Disentangling the impact of bidding price on advertising performance in E-commerce search advertising: The moderating role of product competitiveness

Abstract

Though E-commerce search advertising has become an increasingly prevalent approach for online retailers to promote their products, it is nontrivial for online retailers to use search advertising effectively, particularly without a comprehensive understanding of the effect of bidding price. This research investigates the effect of bidding price on product click-through rate and conversion rate, with a focus on the moderating role of product competitiveness. We collected data consisting of 10,734 search advertising records of 421 advertised stock keeping units and 206 keywords from a retailer operating on a leading e-commerce platform. This dataset was matched with data of 39,066 rival products to construct the indexes of product competitiveness in terms of mouth and product competitiveness in terms of sale price. Contradictory to the wisdom that there is a monotone relationship between bidding price and click-through/conversion rate, our result reveals an inverted U-shaped relationship between bidding price and click-through/conversion rate. Moreover, product competitiveness in terms of word-of-mouth weakens the inverted U-shaped relationship between bidding price and click-through/conversion rate, while product competitiveness in terms of sale price only weakens the inverted U-shaped relationship between bidding price and click-through rate, but not conversion rate. This research enriches the literature on search advertising by untangling the impact of bidding price and the moderating role of product competitiveness.