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Measuring the Lifetime Value of Customers Acquired from Google Search Advertising

Measuring the Lifetime Value of Customers Acquired from Google Search Advertising Our main objective in this paper is to measure the value of customers acquired from Google search advertising accounting for two factors that have been overlooked in the conventional method widely adopted in the industry: (1) the spillover effect of search advertising on customer acquisition and sales in off-line channels and (2) the lifetime value of acquired customers. By merging Web traffic and sales data from a small-sized U.S. firm, we create an individual customer-level panel that tracks all repeated purchases, both online and off-line, and tracks whether or not these purchases were referred from Google search advertising.To estimate the customer lifetime value, we apply the methodology in the customer relationship management literature by developing an integrated model of customer lifetime, transaction rate, and gross profit margin, allowing for individual heterogeneity and a full correlation of the three processes. Results show that customers acquired through Google search advertising in our data have a higher transaction rate than customers acquired from other channels. After accounting for future purchases and spillover to off-line channels, the calculated value of new customers using our approach is much higher than the value obtained using conventional method. The approach used in our study provides a practical framework for firms to evaluate the long-term profit impact of their search advertising investment in a multichannel setting. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Marketing Science INFORMS

Measuring the Lifetime Value of Customers Acquired from Google Search Advertising

Marketing Science , Volume 30 (5): 14 – Aug 8, 2011
14 pages

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Publisher
INFORMS
Copyright
Copyright © INFORMS
Subject
Research Article
ISSN
0732-2399
eISSN
1526-548X
DOI
10.1287/mksc.1110.0658
Publisher site
See Article on Publisher Site

Abstract

Our main objective in this paper is to measure the value of customers acquired from Google search advertising accounting for two factors that have been overlooked in the conventional method widely adopted in the industry: (1) the spillover effect of search advertising on customer acquisition and sales in off-line channels and (2) the lifetime value of acquired customers. By merging Web traffic and sales data from a small-sized U.S. firm, we create an individual customer-level panel that tracks all repeated purchases, both online and off-line, and tracks whether or not these purchases were referred from Google search advertising.To estimate the customer lifetime value, we apply the methodology in the customer relationship management literature by developing an integrated model of customer lifetime, transaction rate, and gross profit margin, allowing for individual heterogeneity and a full correlation of the three processes. Results show that customers acquired through Google search advertising in our data have a higher transaction rate than customers acquired from other channels. After accounting for future purchases and spillover to off-line channels, the calculated value of new customers using our approach is much higher than the value obtained using conventional method. The approach used in our study provides a practical framework for firms to evaluate the long-term profit impact of their search advertising investment in a multichannel setting.

Journal

Marketing ScienceINFORMS

Published: Aug 8, 2011

Keywords: Keywords : customer lifetime value ; multiple-channel shopping ; customer acquisition ; sponsored search advertising

References