Why sponsored online listings may be detrimental to your brand

Platforms and sellers expect the ‘sponsored’ and ‘ad’ signs to be more visually prominent and, therefore, more enticing to online consumers.

Consumers, however, tend to view sponsored listings with suspicion and often prefer to click on organic listings that appear high in their product search results but are not sponsored, said Max Joo, an Assistant Professor of Marketing at the university, and lead author of the study.

In fact, a sponsored listing can be detrimental when it replaces a seller’s organic listing that would have appeared in the top few positions in the search results. In these situations, consumers are more likely to click and purchase the same product when it appears as an organic listing.

The study was based on the analysis of 448,417 sponsored and organic listings for 8,720 unique products from a leading e-commerce platform.

According to Joo, it’s a matter of trust. “Customers don’t trust a seller’s self-promotion they perceive in sponsored listings,” explains Joo. “If there is something in the second position that is subsidised by the seller, the subsidised product is not perceived as the actual number two.”

Third-party stamp of approval

On the contrary, high-ranking organic listings come with the sense of a third-party stamp of approval. Consumers view the platform’s algorithms that rank seller listings as a credible evaluator, Joo says.

Sponsored listings, however, are still good investments in certain situations. Sponsorships can pay off when sellers’ listings organically appear far down in the consumer’s product query results and, consequently, may not be frequently exposed to consumers. 

This is because the sponsored listing may increase the seller’s exposure, and the benefits from the incremental exposure may offset the losses from the ad avoidance and per-click ad cost.

Additionally, the type of product matters. When consumers seek clothing or fashion items, they do not avoid sponsored listings because they make choices based on how the products look and worry less about the perceived trustworthiness of a seller that carries the products. 

But for products that result in future user experiences, such as consumer electronics, shoppers prefer to purchase from a trusted source. In other words, they buy from the highly ranked organic listing, the study found.

The study’s finding presents a conundrum for sellers. They do best when their organic listings appear high in the results of consumer product searches. Yet, what data is used and prioritised by the platform algorithms to produce product search results are closely regarded secrets, Joo states.

Titled ‘Do Sellers Benefit from Sponsored Product Listings? Evidence from an Online Marketplace’, the study is currently available as a working paper on the SSRN Electronic Journal. You can read more about the research here.