing several empirical 841
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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.
bS – – – – 0.142* 1.556
bS2 – – – – 0.119 1.552
bD 0.105 1.041 0.102* 1.044 0.112* 1.046
R2 0.797 0.838 0.812
DR2 – 0.041*** 0.014 Table II.
F 92.506*** 58.299*** 48.450*** Results for the models
investigating non-search
Notes: ***po0.01; *po0.1 and search advertising
Instead of using annual data points of sales and search advertising spending, this
section investigates the relationship between monthly sales and monthly search
advertising spending. This monthly data set thus enables us to analyze a larger sample
size.
Model II now evolves into Model III in this section, and independent variables
include both monthly sales of year 2008 and monthly spending on search advertising
in 2009. In fact, all the variables in the following model refer to monthly measurements.
Furthermore, the seasonality of automobile sales is also considered and we simply use
the month as a control variable to represent seasonality. Explicitly, Model III can
be described as:
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
In other words, the monthly sales of the previous year not only have a significant
positive impact on the current monthly sales, but also have an enhancing effect
through the number of searches. In all, as the search advertising spending is concerned,
we have similar results as those in the previous models: search advertising has a
significant positive effect on vehicle sales; the effect of the highest unit price is still
negatively significant related to the sales; and the seasonality in the form of month has
a significant positive effect on vehicle sales.
Frequent searches on vehicle model names often reflect consumers’ interest in
products. It might be suggested that a vehicle model having a high level of attention
from consumers can have a high level of sales performance. However, Model IV trying
to capture the relationship between monthly searches and monthly sales provides an
insignificant result in interpreting the impact of search frequency. In order words, a
vehicle model with frequent searches on search engine might not necessarily have
a good sales performance. However, the interaction term of monthly searches and
monthly sales of the previous year does show positively significant relation to the
sales. In this case, it is concluded that the number of searches is in fact enhancing
the impact of the previous year sales. On top of its direct impact on the current sales,
the monthly sales of the previous year also couple with the number of the current
monthly searches to influence vehicle sales volume.
Model IV with only Zit Model IV With both Zit and x1itZit terms
Model Standardized coefficient VIF Standardized coefficient VIF
To our knowledge, this is the first study to investigate online advertising effects on
the automobile industry in China. The limitation and future directions are explained as
follows: first, all the models here are simplified to focus on one format of advertising.
The results are derived without taking consideration of interacting effects among
online and offline advertising campaigns. Second, this research needs to be extended
with obtaining panel data covering a longer time period because the current data are
just about two specific years. Third, advertising is not a one-period effort, and we can
also include effects of advertising spending from both current and previous periods.
Fourth, only sales are used in this study as the business performance indicator, and we
need to further explore online advertising effects on other critical performance
indicators. Last but not the least, the data collected are mainly from the China market,
and it will be interesting to collect similar data from different geographic markets, such
as Europe and North America, to make either validation or comparison among
different regions based on the results.
Note
1. RMB: currency unit in China, 100RMBE$16.03.
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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
1. Yongli Li School of Management, Harbin Institute of Technology, Harbin, P.R. China, and Dipartimento
Di Economia Politica E Statistica, Università Di Siena, Siena, Italy Chong Wu School of Management,
Harbin Institute of Technology, Harbin, P.R. China Peng Luo School of Management, Harbin Institute of
Technology, Harbin, P.R. China . 2014. Rating online commodities by considering consumers’ purchasing
networks. Management Decision 52:10, 2002-2020. [Abstract] [Full Text] [PDF]
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