B 9 10 1 12 Background Info "Impressions" are the number of instances that an online advertisement is displayed A "Click" is an instance of someone clicking on an advertisement Only a fraction of impressions results in clicks An "Order" is an instance of someone making a purchase Only a fraction of clicks results in orders In paid search, for a given search word, the ads for multiple companies may be displayed Ads shown in higher positions on the page result in a greater number of clicks Companies pay a certain $ amount each time a customer clicks on their ad A higher $ per click amount paid by a company gives the company a higher position on the page 13 14 15 16 Scenario You are currently in position 2 of a paid search term, the click-through rate (customer clicks per impression) is 3% and the cost per click is $1.50 17 You can get into position 1 by paying $2.00 per click. In position 1. you expect a click-though rate of 5.0% 18 In position 3 you would pay $0.50 cost per click, and have a click-though rate of 1.0% 19 Conversion rate (orders per click) once someone clicks is 10% in all 3 positions 20 Our total margin per order (before search costs) is $30 21 Our goal is to maximize absolute $ profit 2222222 23 Questions 24 A) What is the cost per order in position 2? 25 $5.00 26 27 28 29 30 31 2.00% 32 B) What is the cost per order in position 1? $4.00 C) Which of the 3 positions do you want to be in? Position 3 D) At what click through rate in position 1 are you indifferent between positions 1 and 2? E) What is the cost per order of the orders you gain by moving up from position 3 to position 2? 33 34 Please show all your analysis, and specify any assumptions you make. 35 36 37