This article was originally published on ClickZ on January 30, 2009, and I think its lessons remain highly current. Even today, too few PPC search professionals truly understand the dynamics of the auction-driven keyword ecosystem of Google and the other search engines or how to make optimal tradeoffs between campaign ROI and campaign scale.
Would you prefer a high-volume, high-revenue search campaign or a high-ROI, low-revenue campaign? Many top marketing executives don’t understand that it requires a combination of technology tactics and strategies to even come close to achieving both. There are inherent limitations to the PPC search ecosystem that constrain volume/scale. If your managers don’t understand this fact, it will come back to bite them, not just in search but increasingly in other online media.
In 2009 — more than ever before — marketers and their executive managers must understand the dynamics of auction-driven media marketplaces. Too many senior managers fail to understand how Google works. Because Google is the general paid-placement model for the overall industry, accounting for the lion’s share of available inventory, misunderstanding Google means misunderstanding search. We could forgive them this lapse if search wasn’t so material to their survival amid the prevailing economic uncertainty.
Both consumers and larger marketers are slower than they should be in adopting technology, and many marketers are only beginning to leverage digital marketing’s power. Case in point: at the Kmart in New York City’s Penn Station this week, the cashiers were more aggressively asking for e-mail addresses to receive a $10 coupon via e-mail. This had happened sporadically in the past and perhaps the cash registers were reminding cashiers or management was pushing for greater compliance, but the cashier asked the couple ahead of me, both in their 60s. The couple said (perhaps truthfully) that they didn’t have an e-mail address. Curious as to what providing my e-mail address would get me, I gave mine. Today I got a multichannel offer: two $5 coupons, one for online and one for offline. Sure, this should have happened 10 years ago, but better late than never.
With consumer confidence at an all-time low and daily news of massive layoffs, even the employed consumer is changing behaviors. Purchases are made more cautiously, and previously planned purchases may not be made at all. No one knows yet whether this will result in a shortage of search impressions or a drop in conversion rates. In any case, this isn’t the year for simply tweaking current campaigns.
This year, failure to understand the implications of budget decisions with regard to search could be the difference between success and failure of both a marketing campaign and a company.
At most companies, senior management grew up with traditional media. Sure, they use search engines every day. But when it comes to understanding the fundamentals of an auction-based media environment, they have trouble wrapping their heads around the auction-based media environment’s most basic concepts. For example, they don’t understand that you don’t buy a click from Google, Yahoo, or Microsoft; you buy it away from your competition. Even if your competitors don’t react to any perceived loss in position, you still lose ROI if you bid higher for higher position and click volume, unless with your specific campaign dynamic the conversion rate rises as position rises. (This phenomenon exists in some cases but typically disappears as you get close to the top spot due to compulsive clickers who click on high-ranking listings without reading them thoroughly.)
In any case, there’s certainly no position higher than the first, which limits any search marketer from growing volume on a particular keyword beyond a certain level. After exhausting CTR (define) improvements, that marketer must move to other keywords and engines and face the same problem with each of those.
Senior marketing executives understand they are in a fight for the consumer’s share of attention and share of wallet. Nowhere is this fight more obvious in auction-based media than when a consumer is ready to make a purchase decision. For most products and services, only one marketer gets the sale or lead. So any time you don’t get the sale, your competition does.
In the past, it wasn’t unusual to have a major marketer call up, ask to double their budget, and maintain the measured online ROI — immediately. Have we gotten there for clients? Absolutely, but it takes work. These days, with marketing budgets in jeopardy, marketers are more frequently asking, “How do I cut my Google bill without losing sales revenue?” The same challenges apply in an auction-based media market, and again, achieving the goal of lower spending without revenue loss is possible, but it often takes more than a day (unless the marketer is bidding manually).
Marketing executives must understand the auction-media marketplace, because the proliferation of ad exchanges means they’ll have an opportunity to buy more media in that way.