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Scale or ROI? The PPC Search Conundrum

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.

A Tale of Two Search Marketers

This article was originally published on ClickZ on January 24, 2009. I think it’s still highly current, given that this past year has revealed a major schism in the spending patterns of major PPC advertisers. Some “conservative” search marketers have responded to this difficult economic climate by drastically retrenching, while others (the “aggressive” ones) have taken advantage of the competitive void by racheting up their SEM campaigns. This article explains the merits of each approach in the current environment, which remains highly challenging.

For the last five or 10 years, SEMs specializing in paid placements nearly always increased paid search spending year-over-year. This year’s different for some marketers, and not always for the reason you might think. Today’s column is a tale of two SEMs whom I’ve talked to recently: one’s aggressive and the other’s conservative.

Some industry verticals are seeing significant drops in daily search query volume in January 2009 compared to January 2008. With consumer confidence and disposable income lower than last year, Google and other engines may not have as many searchers as last year for a whole slew of categories and industries. At the same time, other categories and industries may be picking up.

The general reduction in advertising is another factor driving a possible reduction in query volume over last year’s levels. After all, search behavior doesn’t occur in a vacuum. We’ve long seen how search and other media affect each other — both in terms of client spending and spending on the part of their competitors. Consumers exposed to a barrage of informative advertising often get curious and enter research mode, which these days means doing a search query.

It’s interesting to see just how much search volume has changed over the years. Google Trends lets you look up any keyword or phrase. Here’s one I randomly picked: Apartment rental. Google indicates that volume for this query is down to one-third of its 2004 query volume level. A travel query like Orlando also shows weakness and may get even weaker in 2009 because inauguration euphoria isn’t likely to juice up the economy all by itself.

This situation poses a challenge to search marketers. In other media, one never thinks about one marketer buying inventory away from its competition. There’s always plenty of similar inventory around. But in search, this inventory is so special that marketers are willing to cut other budgets and fight for the visibility, the click, and of course the revenue.

This illustrates Google’s position of power. Google is in the middle — between the marketer and the consumer — and it controls where the consumer goes and what the consumer sees. Compare this with the control exerted by a newspaper or a radio/TV station and you can see the contrast.

Search budgets are often set either purely based on ROI or on ROI/CPA targets and are often fixed (short-term) budgets as well. If the pie of searchers gets smaller and a marketer wants to maintain order, lead, and click volume, that marketer needs to take those clicks away from the competition by bidding higher or by bidding smarter. Bidding higher across the board on keywords will escalate CPCs (define) and unless conversion rates improve, ROI will suffer.

So, marketer number one (the aggressive marketer) will often take advantage of his superior staying power and reduce ROI to maintain or gain market share. Search is a great place to do this because, whether we like it or not, search is frequently the last touch point. Marketers who realize this and can weather the storm will find their businesses stronger after the fact. Some customers acquired during these challenging economic times will offer a lifetime customer value that makes the short-term customer acquisition costs worth it.

To effectively fight for the most profitable clicks as query volume declines, aggressive marketers may increasingly focus on analytics, technology, and campaign management. Many marketers I talk to have never been under much pressure to adopt a cherry-picking strategy for click acquisition. A bit of waste in the campaign was considered a cost of doing business.

Interestingly, the conservative marketer may need to adopt a similar focus on campaign management, analytics, and technology, but for the opposite reason. This marketer will want to trim the least profitable clicks, reducing budget and seeking out the highest ROI while maintaining a reasonable sales/lead volume.

The conservative marketer and the aggressive marketer are both trying to figure out what a click is worth before they bid on it. Keyword-level decision making no longer passes muster in this economic climate.

Regardless of whether your marketing budget got slashed or you’ve been given the imperative to kill the competition now that it’s weak, approach your search campaigns analytically and ensure you’ve got the tools and technologies in place to cherry-pick the great clicks while passing on the ones with a poor profit profile.

Learn How to Say No to Dumb Ideas

This article was originally published on ClickZ.com on January 2, 2009. It discusses how SEM and PPC specizlists should respond to requests for projects which, in the judgement of the search professional, have a dim chance of succeeding and/or a high opportunity. I think it’s still highly current because the hazards of being a “yes man” or “yes woman” have never been greater.

Have you said “no” to a dumb idea recently? If not, you may want to look back and determine whether you would have been better off if you had. We all like to say yes to clients and bosses. Sometimes the most valuable thing you can do within your organization or for your client (if you are on the agency side) is to say no. The term “yes man,” which is really gender neutral, even has a negative connotation within business. Yet, I see yes-man behavior all the time, particularly within the agency and service community.

Beware “Pet Projects”

There are always plenty of tasks and projects on any road map or agenda, many of them with a high likelihood of success. Otherwise those tasks and strategies wouldn’t have made it onto the roadmap (assuming the team putting the roadmap together was competent). Yet it isn’t unusual to see a strong personality on a team or outside supervisor suddenly derail a highly profitable project plan with some pet project. Saying no is scary, but as a professional who knows your way around search marketing and online marketing, you have a responsibility to point out flaws in a change in direction that has a poor predicted outcome.

Saying no or at least learning how to argue for the optimal solution is a skill that’s vanishing. It’s time to bring it back. This skill is actually both knowing when to say no and how to present a cogent argument as to why a new path is inferior to an existing one. It’s rarely taught but among my team it’s become one of the major predictors of an account manager’s success. Interestingly, the same seems to be true on the client side. I’m not talking about an abrasive personality that just says no and doesn’t support the utterance with facts. I’m talking about a person who feels comfortable enough with his/her level of expertise on a subject to assertively make the case for a position.

Remember: You’re Being Paid For Your Expertise

Sure, saying no feels dangerous. And there’s still a decent chance that a superior or client will override your objections. In reality, once you become a search marketing professional, your opinions (backed up by experience and expertise) are what you get paid for. There are a multitude of tasks and strategies to implement both within a search marketing campaign and within a company. Many of the failures in campaigns and within companies could have been avoided if experts who had the expertise and data to avert disaster had spoken up and convincingly made their case.

Some agencies in the online marketing space seem to have decided that any time a client asks for something, that agency should do it, even if such a project is at the fringes or completely outside their area of expertise. The same thing happens at the investor level. We’ve all seen agencies take on new investment (nothing against all you venture capitalists out there), along with either board of director control or at least significant board presence, and suddenly that firm is moving in directions counter to its brand, competence, and experience.

Fully Analyze the Cost of Changing Directions

The question becomes how do you present your case when you think a campaign is about to go off track due to a “pet project” inserted by a well-meaning senior manager or a client. The first method that can be effective is the pros and cons discussion. Often called the “Ben Franklin technique,” you create a list of pros and cons and weigh them individually and as a group to assist the team and the pet project’s owner to understand the dynamic. Another method that I actually prefer is an opportunity cost analysis. Opportunity cost is an analysis examining the missed opportunity of taking one path over another when working with limited resources. A good opportunity analysis includes an in-depth look at expected returns of the options presented. For example, the long-shot pet project might have a low chance of success but a high payout in the unlikely event that it’s successful. By multiplying the percentage chance of success against the value of the successful project/idea, one gets an expected net present value of the project. While risky projects may not be inherently bad — if they divert the team from a lower-risk project with a good expected return — the opportunity cost of changing direction may be unacceptably high.

Search Engine Reps Will Never Have Your Unique Expertise

Interestingly, as a search marketing expert, your responsibilities include protecting the marketing budget and campaign from outside influences who promote projects that have a low expected return. Those projects sometimes come from alternate agencies, bosses, media vendors, or in our case, the search engine reps. Some sales reps at the search engines have never tried to run a search campaign themselves.

So, beware when the management at a search engine decides to package up a new traffic opportunity, and sends the reps out to convince your team to opt into a setting that brings in more traffic be it contextual behavioral, video, audio, maps, advanced matching, or an extended match type. Make sure you fully weigh the costs against the promised opportunity before proceeding. Sure, testing new things is key to a campaign’s success, but only you have the expertise to evaluate the tests worth exploring, determine the order, and select the vendors. Use your experience to guide your campaign to optimal profit, even if it means that you must sometimes say no.