Beware the “Spillover” Effect: Your Online Ads Could be Helping Competitors

After all, companies that don’t will risk getting trampled by competitors whose brand names are constantly flashing in front of the eyes of the world’s 3.2 billion Internet users.

But what if online advertising actually helped your competitor more than it helped you?

It may seem like a strange proposition at first, but new research from Navdeep S. Sahni, an assistant professor of marketing at Stanford Graduate Business School, shows that CEOs and their marketing managers should think twice about what they’re putting on the web.

After analyzing online ads in the Indian restaurant industry, Sahni discovered what he refers to as the “spillover effect”, a phenomenon where a company’s ad unintentionally promotes a competitor.

Sahni’s research, encompassing 189,650 customers over a four-month period in 2010, found that the positive effect of an ad across hundreds of competitors’ sales was up to five times greater than the positive effect on the company doing the actual advertising.

“If you see one product, it may remind you of other similar competing products,” Sahni reported in Stanford’s management blog.

He conducted his research in collaboration with an Indian restaurant review website, which allowed customers to search thousands of eateries by type of menu, ratings and reviews. The site featured an array of organically arranged listings, as well as ads by individual restaurants.

Running an ad increased the sales leads of competitors by an average of 4%, a significant boost, given that each business had multiple rivals in the same market. Competitors that benefited most, with an up-to-25% boost in sales, offered similar cuisine to the advertiser, but had higher ratings scores on the website.

Sahni—who believes his findings are relevant to business more broadly—said the best way to get around the problem is to remind customers what makes your brand or business special. This could involve quoting a particularly positive review or emphasizing a key element of your value proposition, such as offering low prices.

And it appears that issuing ads more frequently can help make a better impression on the customer, too.

Sahni found no evidence of spillovers among customers exposed to an ad more than three times.