The Effects of Price Rank on Clicks and Conversions in Product List Advertising on Online Retail Platforms

Abstract

In light of the critical role of price information in consumers’ decision making, this study investigates the effect of price rank on consumers’ responses to product list advertising (PLA). The research documents that the price rank is more influential than actual price for PLA. In addition, the research highlights a tradeoff in price-rank decisions: A price rank that drives more clicks does not necessarily lead to more conversions; to drive traffic, managers should strive for an extreme (i.e., either high or low) to elicit more clicks, then follow up with online engagement tools (e.g., cross-selling and product recommendations). To maximize direct revenue, managers instead should strive for moderate ranks to satisfy consumers’ desire for a compromise between price and quality. However, consumers without uncertainty tend to rely less on price rank, so the effects diminish among specific keywords and increase among popular keywords. In order to achieve the desired price ranks, firms participating in PLA might monitor and adjust their advertising offers. There are commonly two specific avenues: Change the product price if the required change is within a certain range or change the advertised product if the required price change is beyond a certain range.