Attribution Strategies and Return on Keyword Investment in Paid Search Advertising

Firms use different attribution strategies such as last-click or first-click attribution to assign conversion credits to search keywords that appear in their consumers’ paths to purchase. These attributed credits impact a firm’s future bidding and budget allocations among keywords and, in turn, determine the overall return-on-investment of search campaigns. In this paper, we model the relationship among the advertiser’s bidding decision for keywords, the search engine’s ranking decision for these keywords, and the consumer’s click-through rate and conversion rate on each keyword, and analyze the impact of the attribution strategy on the overall return-on-investment of paid search advertising. We estimate our simultaneous equations model using a six-month panel data of several hundred keywords from an online jewelry retailer. The data comprises a quasi-experiment as the firm changed attribution strategy from last-click to first-click attribution halfway through the data window. Our results show that returns for keyword investments vary significantly under the different attribution strategies. For the focal firm, first-click attribution leads to lower revenue returns and a more pronounced decrease for more specific keywords. Our policy simulation exercise shows how the firm can increase its overall returns by better attributing the real contribution of keywords. We discuss how an appropriate attribution strategy can help firms to better target customers and lower acquisition costs in the context of paid search advertising. Data, as supplemental material, are available at https://doi.org/10.1287/mksc.2016.0987 .