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Banner Ads Click with Consumers

Chicago Graduate School of Business research shows that the industry-wide practice of judging banner ads by the number of clicks they generate understates the effectiveness of banner ad campaigns. Banner ads help companies retain customers, say the authors.

By No Analyst or Consultant

November 16, 2004 — CSO —

By Pradeep K. Chintagunta,
Jean-Pierre Dubé,
and Puneet Manchanda

Banner advertising helps companies retain customers by bringing them back to a company's Web site faster and encouraging them to spend more.

Total spending on Internet advertising now exceeds spending on some traditional media, but despite the quick adoption of online marketing by many firms, remarkably little is known about the potential payoffs of such efforts.

Most online advertising exists in the form of banner ads, which combine graphics, text, and a link to an advertiser's Web site. Consumers access the advertiser's site by clicking on the banner ad, which is referred to as "clickthrough." In the early days of e-commerce, the fact that consumer behavior in response to advertising could be measured instantaneously and objectively by calculating the clickthrough rate was seen as an exciting development. However, clickthrough rates typically have been less than one percent of all exposures. In addition, these rates only measure visits to a site, ignoring actual purchasing behavior. Previous research has shown that few visits translate into actual purchases.

University of Chicago Graduate School of Business professors Pradeep K. Chintagunta, Jean-Pierre Dubé, and Puneet Manchanda, together with doctoral student Khim Yong Goh suggest that, as in traditional advertising, exposure to banner ads may result in purchase behavior after a temporal gap.

"Most theories of advertising note that the effects of advertising are not immediate," says Manchanda. "We therefore wanted to link individual exposure to banner advertising to individual behavior while allowing for a temporal gap. Our approach expands upon the work of previous studies that have only documented attitudinal changes as a function of exposure to Internet advertising."

The authors report their findings in their recent study, "The Effects of Banner Advertising on Consumer Inter-purchase Times and Expenditures in Digital Environments."

The authors find that banner ads are effective for bringing existing customers back to a Web site sooner to make additional purchases. Thus, in any given period of time, current customers who were exposed to banner advertising are likely to spend more money than customers who were not. The authors also suggest that the industry-wide practice of judging banner ads by the number of clicks they generate understates the effectiveness of banner ad campaigns.

"If you just measure clicks, you are not capturing the real effect of advertising," says Dubé. "What you want to see is whether people are purchasing items."

Even though banner ads are typically regarded as doorways to bring in new customers, the long-term viability of a Web site depends on its ability to retain customers. Many industry studies have shown that retaining current customers, relative to acquiring new customers, is more profitable to a firm over the lifetime of the customer. For online firms, the question then becomes whether banner advertising can modify the behavior of repeat customers as they become more experienced with the firm's Web site.