Online search-based advertising strategy for e-Business platform with the consideration of consumer search cost
Abstract
Purpose
Consumers are increasingly using search-based advertising in e-Business platforms to seek their desirable products. Platforms will choose a centralized advertising mechanism (CAM) or decentralized advertising mechanism (DAM) to offer a search advertising service to lower consumer search cost, as represented by using search time length. It is important for the platform to decide how to choose advertising mechanisms, and how to determine the optimal advertising price and search time length. To address these issues, this study aims to develop a theoretical approach under each mechanism to examine the platform’s optimal search-based advertising strategy by considering search cost.
Design/methodology/approach
In this study, two models are developed to examine the optimal search-based advertising strategy by considering consumer search cost (i.e. search time length). By comparing the platform’s profits under two models, the optimal advertising strategy, search time length and price are explored.
Findings
It is found that when the seller’s reserve benefit is sufficiently large, the platform benefits from choosing the DAM; otherwise, the CAM is a better choice. The advertising service is usually offered with a shorter search time length accompanied by a higher charge, and a longer search time length accompanied by a lower charge. Specifically, when the seller’s reserve benefit is substantially high, a DAM that benefits both the platform and seller is a better choice. This can explain why many platforms offer advertising services with a DAM.
Originality/value
This paper is the first theoretical study on addressing the search-based advertising strategy, especially the choice of advertising mechanisms, in the online advertising context. It is also the first piece of analytical research that considers the effect of consumer search cost on product demand, and then examines the optimal advertising price and search cost (i.e. search time length) for online platforms.
Keywords
Acknowledgements
This research was partly supported by the Key Projects of the National Science & Technology Pillar Program (No. 2015BAH18F00/2015BAH18F01) granted by Ministry of Science and Technology of China. This work was also supported by programs granted by the National Natural Science Foundation of China (NSFC) (Nos. 71371176, 71571115 and 71671108) and NSFC major international (regional) joint research program (No. 71320107004).
Citation
Ma, B., Xu, X., Sun, Y. and Bian, Y. (2017), "Online search-based advertising strategy for e-Business platform with the consideration of consumer search cost", Kybernetes, Vol. 46 No. 2, pp. 291-309. https://doi.org/10.1108/K-10-2016-0296
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited