Search engine marketing for different competition modes - Interfirm and intrafirm

Brands seeking for prominent positions in online consumer search may invest in two types of search engine marketing: paid search marketing (PSM) and search engine optimization (SEO). This paper investigates how firms should allocate marketing resources between PSM and SEO under different competition modes (interfirm and intrafirm competition). We develop an analytical model where within an interfirm competition, two brands compete for every step, while for the intrafirm competition, multi-brand firm coordinates the search engine marketing decisions for its brands, but delegates the price decisions to the brand managers. We find that the resource allocation decision may depend on the firm’s brand strength in organic search. Our analysis shows an increasing curve relation between resources allocated to PSM and the brand strength for interfirm competition and inverted-U shape for intrafirm competition. More specifically, as the brand strength goes up, for the interfirm competition, the resources allocated to PSM increase till 100%, while it should increase only when brand strength is sufficiently low, but decrease when brand strength is high for the intrafirm competition. This nontrivial result underscores the challenge facing a multi-brand firm in balancing between maximizing the search prominence for the category and minimizing the internal competition.