Research
As online commerce continues to grow, advertisers are spending a lot of money trying to influence customer choices. A company’s success depends not only on understanding what consumers want but also on how shoppers search for what they want.
According to new research from Andrey Simonov, the Gary Winnick and Martin Granoff Associate Professor of Business at Columbia Business School, existing explanations of how consumers seek out products ignore a crucial distinction: whether consumers search for a product actively by themselves or discover it passively through an ad.
Traditional descriptions of consumer behavior depict an active search process. If a shopper is looking to buy a new T-shirt, they’ll open their browser and explore — starting with the product they’re most interested in. Under this framework, companies can interpret a lot about how a consumer sees their product based on where it appears in the search process. The earlier the customer seeks out an item, the more they like it and the more likely they are to buy it.
Simonov and his colleagues hypothesized that active search reflects only one way that consumers shop online. Search can also be more fluid and passive. A customer may stumble upon a pair of shoes in an email ad and click out of curiosity. They may scroll on social media and happen upon a cool-looking cardigan. If consumers sometimes click more randomly, then we may not be able to tell as much about their preferences from their search process as we think.
The researchers evaluated the complete browsing histories of a group of 4,612 representative consumers in the Netherlands over a period of three and a half months, focusing on apparel purchases. Since the URL addresses of websites contain snippets that reveal how a consumer arrives on the page, Simonov could distinguish between organic and ad-initiated searches.
Overall, the data suggest two main trends: Many consumers searched for products passively, driven by ads rather than an active plan, but these searches were also lower quality.
- Prevalence of passive search A majority of website arrivals in the apparel category, 53 percent, were a result of a consumer passively clicking on an ad. These ad visits were more likely to occur early on in the search process and were almost always to a brand the consumer didn’t know. Consumers often encountered ads when they checked email or social media rather than actively searching for products.
- Lower quality of passive search Consumers spent less time on sites they were led to via ads. They were also less likely to buy products they encountered. Though passive visits to websites represented a majority of visits, they led to only 29 percent of transactions. As opposed to active searches, a consumer who passively clicked on an ad early on didn’t necessarily favor the product more than competitors they investigated later.
Simonov and his colleagues went on to incorporate these insights into a model that estimates consumer search costs and product tastes. Unlike standard search theories, their model reflects that consumers also encounter products passively via ads and captures the lower quality of these ad initiated searches. The unified model of active and passive search fits the data well and allows firms to correctly measure consumer preferences and incorporate these estimates into their models of pricing and advertising.