Amplifying the impact of digital advertising : the role of published sales rankings

This paper investigates the ability of published sales rankings to enhance, or amplify, the effectiveness of digital advertising. The rank amplification mechanism is that advertising increases sales, which in turn enhances the sales rank of the product. This information is published and seen by potential customers, increasing sales further. Therefore this research aims to unify the emerging literature on digital advertising and the concept of social learning. We study the case of Facebook advertising for a smart phone app. The app is sold on Apple’s App Store and its rank is published on that website. We find the rank amplification effect is real and managerially important. In fact the rank effect component of the mechanism is larger than the direct advertising effect, raising the total ROI of advertising significantly. We explore two implications of rank amplification. First, we find through simulation that rank amplification increases industry concentration. Second, we find using a dynamic optimization that rank amplification increases profits but not necessarily advertising spend due to free-riding the rank amplification mechanism. Our findings suggest that rank amplification should be considered in the planning and evaluation of digital advertising