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MD
52,5
Effects of online advertising on
automobile sales
Jianping Peng
Sun Yat-sen Business School, Sun Yat-sen University, Guangzhou, P.R. China
834
Guoying Zhang
Dillard College of Business Administration, Midwestern State University,
Wichita Falls, Texas, USA
Shaoling Zhang and Xin Dai
Sun Yat-sen Business School, Sun Yat-sen University,
Guangzhou, P.R. China, and
Jing Li
Xinhua College, Sun Yat-sen University, Guangzhou, P.R. China

Abstract
Purpose – The purpose of this paper is to explore the effects of online advertising spending on
automobile sales through both search and non-search advertising.
Design/methodology/approach – Sales data of the top 52 vehicle models were collected in two
consecutive years in China. The advertising spending data of both formats were collected from a
leading consulting company and a major search engine company. Then several empirical models
were proposed to evaluate the effects of online advertising on automobile sales. Two extended
models were further investigated for search advertising.
Findings – The results revealed that both formats of online advertising have significantly positive
effects on automobile sales. However, excessive spending on non-search advertising does not help
sales and a moderate budget is preferred. On the other hand, spending on search advertising has
no such constraint to improve the vehicle sales.
Practical implications – The empirical findings have proved the importance of online advertising
to the automobile companies and thus can help companies improve their decision making in online
advertising allocation strategies.
Originality/value – This study provides a better understanding of the relationship between
online advertising spending and automobile sales, and helps business to define sophisticated online
advertising strategies to improve sales performance.
Keywords Online advertising, China, Advertising, Non-search advertising, Search advertising,
Automobile sales
Paper type Research paper

1. Introduction
With the rapid development of new information channels – internet, smart phones,
mobile technology, people are changing the way to acquire and use information these
days. In 2009, China became the country with the largest number of internet users
worldwide. According to the 25th annual report from the China Internet Networking
Information Center (CNNIC, 2010), the number of internet users in China reached
384 million by the end of 2009. Further, due to the popularity of smart phones,
Management Decision
Vol. 52 No. 5, 2014
pp. 834-851 This study is based upon work supported by the National Natural Science Foundation of China
r Emerald Group Publishing Limited
0025-1747 under Grant Number 71072086 and the Ministry of Education of China, Humanities and Social
DOI 10.1108/MD-10-2012-0753 Sciences Grant Number 10YJA630124.
60.8 percent of internet users access Internet information using smart phones or Online
other portable client tools. From an organization’s perspective, the new information advertising
acquisition channel significantly affects traditional advertising formats as well as
other business operations.
With a limited advertising budget, marketing professionals always seek for
effective advertising strategies and channels. Online advertising has thus been one
of the most attractive channels due to its advantages of rich content provision, strong 835
interactivity, precise targeting, and low operating cost. According to iResearch, an
advertising agent in China, global advertising market reached 443.7 billion in 2009,
10.2 percent lower than that in 2008. However, online advertising stood out as the only
channel with increasing revenue of 54.1 billion, a 2.3 percent increase over 2008.
Further, online advertising in China generated revenue of 20.7 billion RMB[1] in 2009, a
22.0 percent increase over 2008 (iResearch, 2010). It is evident that online advertising
grows to be a major marketing channel for business in China.
In this study, we extend our investigation on the effect of online advertising on
automobile sales. The automobile industry is a pillar industry and a major contributor
to China’s gross domestic product. In 2009, the automobile industry in China
experienced an unprecedented growth, which presented challenges to traditional sales
and marketing practices in the industry. According to the Association of Automobile
Industry of China, the automobile sales in 2009 reached a total volume of 13.6 million
vehicles, a 46 percent increase over 2008. China has thus become a huge market for
automobile sales. The maturity of the automobile market also embraces changes in
ways of how consumers learn about vehicles, elevate brand awareness, and make
purchase decisions. The traditional channels to gather information about vehicles have
changed dramatically. Internet, instead of TV commercials and magazines, has become
a predominant platform for consumers to gather product information and obtain
purchase recommendation (Peterson et al., 1997). In fact, consumers are always active
in searching relevant information through search engines, clicking through banner
advertising on vehicles, and even interacting with manufacturers in various online
platforms.
Online advertising is an important channel for automobile manufacturers because
of its large audience coverage and efficient communication format. According to the
iResearch Consulting, the automobile advertising expenditure reached $1.5 billion
RMB in 2009 in China, ranking the second among all the industries that apply online
advertising (iResearch, 2010). Beyond the total spending increasing, automobile online
advertising has also been experimenting with various formats: virtual exhibition,
public online forum, video display, search engine, mobile application, etc. It is found
that online advertising is no longer effective by simply using banner displays on
web-pages (Dreze and Hussherr, 2003); utilization and combination of various online
formats are essential for successful advertising. Consequently, it is important for
automobile industry to understand how to evaluate the effectiveness of various online
advertising formats, and hence achieve the desired return on investment.
However, online advertising in the automobile industry in China is still in its
experimenting stage. Most automobile companies are still in lack of precise
measurement of online advertising effects; furthermore, they are not able to verify the
contribution of advertising to automobile sales. In other words, automobile
manufacturers need theoretical guidance on how to effectively conduct online
advertising to improve business performance. To our best knowledge, the current
literature body has very few quantitative studies in investigating the effectiveness of
MD online advertising in the automobile industry. This study thus provides an exploration
52,5 of the relationship between online advertising and vehicle sales.
According to a 2010 revenue report by the Interactive Advertising Bureau, online
advertising is widely presented through the following formats: search engine, display
banner, classified, rich media, digital video, online sponsorship, etc. Among these
formats, the top three are search engine, display banner, and classified, each with a
836 revenue portion of 47, 23, and 10 percent, respectively. In order to provide a refined
analysis of online advertising with regards to its formats, this study adopts the
categorization used by the iResearch Consulting for its industry-level analysis: non-
search format advertising (including display banner, classified, rich media, digital
video, online sponsorship, etc.) and search format advertising (the advertisement listed
together with keywords search results). The justification for this classification can be
explained by different consumer behavior modes. Consumers often obtain advertising
information in two different approaches: pull and push. The pull approach actively
searches and seeks for product or service information, and then the related advertising
will be presented together with the search results through search engines. On the other
hand, the push approach simply exposes product or service information to consumers.
In other words, the pull approach corresponds to search format advertising, while the
push approach represents non-search format advertising.
This research extends efforts in collecting the data of automobile sales and online
advertising spending, establishing robust empirical models to capture the relationship
between sales and spending, and analyzing the effects of both search and non-search
advertising on automobile sales. Our study aims at providing theoretical guidance and
empirical evidence to automobile manufacturers on how to effectively conduct online
advertising. Specifically, the study investigates the effectiveness of online advertising,
and answers the following research questions:

RQ1. How does online advertising spending impact automobile sales?

RQ2. Among various online advertising formats, we focus on two of them for
analysis: search format and non-search format. Do they both have impacts on
automobile sales? If so, are the impacts different?

This study collected sales volume data of the top 52 popular vehicle models in
China in the year 2008 and 2009, and compiled the data of corresponding online
advertising spending categorized by search and non-search formats. Non-search
spending information was collected from a leading consulting company and
search advertising spending information was collected from a major search engine
company. Empirical models were established to analyze the relationship between
sales and online advertising spending. It is found that both formats of online
advertising have significantly positive effects on automobile sales. However, search
advertising has a linear relationship with sales, and non-search advertising shows
a non-linear impact on vehicle sales. Two extended models were further investigated
using monthly data and the keywords search to validate the results from the search
advertising model.
The paper proceeds as follows: Section 2 briefly summarizes the related works.
Section 3 elaborates the research questions, explains the data collection, and proposes
empirical models to address the research questions. Model estimations, analysis, and
discussions are presented in Section 4. Two extended models to incorporate monthly
data and keywords search frequency are further investigated in Section 5. Section 6 Online
concludes the results with limitations and future research directions. advertising
2. Literature review
2.1 Online advertising
Starting from the 1960s when such traditional advertising as TV commercials was
popular, researchers have started to discuss the measurement of advertising 837
effectiveness (Clarke, 1976; Corkindale, 1983; King, 1968). Ever since the debut of
banner advertisement on the web sites in 1994, scholars have shown great interest in
examining the effectiveness of online advertising (Rialp et al., 2010). Among the related
studies, Eighmey and Farnall (2000) formally defined online advertisement as the
commercials utilizing the Internet for posting and propagating; in other words, it is an
internet-based advertisement using digital technology for production and publication.
This study adopts the categorization used by the iResearch Consulting for its industry-
level analysis: non-search format advertising and search format advertising.
2.1.1 Non-search advertising. A lot of prior research on non-search format
advertising has focussed on its click-through rate. Using click-through rate as the
measurement of advertising effectiveness, several studies have explored the factors
that influence the advertising effectiveness. Tsang and Tse (2005) found that animated
color, text and graphics have significant effects on the click-through rate. Robinson
et al. (2007) reported that a larger banner size is associated with a higher level of
click-through rate. Lohtia et al. (2003) found that the use of the emotional appeal
increases the click-through rate, while the presence of promotional incentive does not
improve the click-through rate.
More recently, a few scholars have started to compare the effects of different types of
non-search format advertising. Breuer et al. (2011) argued that banner advertising has
weaker long-term effects than other non-search advertising types.
2.1.2 Search advertising. There are two main research streams in this field.
One stream has focussed on recommending search advertising as a new format of
marketing. The other stream investigates on how to effectively set search keywords.
We list several examples here. Chen and Li (2009) recommended using search
advertising to maximize the marketing effect. Luo et al. (2011) indicated that search
advertising could influence users’ brand recall and recognition. Ghose and Yang (2007)
adopted a hierarchical Bayesian model to analyze the effect of choice of keywords on
the profitability of advertising. Yang et al. (2011) recommended that advertisers need to
concentrate on the top 100 keywords, because the success of search format advertising
mainly comes from these top keywords rather than those in the long tail (Skiera et al.,
2010). Gopal et al. (2011) also used a game theoretic analysis to reveal the appropriate
budget range for search advertising.
The importance of online advertising is expected to further grow in today’s digital
world (Brackett and Carr, 2001; Hollis, 2000; Sharma and Sheth, 2004), however, we
have not found any prior studies incorporating both non-search and search advertising
and investigating their relationships with sales. We believe that examining the
effectiveness of these two online advertising formats is important to enrich both
academic research and industrial practice.

2.2 Advertising and sales


Since 1950, a number of studies were devoted to structure the relationship between
advertising and sales (Broadbent, 2001; Hansen et al., 2002; Jones, 1997; McDonald,
MD 1997; Palda, 1965; Peles, 1971; Telser, 1962). Lambin’s (1976) work found a significant
52,5 positive relationship between sales and advertising. Clarke (1976) also showed that the
magnitude of the effect of advertising and the duration of carry-over effects depended
on the data interval used. Furthermore, a few studies suggest that the effect of
advertising on vehicle sales is depreciated within a short-time span (Ashley et al., 1980;
Boyd and Seldon, 1990; Brown, 1978; Seldon and Doroodian, 1989).
838 Later on, Vidale and Wolfe (1957) used differentiation equations to describe the
direct relationship between advertising spending and sales changes, and proposed an
optimal spending strategy. Ozga (1960) put forward a model not only considering
advertising, but also incorporating the impacts of word-of-mouth feedback on
products. Gluhovsky (2010) tested a triply monotone regression methodology to help
budget allocation in keyword bidding. Similarly, several recent studies have tried to use
the sales forecast to determine advertising spending allocation (Brettel and Spilker-
Attig, 2010; Kim et al., 2012a, b; Kulkarni et al., 2012). Brettel and Spilker-Attig (2010)
further suggested that advertising spending should be differentiated in different
countries because the targeted consumers in these countries often behave in
different ways. These studies motivate us to explore the relationship between online
advertising and sales.
In fact, some literature did explore the functional form of advertising-sales
relationship experimentally. Wittink (1977), Rao and Miller (1975), and Vakratsas et al.
(2004) found the evidence of an S-shaped function of the relationship between
advertising spending and sales. Hence, in this study, we also hypothesize that the
relationship between online advertising and sales is non-linear.
Based on prior research, various advertising strategies can be adopted by
advertisers. However, there is no empirical study in the extant literature evaluating the
effects of online search and non-search advertising on vehicle sales. Therefore, this
paper provides the current literature with an in-depth empirical analysis on the effects
of online advertising on automobile sales, both in search and non-search formats.

3. Research design
“Vehicle” or “automobile” in this study refers to the vehicles for residential use in
China. The reasons for choosing this product as the research object are described as
follows. First, vehicle consumption reached ten million in 2009 in China, which
presented the importance of studying this market. Second, the automobile market in
China is a buyer’s market, and the sales performance is strongly related with marketing
and advertising, regardless of the production capacity. Third, vehicle is a relatively
high-value product; hence, pre-purchase effort and time extended by consumers are
relatively significant compared to other consumption products. In this market,
consumers heavily rely on the internet to acquire quality information on products and
services. According to the data from the iResearch Consulting, about 75.9 percent of
internet users in China utilize the internet to understand the automobile market, and
the internet is the most important information channel to shape consumers’
purchasing decision. Based on the above reasons, the research object is chosen to be the
vehicles for residential use in China. The effect of online advertising on vehicle sales is
further analyzed.

3.1 Data collection


Online advertising can be categorized into search and non-search formats. Search
format refers to the advertisement based on consumers’ keywords searching. Non-search
format refers to the advertisement displayed on any other media except search engines. Online
It can be in any other format else except the advertisement based on the search results. advertising
The data of non-search advertising spending were collected through the iAdTracker, a
tool provided by the iResearch Consulting. The data of spending on search advertising
were collected through one of the dominant search engines in the market. The numbers
of vehicle sales of the year 2008 and 2009 in China serve as the business performance
influenced by online advertising spending. 839
3.1.1 Data from non-search advertising. The data from non-search format
advertising were collected from the reports generated by the iAdTracker system. The
iAdTracker is a proprietary system of the iResearch Consulting, a leading internet
consulting company in China. This system is one of the earliest developments in its kind.
The iAdTracker is in fact a network agent, automatically crawling online advertising
and uploading information to its server on a daily basis. The advertisements are further
labeled by 15 different formats in the database. The database are maintained with more
than 10,000 advertisers’ information and over three million records of online advertising
in a five-year period. There are about 130 web sites that the iAdTracker monitors
on a regular basis, ranging from portals to the content-provided web sites. Further,
the advertising information collected here covers 20 different industries. In all, the
iAdTracker is the most comprehensive system tracking non-search advertising in China.
This system has now been widely used by other internet media companies and
advertising agents, providing them with statistical data of online advertising.
According to the iAdTracker database, the transportation industry ranked the
second biggest in advertising spending among all the industries, and 80 percent of its
total industry spending is coming from automobile manufacturers. In the database
at the time of our data collection, the number of automobile manufacturers reached 64,
the number of vehicle models reached 108, and the count of advertisement records
reached 332,271. This study extracted a subset of the advertising data for 52 most
popular vehicle models in 2009. The data collected were served as the advertising
spending on non-search advertising.
3.1.2 Data from search advertising. By the end of 2009, search engine became one of
the top three internet applications (the other two were online music and online news),
and the utilization ratio of the search engine reached 73.3 percent, an increase of
5.3 percent from that of 2008 (CNNIC, 2010).
Currently, the number of users of the search engine is about 0.3 billion in China,
having an annual increase rate of 38.6 percent. In fact, online advertisers are fully
aware of search advertising advantages such as low cost of operating, the high
precision level of consumer targeting, and the visibility of marketing effects. According
to the iResearch, the spending on search advertising had an annual increase of
38.4 percent in 2009, and it accounted for over 50 percent of all online advertising
spending in China. It is also forecasted that in the future years, search advertising will
keep growing with an annual rate of 15.0 percent.
Search advertising has different operating mechanism from that of non-search
advertising. Search advertisement is often referred as the sponsored searches.
Companies place bids on keywords that are associated with their advertisements.
An advertisement will only be displayed to users if it wins the bid on the desired
keywords. Therefore, search advertising is a dynamic format of delivering relevant
messages to interested users. Specifically, according to a report published by a private
research center in 2009, search engine is the most influential tool throughout the entire
decision-making process of vehicle purchase.
MD We conducted intensive face-to-face interviews with a major search engine company
52,5 in China. With the search engine company’s help, the data of spending on search
advertising were collected. In order to keep consistency with the data collected from
non-search advertising, we compiled the advertising data specifically for the top
52 popular vehicle models in 2009. Interviews with other search engine companies
were also conducted. It was noted that search advertising spending on these 52 vehicle
840 models accounted for the majority of the total search advertising spending, and hence,
is comprehensive enough to serve as the proxy for the spending on search advertising.
During these interviews, it was also noticed that most of the automobile manufacturers
as well as their advertising agencies still had limitations in understanding the effects of
search advertising, which further enhanced the motivation of this research.
3.1.3 Data collection of vehicle sales. The sales data of the 52 vehicle models in 2008
and 2009 were collected from the National Association of Automobile Market (NAAM)
of China. The NAAM is an organization to coordinate marketing efforts among
automobile manufacturers. In 2008, the National Civil department approved the
NAAM as a part of the National Association of Automobile Industry. The NAAM thus
became one of the most important sources for the market information about the
automobile industry. Every month, each automobile manufacturer reports information
to the NAAM on its production, sales, inventory, and market price. This information
is categorized not only by vehicle model, but also by vehicle trim, engine, and
transmission. The automobile manufacturers also benefit from the NAAM by
obtaining the aggregated information about the industry and the market.
We collected the data of vehicle sales from the NAAM. There were 238 vehicle
models with sales records in 2009, and the total sales volume is 8.4 million. The
identified 52 vehicle models in this research had a sales volume of over 60 percent of
the total sales. It was also reported that vehicles with engine displacement ranging
from 1.6 to 2.5 l had a market share of 70 percent. And 90 percent of the selected
52 models fell into this category. Nonetheless, these 52 vehicle models are the
dominating models in the China market in 2009. Since this population sampling
approach restricts the direct applicability of our results to all vehicle models in China
market, we would like to clarify that hereinafter the vehicle market refers to these
52 vehicle models. Nonetheless, this group of vehicle model represents the majority of
the vehicles sold in Chinese market.
In order to control individual effect for each vehicle model, we also collected the
highest unit selling price for each of these models from the automobile site of SINA
(a leading web portal in China). This information was further utilized for controlling
the inherent differences among these vehicle models. Finally, it should be emphasized
that all of the 52 vehicle models were advertised in both search and non-search
advertising during the study period.
Based on the data collected as mentioned above, Table I provides the correlation
matrix listing key variables for further analysis, namely, vehicle sales volume of
2009, sales volume of 2008, non-search advertising spending, search advertising
spending, and the highest unit price. Taking consideration of the variable’s variation
and range, data used here were all normalized using z-value standardization. It can be
observed that the vehicle sales in 2008 are positively correlated with the sales in
2009. Further, the highest unit price of a vehicle model is negatively correlated with the
sales in 2009. We capture these two features in our benchmark model. Interestingly,
at this point, we cannot find any significant correlation between online advertising
spending, neither non-search nor search format, and the sales in 2009. At the same
time, the spending in search advertising is positively correlated with the spending Online
in non-search advertising. advertising
3.2 Model
Based on our research questions, it is interesting to analyze how advertising spending
can help automobile manufacturers to improve vehicle sales. The relationship between
online advertising and vehicle sales is investigated here utilizing several empirical 841
models. The results derived provide managerial insights to automobile manufacturers
in terms of evaluating online advertising effectiveness.
3.2.1 Benchmark model. In the automobile market, due to the continuity of
automobile sales, it is reasonable to assume that sales for two consequent years
are highly related. In practice, automobile manufacturers often use a previous year’s
sales as the basis to forecast next year’s sales. At the same time, vehicles sold in a
previous year, being on the road, are live exhibition to consumers, which will lead
to potential sales in the next year. Incorporating the sales of a previous year can
take care of other systematic factors impacting sales. Further, it is important to note
that the unit selling price of a vehicle model is also critical in a consumer’s purchasing
decision. In order to provide a comprehensive model, a control variable, namely, the
highest unit price of each vehicle model is also added. These assumptions agree
with the correlation analysis in Table I. Hence, a benchmark model can be established
as the following:

yi ¼ b0 þ b1 x1i þ bD Di þ ei : ði ¼ 1; . . . ; 52Þ ðBenchmark ModelÞ

Here, the index i represents a specific vehicle model. y is the sales volume of this model
in year 2009; x1 is the sales volume of this model in year 2008; and D is a control
variable denoting the highest unit selling price of this vehicle model in year 2009. This
benchmark model provides a base for further investigating the impacts of online
advertising spending on vehicle sales. In the following two sections, models with non-
search and search advertising are further introduced.
The general assumption is that advertising effect is often positive to business
performance. When market demand is not saturated, given all other conditions the
same, advertising spending should have a non-negative impact on product sales.
In other words, the more investment in advertising, the higher the sales are.
Furthermore, based on the previous literature (Wittink, 1977; Rao and Miller, 1975;
Vakratsas et al., 2004), it is claimed that the relationship between sales and advertising
can often be represented as an S-shape curve. In other words, advertising does improve

Sales Sales Non-search Search Highest


2009 2008 advertising advertising price
(y) (x1) (xNS ) (xS) (D)

Sales 2009 (y) 1 0.887*** 0.047 0.135 0.277*


Sales 2008 (x1) 0.887*** 1 0.013 0.049 0.190
Non-search advertising (xNS ) 0.047 0.013 1 0.400** 0.007
Search advertising (xS) 0.135 0.049 0.400** 1 0.009 Table I.
Highest price (D) 0.277* 0.190 0.007 0.009 1 Pearson correlation
matrix of normalized
Notes: ***po0.01; **po0.05; *po0.1 variables
MD sales, but the marginal improvement might eventually decrease. We incorporate this
52,5 assumption into our model by using a quadratic form of advertising spending.
3.2.2 Non-search advertising. Advertising spending on non-search format is
incorporated into the benchmark model. It is noted that during the data preparation
phase, by plotting sales volume against non-search advertising spending, quadratic
graph characteristic was observed. Therefore, a quadratic term of non-search
842 advertising spending is inserted into the model to capture the curvature. Explicitly,
Model I can thus be expressed as:

yi ¼ b0 þ b1 x1i þ bNS xNSi þ bNS2 x 2NSi þ bD Di þ ei : ði ¼ 1; . . . ; 52Þ ðModel IÞ

Here, the index i represents a specific vehicle model. y is still the sales volume of this
model in year 2009; and x1 is the sales volume of this model in year 2008; xNS is the
non-search advertising spending on this vehicle model in year 2009. D denotes the
highest unit selling price of this model in year 2009. All the b’s are corresponding
coefficients.
In Model I, the spending on non-search advertising is included with both a linear
and a quadratic term. The linear term can explain a direct linear relationship between
spending on non-search advertising and sales revenue. The quadratic term can further
depict a marginal effect of such relationship.
3.2.3 Search advertising. The data used for analyzing search advertising were
collected from one major search engine advertising company. Similar to the model
with non-search advertising, we add the spending of search advertising as well as its
quadratic form into the benchmark model. This Model II can thus be expressed as:

yi ¼ b0 þ b1 x1i þ bS xSi þ bS2 x2Si þ bD Di þ ei : ði ¼ 1; . . . ; 52Þ ðModel IIÞ

Here, the index i represents a specific vehicle model. y is still the sales volume of a this
model in year 2009; and x1 is the sales volume of this model in year 2008; xS is the
search advertising spending on this model in year 2009. D still denotes the highest unit
selling price of this model in year 2009. All the b’s are corresponding coefficients.
With Model I adding the non-search advertising spending and Model II adding the
search advertising spending to the benchmark model, we further explored a possibility
of combining both Models I and II. However, due to the significant correlation between
search and non-search advertising spending, the combination model suffers from
multi-collinearity problem (see detail results in the Appendix). Therefore, we focus on
presenting the results derived from Models I and II in the following section.

4. Results and discussions


SPSS was used to estimate three models: the benchmark model, Model I with non-
search advertising spending, and Model II with search advertising spending. The VIF
analysis was also included and the common threshold of VIF4 ¼ 5 is used to measure
for collinearity (Studenmund, 2011). All the models have reasonable VIF values. The
results are presented in Table II.
In the benchmark model, as expected, the sales in year 2008 is a positively
significant variable, and this benchmark model can explain 79.7 percent of the
dependent variable’s variance.
Model I is significant (R2 ¼ 0.832), and the change of R2 from the benchmark
model to Model I is significant (DR2 ¼ 0.041, po0.01), which illustrates gradual
Benchmark model Model I Model II
Online
Standardized Standardized Standardized advertising
Model coefficient VIF coefficient VIF coefficient VIF

b1 0.866*** 1.041 0.814*** 1.115 0.849*** 1.063


bNS – – 0.377*** 4.031 – –
bNS 2 – – 0.398*** 3.967 – – 843
bS – – – – 0.142* 1.556
bS2 – – – – 0.119 1.552
bD 0.105 1.041 0.102* 1.044 0.112* 1.046
R2 0.797 0.838 0.812
DR2 – 0.041*** 0.014 Table II.
F 92.506*** 58.299*** 48.450*** Results for the models
investigating non-search
Notes: ***po0.01; *po0.1 and search advertising

enhancement of explanation power with adding variables representing non-search


advertising spending. In fact, the spending on non-search advertising has a significant
positive effect on the sales of 2009. At the same time, the quadratic term of non-search
spending has a significant negative effect on the dependent variable. In other
words, the marginal effect of non-search advertising spending on vehicle sales is
decreasing. This indicates that although initial increase of spending on non-search
advertising helps with vehicle sales, the marginal effect is gradually decreasing.
Once spending reaches a threshold, sales volume might even drop with increasing
non-advertising spending.
Model II is also significant (R2 ¼ 0.812), and the spending on search advertising has
a significant positive effect on the sales volume of 2009. However, the quadratic term
of search advertising spending does not show any significance in the model. In other
words, there is no obvious pattern on the changes of the marginal effects. We can
conclude that the more investment in search advertising spending, the higher the sales
are. Therefore, this observation is quite different from the result in the analysis of
non-search advertising.
Furthermore, both Models I and II indicate that the highest unit price has a
significant negative effect on vehicle sales. In other words, an expensive vehicle often
has a lower sales volume. By comparing both models, it seems that Model I has a
stronger explanation power than the benchmark model. Another distinction between
the two models is the quadratic term of advertising spending. Non-search advertising
has a significantly negative coefficient while this is not observed in the search
advertising model.
The results from Models I and II are interesting. In practice, this might be
interpreted as a strategy to allocate advertising budget between search and non-search
formats. Business can start with investing in non-search advertising to improve sales.
Once the spending on non-search advertising exceeds a threshold, search advertising
should play a major role in order to further improve sales.

5. Extended models of search advertising


In Section 4, it is concluded that annual spending on search advertising improves
annual sales of vehicles. This is a similar result to that of non-search advertising.
However, when we investigate the marginal increasing effect of advertising, it is found
MD that the relationship between search advertising spending and sales is in the linear
52,5 format; while the relationship between non-search advertising spending and sales
shows a negative quadratic pattern. Due to the importance of search advertising to
business, we further extend Model II to validate the results by using monthly data and
adding keyword(s) search frequency.

844 5.1 Monthly data


Instead of using annual data points of sales and search advertising spending, this
section investigates the relationship between monthly sales and monthly search
advertising spending. This monthly data set thus enables us to analyze a larger sample
size.
Model II now evolves into Model III in this section, and independent variables
include both monthly sales of year 2008 and monthly spending on search advertising
in 2009. In fact, all the variables in the following model refer to monthly measurements.
Furthermore, the seasonality of automobile sales is also considered and we simply use
the month as a control variable to represent seasonality. Explicitly, Model III can
be described as:

yit ¼ b0 þ b1 x1it þ bS xSit þ bS2 x2Sit þ bD Di þ bt t þ e; ði ¼ 1 . . . 52; t ¼ 1; . . . ; 12Þ ðModel IIIÞ

Here, y it is the tth monthly sales of the ith vehicle model in year 2009; and x1it is the
tth monthly sales of the ith vehicle model in year 2008. xSit is the tth monthly spending
on search advertising for that ith vehicle model in year 2009. Di is a control variable
denoting the highest unit selling price of the ith vehicle model of year 2009. Finally,
t is a control variable indicating a specific month in 2009.
SPSS was used to estimate Model III to derive the relationship between monthly
search advertising spending and vehicle sales. The results from Model III do validate
Model II, however, there are multi-collinearity problems in Model III. The VIF values of
search advertising spending term and its quadratic term are 45. We solved this multi-
collinearity by eliminating insignificant variables. Since the quadratic term of search
advertising spending is not significant in both Models II and III, we took out this term
and re-estimated the revised Model III. The results are presented in Table III.
The revised Model III is also significant (R2 ¼ 0.612). The monthly sales of year 2008
again turns out to be a significantly positive independent variable, and the monthly
spending on search advertising also has positively significant effect on vehicle sales.
The model can explain 61.2 percent of the dependent variable’s variance. This result

Model III Revised Model III


Model Standardized coefficient VIF Standardized coefficient VIF

b1 0.730*** 1.048 0.727*** 2.431


bS 0.190*** 5.854 0.103*** 1.034
bS2 0.095 5.834 – –
bD 0.136*** 1.047 0.133*** 2.438
bt 0.065** 1.030 0.066*** 1.030
Table III. R2 0.614 0.612
Results for Model III F 196.220*** 244.067***
and revised Model III Notes: ***po0.01; **po0.05
shows the evident importance of search advertising to vehicle sales. Further, it is found Online
that the highest unit price is significant negatively related to vehicle sales and the advertising
month itself is significant positively related to vehicle sales. In other words, the more
expensive a vehicle is, the less the sales volume will be. Also, the later in the year it is,
the higher the monthly sales volume. The results on control variables are consistent
with the observations in practice. The sales volume of luxury vehicles is usually
relatively lower than that of others. Seasonality is also important which demonstrates 845
that sales volume is often higher toward the year-end.
It can be concluded that the sales of corresponding month in year 2008 is important
for the monthly sales in year 2009. This variable also takes care of the systematic
factors influencing sales, which are not studied in this research. At the same time,
monthly spending on search advertising is also critical to monthly sales. The more
investments are made through this advertising format, the higher monthly sales
volume. It is further suggested that such relationship has no observed changes in its
marginal effect. In other words, unlike the situation in non-search advertising, there
exists no threshold of spending, higher than which the effect of boosting sales would
diminish. Overall, the revised Model III with monthly data validates the results derived
in Model II.

5.2 Keywords search


In order to further improve model robustness, another investigation incorporating
searching information of vehicle model names is presented. This information is specific
to search advertising. In practice, it is often assumed that if a certain keyword – vehicle
model name – appears frequently in searches, then its corresponding sales should
increase because of the shown interest of potential purchase in frequent searches.
However, our investigation along this line shows counter-intuitive results.
The keywords search information is incorporated using the monthly number of
searches on each vehicle model name, for example, there are 450 keyword searches
of “Toyota Highlander” in January. Because these searches are often based on the
current use of the vehicle model, an interaction term of the monthly searches and the
monthly sales of the previous year is examined. We modify the revised Model III with
these keywords search information and provide the formula of Model IV:

yit ¼ b0 þ b1 x1it þ bS xSit þ bD Di þ bt t þ d1 Zit þ d2 x1it Zit


þ e; ði ¼ 1 . . . 52; t ¼ 1; . . . ; 12Þ ðModel IVÞ
Here, y it still represents the tth monthly sales of the ith vehicle model in year 2009; and
x1it is the t th monthly sales of the ith vehicle model in year 2008. xSit is the t th monthly
spending on search advertising for that ith vehicle model in year 2009. Di is a control
variable denoting the highest unit selling price of the ith vehicle model of year 2009.
t is a control variable indicating the specific month in 2009. Note that the quadratic
term of search advertising spending is no longer in the model due to its statistical
insignificant result obtained from the previous models. Zit indicates the tth monthly
number of consumer searches on the ith vehicle model in year 2009. x1itZit is an
interaction term to capture the effect of monthly searches based on the monthly sales
of the previous year.
SPSS was used to estimate Model IV including the information of search
frequencies on vehicle model names. In order to show the robustness of the results,
we tested the above equation with two slightly different variations: one only adding the
MD number of searches term, Zit; the other adding both Zit and the interaction term of
52,5 searches and the previous monthly sales, x1itZit. They generate similar results
presented in Table IV.
The full model of Model IV reaches a strong explanation power (R2 ¼ 0.612). From
Table IV, it is obvious that the number of searches on vehicle model names has no
significant effect on monthly sales. However, the interaction term of searches and the
846 previous monthly sales is positively significant related to the sales term in the model.
In other words, the monthly sales of the previous year not only have a significant
positive impact on the current monthly sales, but also have an enhancing effect
through the number of searches. In all, as the search advertising spending is concerned,
we have similar results as those in the previous models: search advertising has a
significant positive effect on vehicle sales; the effect of the highest unit price is still
negatively significant related to the sales; and the seasonality in the form of month has
a significant positive effect on vehicle sales.
Frequent searches on vehicle model names often reflect consumers’ interest in
products. It might be suggested that a vehicle model having a high level of attention
from consumers can have a high level of sales performance. However, Model IV trying
to capture the relationship between monthly searches and monthly sales provides an
insignificant result in interpreting the impact of search frequency. In order words, a
vehicle model with frequent searches on search engine might not necessarily have
a good sales performance. However, the interaction term of monthly searches and
monthly sales of the previous year does show positively significant relation to the
sales. In this case, it is concluded that the number of searches is in fact enhancing
the impact of the previous year sales. On top of its direct impact on the current sales,
the monthly sales of the previous year also couple with the number of the current
monthly searches to influence vehicle sales volume.

6. Conclusions and future directions


This study analyzes the effects of online advertising spending on automobile sales
through both search and non-search advertising. The data of vehicle sales and
advertising spending were collected to analyze several empirical models. These models
were designed to capture the relationship between vehicle sales and online advertising
spending. The purpose of this study is to evaluate the effectiveness of online
advertising in both search and non-search formats.

Model IV with only Zit Model IV With both Zit and x1itZit terms
Model Standardized coefficient VIF Standardized coefficient VIF

b1 0.726*** 1.049 0.735*** 1.049


bS 0.102*** 1.034 0.102*** 1.034
bD 0.138*** 1.292 0.144*** 1.292
bt 0.066*** 1.033 0.068*** 1.033
d1 0.011 1.247 0.041 1.247
d2 – – 0.052* 1.049
R2 0.612 0.614
Table IV. DR2 – 0.002*
Results for extended F 195.018*** 163.524***
model with
keywords search Notes: ***po0.01; *po0.1
For non-search advertising, it is found that increase in advertising spending is not Online
always beneficial to sales performance. Vehicle sales can be expressed in a quadratic advertising
function of advertising spending, and the maximum value can be reached at a
threshold of non-search advertising spending. In other words, there exists a boundary
for non-search advertising spending to justify the positive effect on sales performance.
Once the non-search advertising spending exceeds the threshold, it actually poses a
negative impact on sales volume. On the other hand, for search advertising, the 847
quadratic function is not supported statistically. Therefore, it is simply concluded that
the more spending on search advertising, the higher the sales volume.
Based on these results, automobile manufacturers in China can adjust their online
advertising strategies to better allocate advertising budgets between search and
non-search advertising. Non-search advertisements have often increased brand
awareness by being displayed on the web sites and attracting traffic from general
audiences. However, these audiences might not always have a demand for automobiles.
In other words, as the empirical model suggested, excessive spending on non-search
advertisements does not improve sale performance. Therefore, companies can start
with allocating a moderate amount of advertising budget through non-search
advertising, creating a herd effect, and thus increasing brand awareness among
consumers. On the other hand, companies can depend on search advertising later to
continuously improve its effect on vehicle sales.
It is validated by the empirical models that the spending on search advertising has a
significant positive impact on vehicle sales (Models II, III, and IV). Consumers who are
clicking search advertisements usually have strong interest in these vehicles. In fact,
these consumers are the ones who initiate the search for specific vehicle models and
they usually already have the purchase intentions. Therefore, companies need to focus
more on search advertising that often leads to immediate demand.
Other interesting results are also derived. It is validated that the sales of the
previous year or month can serve as a good predictor for the current sales. The sales
volume is relatively low when the unit price for a vehicle model is relatively high.
Furthermore, in the models of search advertising, the seasonality of sales also exists.
The later the month is of the year, the higher the sales volume.
In order to improve the model robustness for search advertising, an investigation
incorporating searching information of vehicle model names is also presented.
Frequent searches on vehicle model names often reflect elevated consumers’ interest in
products. However, the extended model suggests no direct relationship between
monthly searches and monthly sales. In order words, a vehicle model with frequent
searches on search engine might not necessarily have a good sales performance.
In fact, it is found that the number of searches is enhancing the impact of the previous
year sales on the current sales.
Online advertising strategy is critical to the automobile industry. With the fast
growing market of vehicle sales in China, an effective online advertising strategy can
provide a new opportunity to an automobile manufacturer. It is important to
understand the effects of different advertising formats. In conclusion to the results of
this research, more attentions need to be directed toward search advertising because of
its superior pull mode of information delivery. The designs of search advertisements
should directly address the purchase intention with more promotional contents. On the
contrary, the designs of non-search advertising are better off enhancing brand
awareness and introducing competitive features within a moderate budget range. The
web sites with heavy traffic would be ideal for non-search advertisements. In general, a
MD proper combination of both search and non-search advertising can accommodate
52,5 limited advertising resources with better sales performance. Models I and IV in this
paper can also be deployed as the prototypes of decision-making tools. Marketing
managers in the automobile industry can utilize the parameter estimations in these
models to justify both search and non-search advertising spending. This study thus
provides a starting point to further analyze how online advertising improves business
848 performance.
To our knowledge, this is the first study to investigate online advertising effects on
the automobile industry in China. The limitation and future directions are explained as
follows: first, all the models here are simplified to focus on one format of advertising.
The results are derived without taking consideration of interacting effects among
online and offline advertising campaigns. Second, this research needs to be extended
with obtaining panel data covering a longer time period because the current data are
just about two specific years. Third, advertising is not a one-period effort, and we can
also include effects of advertising spending from both current and previous periods.
Fourth, only sales are used in this study as the business performance indicator, and we
need to further explore online advertising effects on other critical performance
indicators. Last but not the least, the data collected are mainly from the China market,
and it will be interesting to collect similar data from different geographic markets, such
as Europe and North America, to make either validation or comparison among
different regions based on the results.
Note
1. RMB: currency unit in China, 100RMBE$16.03.

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Appendix
With Model I adding the non-search advertising spending and Model II adding the
search advertising spending to the benchmark model, we further explored a possibility of
combining both Models I and II. The model of combining both spending can be expressed
as the following:
yi ¼ b0 þ b1 x1i þ bNS xNSi þ bNS2 x2NSi þ bS xSi þ bS2 x2Si þ bD Di þ ei : ði ¼ 1; . . . ; 52Þ

The result of this model is shown in Table AI.


Combining variables
Online
Model Standardized coefficient VIF advertising
b1 0.811*** 1.122
bNS 0.339** 5.577
bNS 2 0.363*** 4.571
bS 0.056 2.201 851
bS2 0.057 1.711
bD 0.106* 1.052
R2 0.840 Table AI.
F 37.752*** Results for the model
combining both non-search
Notes: ***po0.01; *po0.1 and search advertising

The VIF analysis was also included in the above table. It was identified that this combination
model suffers from multi-collinearity problem with one VIF value 45 and another VIF very close
to 5 (Studenmund, 2011). Therefore, the paper focusses on discussing search and non-search
advertising spending, respectively.

Corresponding author
Shaoling Zhang can be contacted at: abao9@hotmail.com

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