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Agency Compensation Models in Search Engine Advertising - a Multiple Case Study Agency Compensation Models in Search Engine Advertising - A Multiple Case Study International Business Master's thesis Karoliina Heinonen 2015 Department of Management Studies Aalto University School of Business Powered by TCPDF (www.tcpdf.org) Aalto University, P.O. BOX 11000, 00076 AALTO www.aalto.fi Abstract of master’s thesis Author Karoliina Heinonen Title of thesis Agency Compensation Models in Search Engine Advertising – A Multiple Case Study Degree MScBA Degree programme International Business Thesis advisor(s) Chris Rowell, Kristiina Mäkelä Year of approval 2015 Number of pages 119 Language English Objectives The objective of this study was to investigate what agency compensation models are available for search engine advertising (SEA) in the Finnish market and explain the rationale and selection process for why certain models are being used. This is deemed highly important and current as SEA is now globally estimated to be the most popular form of digital marketing available for firms of all sizes, and these functions are suggested to be often outsourced to advertising agencies due to their high complexity. This study uses and tests agency theory as a theoretical lens to examine how the interests of an advertising client and its agency can be aligned to motivate the agency to work in the client’s best interest. Agency theory was deemed a particularly useful framework to examine SEA compensation models as it has been often used for the similar objective of examining what compensation schemes are most suitable for various contexts and helping predict how various models affect managerial behaviour. Methodology The empirical research was conducted as a multiple case study. The primary, qualitative data for the study was gathered through themed interviews with key model selection influencing respondents from 8 search engine marketing, digital and media agencies operating in the Finnish market. The study is primarily deductive whereby a theoretical model is developed by combining both agency theory and related theoretical extensions. The model is then retrospectively tested in the empirical setting to evaluate its ability to predict and explain compensation model selection decisions for the SEA context. Key Findings The findings of this study revealed 7 different compensation models being used in the Finnish market with one of them, namely the New Commission, being completely new to extant literature. The findings revealed that no compensation models was considered ideal and that the model selection decision is driven by agencies and clients making tradeoffs between what desirable features they consider most important. The importance of each desirable feature is affected by a large number of moderating and boundary contextual factors that affect desirable feature valuation both in the beginning of the relationship as well as when the relationship progresses. Agency theory was found to be a sound predictor of the nature of compensation models in the beginning of the relationship but its predictive and explanatory capabilities reduced as the relationship progressed. This is due to the theories inability to explain the changes in feature evaluation over time or encompass the meaning of trust in the agency-client relationship. Keywords agency compensation models, search engine advertising, agency theory 1 Aalto University, P.O. BOX 11000, 00076 AALTO www.aalto.fi Abstract of master’s thesis Tekijä Karoliina Heinonen Työn nimi Toimistojen palkkiomallit hakukonemainonnassa - monitapaustutkimus Tutkinto MScBA Koulutusohjelma Management and International Business Työn ohjaaja(t) Chris Rowell, Kristiina Mäkelä Hyväksymisvuosi 2015 Sivumäärä 119 Kieli englanti Tavoitteet Tämän tutkimuksen tavoitteena oli selvittää, minkälaisia palkkiomalleja hakukone-, digi-, ja media toimistoilla on Suomen markkinoilla saatavilla hakusanamainontaa varten sekä selvittää miksi ja kuinka tietty palkkiomalli valitaan. Tämä on erittäin tärkeää ja ajankohtaista, koska hakukonemainonnan arvioidaan olevan tällä hetkellä maailmanlaajuisesti suosituin digitaalisen markkinoinnin muoto kaiken kokoisille yrityksille ja koska hakukonemainonta usein ulkoistetaan monimutkaisuutensa vuoksi. Tämä tutkimus käyttää ja testaa agenttiteoriaa teoreettisena näkökulmana selvittämään, kuinka mainostavan asiakkaan ja sen käyttämän toimiston intressit voidaan yhdenmukaistaa, jotta toimisto on motivoitunut toimimaan asiakkaansa eduksi. Agenttiteoriaa pidettiin hyödyllisenä viitekehyksenä tutkimaan hakukonemainonnan palkkiomalleja, koska sitä on usein käytetty vastaavanlaiseen tavoitteeseen eli selvittämään, mitkä palkkiomallit ovat soveliaimpia erilaisiin olosuhteisiin sekä ennustamaan, kuinka mallit vaikuttavat johtamiskäyttäytymiseen. Metodologia Tutkimuksen empiirinen osuus toteutettiin monitapaustutkimuksena. Primääri, laadullinen tutkimusaineisto kerättiin haastattelemalla palkkiomalleihin vaikuttavia henkilöitä kahdeksassa eri Suomen markkinoilla toimivissa hakukone-, digi-, ja mediatoimistoissa. Tutkimus on pääsääntöisesti deduktiivnen eli siinä rakennetaan teoreettinen malli hakukonemainonnan palkkiomallien määräytymisestä yhdistelemällä agenttiteoriaa sekä sen laajennuksia. Teoreettista mallia testataan empiirisessä kontekstissa arvioimaan, kuinka hyvin se pystyy ennustamaan sekä selittämään palkkiomallien valikoitumista hakukonemainonnassa. Keskeisimmät löydökset Tulokset paljastivat seitsemän eri palkkiomallin olevan käytössä Suomen markkinoilla ja että yksi niistä, “uusi komissio”, on kirjallisuudelle kokonaan uusi. Löydökset osoittivat, ettei mitään näistä palkkiomalleista pidetty erinomaisena, vaan että jokaisen kohdalla oli tehtävä kompromissejä eri toivottavien ominaisuuksien tärkeyden suhteen. Jokaisen toivottavan ominaisuuden tärkeysarvioon vaikuttaa suuri määrä kontekstuaalisia tekijöitä sekä asiakassuhteen alussa että sen edetessä. Agenttiteorian todettiin olevan hyvä ennustamaan palkkiomalleja asiakassuhteen alussa, mutta sen ennustus- ja selityskyky heikkenevät asiakassuhteen edetessä. Tämän todettiin johtuvan agenttitoerian kykenemättömyyydestä selittämään eri ominaisuuksien tärkeyden muuttumista asiakassuhteen aikana tai käsittämään luottamuksen merkitystä asiakassuhteessa. Avainsanat toimistojen palkkiomallit, hakukonemainonta, agenttiteoria 2 CONTENTS INTRODUCTION ................................................................................................................... 6 1.1 Background ................................................................................................................... 6 1.2 Research Problem and Gap ........................................................................................... 7 1.3 Research Questions and Objectives .............................................................................. 9 1.4 Limitations .................................................................................................................. 10 1.5 Structure of the Thesis ................................................................................................ 10 LITERATURE REVIEW ..................................................................................................... 12 2.1 Agency Theory ............................................................................................................ 12 2.1.1 Agency Theory Overview .................................................................................... 12 2.1.2 The Adverse Selection Problem: The Hidden Information Model ...................... 14 2.1.3 The Moral Hazard Problem: The Hidden Action Model ..................................... 15 2.1.4 Behaviour-based and Outcome-based Contracts in Agency Theory .................... 16 2.2 Advertising Agency Business Context ........................................................................ 18 2.2.1 Trends in Digital Advertising and Search Engine Advertising ............................ 18 2.2.2 Agency Organization and Functions .................................................................... 21 2.2.3 Relationship Marketing in the Professional Services Businesses ........................ 22 2.3 Agency Theory in Advertising .................................................................................... 23 2.3.1 Advertising Agency Compensation Scheme Types ............................................. 24 2.3.2 Changes to Advertising Agency Compensation Schemes ................................... 27 2.3.3 Determinants of Advertising Agency Compensation Schemes ........................... 28 2.3.4 Summary of Issues Unaddressed by Agency Theory ........................................... 34 2.4 Agency Theory Criticism and Complimentary Theories ............................................ 35 2.4.1 Trust Literature Perspective ................................................................................. 36 2.4.2 Stakeholder Theory Perspective ........................................................................... 38 2.4.3 Institutional Theory Perspective ........................................................................... 39 2.4.4 Prospect Theory Perspective ................................................................................ 39 2.4.5 Agency Switching Costs ...................................................................................... 40 2.5 Literature Summary & Theoretical Framework .......................................................... 43 METHODOLOGY ...............................................................................................................
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