Advertisers who advertise to increase sales can unknowingly assist their competitors.
Advertising can boost sales but can also promote competitors unintentionally.
Navdeep Navdeep, Associate Professor of Marketing at Stanford Graduate School of Business, discovered this “spillover” effect by conducting field experiments examining banner ads online. The cumulative effect of advertising on hundreds of companies was, in some cases, five times greater than the effect that the company did.
Sahni: “If you look at one product it might remind you of similar products that you’ve seen before.”
Sahni’s findings apply to all marketers who want to assess the impact of advertising. Spillover is likely to occur because consumers make mental associations beyond their impression of the advertised brand. Sahni’s research, published recently in the Journal of Marketing Research, says that when you see one object, you are reminded of related things.
Sahni conducted 11 random field experiments with a website that lists a wide range of restaurants in India. Customers can search for thousands of restaurants based on menu type, reviews, and ratings. The site also features ads and organically-arranged listings. In 2010, most website users didn’t order online but instead called restaurants to place reservations or order meals for pickup or delivery. Sahni collected data from 189,650 people over four months.
Sahni could control which ads were displayed and track the click-through patterns of users using this experimental design. He could also see that if users clicked on a restaurant phone number to get the number of a particular restaurant, this was a “sales lead” strongly linked to actual orders.
Sahni discovered that advertising increased sales leads for individual competitors on average by 4%. This translated into a significant effect, especially when each advertiser has multiple competitors in the same market. Sahni discovered that the cumulative sales increase of competitors was five times greater than the sales increase for the advertiser. Individual competitors who benefited the most — up to 25% in sales boost — had menus similar to those of the advertiser and rated as high-quality on the website.
Spillover sales did not increase at restaurants with menus similar to the advertiser, but which were already known. Sahni believes this is because “if the chain is well-known, people who are going to purchase from it already think of it.”
Sahni suggests that advertisers can prevent spillovers by rethinking their advertising content and highlighting what differentiates their restaurant from the competition. Also, they should consider what customers value. The ad might quote a particularly favorable expert review if the advertiser believes their audience loves experts’ opinions. The ad can emphasize the low prices if its customers are price-conscious. Sahni says that to convert an impression into sales, you need to be better than the competition your ad reminds people of. You will get more deals if you convince consumers you are better than your competition.
Marketers can reduce spillovers by increasing their frequency of displaying ads. This creates more impressions with the consumer. Sahni’s experiments revealed that low-frequency ads, or less than three exposures per ad, helped rivals gain sales. However, higher advertising frequency helped advertisers overcome spillovers and boost sales. In his research, Sahni found that customers exposed to ads more than three times did not experience spillovers.