Hotels Benefit When Distributors Reference the Hotel’s Trademark in Keyword Ad Copy

By Eric Goldman

Lesley Chiou of Occidental College and Catherine Tucker of MIT have posted an empirical study, How Does the Use of Trademarks by Third-Party Sellers Affect Online Search? The study tries to model what happens when distributors use a manufacturer’s trademark in keyword ad copy, specifically by looking at data for the hotel industry.

This intra-channel conflict was exacerbated by Google’s 2009 trademark policy change that meant manufacturers could not prevent channel members and aggregators from using the third party manufacturer’s trademark in their keyword ad copy. Trademark owners did plenty of teeth gnashing about this change, and that change (plus the Rescuecom Second Circuit decision) helped open the floodgates of trademark litigation against Google that peaked with a dozen pending lawsuits.

As usual with empirical studies, we could debate the data, the assumptions and the conclusions in this study. Acknowledging these limitations, the article reaches a provocative yet perhaps intuitive conclusion that trademark owners were unnecessarily freaking out about Google’s policy change. According to this study, when travel distributors/aggregators reference specific hotel trademarks in their ad copy, the hotel sees a slight reduction in the clicks on the hotel’s own ad but simultaneously gets a more significant increase in the clicks on the hotel’s organic listing. Effectively, then, when channel members include the upstream “manufacturer’s” trademark in their ad copy, it indirectly contributes to the manufacturer getting more users for “free” (i.e., by clicking on the free organic links instead of the CPC links). As the article says:

when third-party ads started displaying the brand name, this encouraged search engine users to click directly on the main link to the branded website. This change in click-through behavior for the main non-paid link after a change in the composition of paid search ads suggests that there are spillovers from the presence of a branded search ad to that brand’s main non-sponsored link.

I discuss spillover effects from keyword advertising in more detail in my Brand Spillovers article.

The article offers some social science theories to try to explain this phenomenon. I personally didn’t find the explanations compelling, but they are worth considering if you are thinking about this topic.

If we find these empirical results credible, I can see some implications:

1) TM owners should be *encouraging*, not discouraging, its channel members to reference its trademarks in keyword ad copy.

2) Aggregators/distributors might decide it’s not in their best interests to include the actual trademark in the ad copy, even if Google’s policy lets them do so. The article suggests that these advertisers may drop poor-performing ads over time, so advertisers may be reaching this conclusion independently.

3) This article supports the cases that have found that keyword ads aren’t likely to cause consumer confusion (e.g., the trial findings in College Networks and Fair Isaacs cases and the summary judgment in the Rosetta Stone case).

4) It would be ridiculous to hold search engines liable for trademark infringement from keyword advertising when the keyword advertising may be creating positive spillovers for the trademark owner. I explore the possibility of trademark owner duplicity in my Brand Spillovers article.

The article doesn’t address the implications where channel members purchased a trademarked keyword but don’t show the trademark in the ad copy. That issue is just one of many unresolved questions about consumer perceptions of and interactions with keyword advertising.

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The article abstract:

Should firms who want to promote their direct channel allow the use of their trademarked brand name by third-party sellers of their products? This paper examines this question empirically using a natural experiment in advertising on search engines. In June 2009, Google started allowing any third-party reseller for a product to use a trademark, such as “Doubletree,” in the text of its ad, even if the reseller did not have the trademark owner’s permission. We study the effects of this practice within the hotel industry. We find some evidence that allowing third-party sellers to use a trademark in their online search advertising did indeed divert clicks from the hoteliers’ paid search ads. However, this decrease in paid clicks was more than outweighed by an increase in consumers clicking on the unpaid links to the hotelier’s website within the main search results. We provide evidence from both historical data and a lab experiment as to why this occurs. When third-party sellers focus on the trademarked brand in their ads, this distracts from their own low-price marketing message, and customers are consequently more likely to buy from the direct channel.

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