As crowdfunding and e-commerce platforms, such as eBay and Amazon, continue to grow, the number of tools that entrepreneurs and sellers have at their disposal to interact with customers and crowdfunding backers increases as well.
Haoyan Sun, assistant professor in the Decision and Technology Analytics (DATA) Department, is studying those platform dynamics to determine just how much of an impact they make. To attract individual online buyers on an e-commerce platform, what’s more effective: sponsored searches or social media endorsements? Does communication between entrepreneurs and potential backers affect support for crowdfunding?
For sponsored searches, much like Google, whenever potential buyers search for a product on an e-commerce site, a list comes up of third-party sellers paying to be included at, or near, the top of the results page. Those sellers appear before those who do not pay for search listings. A social media endorsement is exactly what it sounds like—a person on social media recommends a product with a link to the item on an e-commerce platform.
The Online Marketplace
In “An Empirical Analysis of Seller Advertising Strategies in an Online Marketplace,” forthcoming in Information Systems Research, Sun and fellow researchers Ming Fan and Yong Tan, of the University of Washington, found that both sponsored searches and social media endorsements are significant in attracting online traffic. While Sun’s research, using data from Chinese e-commerce retailer Alibaba, finds both advertising methods successful, it also shows sponsored search is more effective than social media endorsement in terms of the online traffic brought to the platform.
“Sponsored search is only shown after a user has typed the keywords,” Sun says. “It’s very precise. It’s targeted to people who already have the purchase intention. Social media endorsements have a more general audience. You don’t really know who would be attracted to your platforms.”
Sponsored search is also more effective for sellers with low ratings, whereas social media endorsement saw similar traffic regardless of a seller’s reputation. As far as sales go, Sun found sponsored search has a significant and positive impact. Social media endorsement may attract a lot of people to the site, Sun says, but many don’t end up making a purchase.
“If [sellers] can pay the platform to let them be at the front of the list, then they can expose themselves to the general public more frequently,” Sun says. “They use sponsored search ads to get [their product] in front of this organic search list that was generated by the platform itself based on a lot of reasons. It could be high reputation or the length of time this product has sold or the popularity of this product.”
With Alibaba, sellers pay the social media endorser only after the buyer clicks through the link, reaches their storefront and buys the product. Sun says the formula varies among e-commerce sites, but for the data set they used, endorsers didn’t receive payment simply for a link click.
In other research, Sun and her coauthors try to quantify the effect of Alibaba’s free chat box, which allows buyers to talk directly to sellers, on the final conversion rate. The amount of effort—one seller might have only a 50% response rate, while another with a larger staff has a 100% response rate—is taken into account. In other words, does the amount of time that sellers spend in answering buyers’ questions translate into sales? Sun says the research indicates that the higher the response rate, the higher the conversation rate.
Sun and her coauthors also continue to study whether featured discussion boards help facilitate donors’ backing of projects.
“If there are positive sentiments revealed, would it help the starter to attract more backers, and then reach their funding goal quickly?” Sun says the researchers are asking. “And if there is negative sentiment on the discussion board, would that hurt the starter?”
Why it matters: Studying the behavior of consumers and crowdfunding backers on online platforms can lead to more success for businesses and entrepreneurs.
Illustration by Richard Mia/the ISpot