Amplifying the Impact of Digital Advertising: The Role of Published Sales Rankings

48 Pages Posted: 13 Aug 2015 Last revised: 22 Sep 2015

See all articles by Yaniv Dover

Yaniv Dover

Hebrew University of Jerusalem - Jerusalem School of Business Administration; Hebrew University of Jerusalem - Center for the Study of Rationality

Scott Neslin

Dartmouth College - Tuck School of Business

Date Written: August 12, 2015

Abstract

This paper investigates the ability of published sales rankings to enhance, or amplify, the effectiveness of digital advertising. The rank amplification mechanism is that advertising increases sales, which in turn enhances the sales rank of the product. This information is published and seen by potential customers, increasing sales further. Therefore this research aims to unify the emerging literature on digital advertising and the concept of social learning. We study the case of Facebook advertising for a smart phone app. The app is sold on Apple’s App Store and its rank is published on that website. We find the rank amplification effect is real and managerially important. In fact the rank effect component of the mechanism is larger than the direct advertising effect, raising the total ROI of advertising significantly. We explore two implications of rank amplification. First, we find through simulation that rank amplification increases industry concentration. Second, we find using a dynamic optimization that rank amplification increases profits but not necessarily advertising spend due to free-riding the rank amplification mechanism. Our findings suggest that rank amplification should be considered in the planning and evaluation of digital advertising.

Keywords: social learning, sales rankings, digital advertising, digital marketing

Suggested Citation

Dover, Yaniv and Neslin, Scott, Amplifying the Impact of Digital Advertising: The Role of Published Sales Rankings (August 12, 2015). Tuck School of Business Working Paper No. 2642476, Available at SSRN: https://ssrn.com/abstract=2642476 or http://dx.doi.org/10.2139/ssrn.2642476

Yaniv Dover (Contact Author)

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

Hebrew University of Jerusalem - Center for the Study of Rationality

Feldman Building
Givat-Ram
Jerusalem, 91904
Israel

Scott Neslin

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

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