Agency compensation models in search engine advertising - a multiple case study

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School of Business | Master's thesis
International Business
Kansainvälinen liiketoiminta
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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.
agency compensation models, search engine advertising, agency theory
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