Over the past few years, paid search has established itself as one of the key weapons in the online marketer's armoury, and it's not difficult to see why.
Paid search appeals to companies for a number of reasons. It gives brands the ability to drive traffic to their websites, based on search terms that are likely to appeal to their target audience. If a brand specialises in vintage car repairs, for example, it will probably feel that it's worth bidding more to be at the top of the paid results when someone searches on that exact phrase.
Marketers can also exercise a degree of control with paid search, as they can see how much money they need to bid on a word or phrase in order to appear at the top of the returned sponsored results. Monthly, weekly or even daily budget caps can be set on given search terms, to ensure that the budget is not overspent by a higher-than-expected response.
Third, and most importantly, it's accountable. Web-tracking tools allow direct marketers to see which words and phrases are working best to drive traffic, and those that work best in terms of conversion to sales. These issues will be under the spotlight at next month's Technology for Marketing show at Olympia, London, which will feature a search marketing clinic for the first time (see box, page 48).
RISING PRICES
However, one issue is looming that could burst the paid-search bubble. In some sectors, paid search is becoming so competitive that prices for popular keywords are rising dramatically. If brands are bidding £3 per click on the term "car insurance" for example, and it takes 100 click-throughs to generate one sale, then you don't have to be an accountant to work out that the cost of acquiring the customer is going to be more than the value of the sale. In actuality, at 4pm on 22 November last year, to finish in first position on Yahoo UK for the term "car insurance" would have cost brands as much as £6.08 per click.
So what is driving the rise in paid search prices, and what, if anything, can marketers do about it? Andy Atkins-Kruger, managing director of multi-lingual search marketing agency Webcertain, says that in the travel sector, one of the areas the company specialises in, paid-search price rises are seasonal.
"You tend to go through these ridiculous periods, where people pile in and spend unwisely and push the prices up," he says. "People generally pay what they can afford to pay, but for a period of time, they will overpay until they figure out the right price to pay, so you see markets going over the top and then settling down. The problem comes when people don't realise that what they are paying is not affordable."
Simon Norris, a director of pay-per-click management company Periscopix, says the price rises are a natural consequence of competition, as more companies enter the paid-search market.
"Even if the community of paid-search advertisers remained the same size, the natural desire to be at the top of the paid-search results would drive prices up," he says. "The fact that you have new companies coming in to the market all the time just exacerbates the problem."
While marketers have the option of withdrawing from the paid search market when prices get too high, there's little they can do to exert any downward influence on the prices being bid for any given keyword or phrase that a consumer might search on.
So what can they do to avoid being caught up in the bidding war? One answer lies in the use of more precise search terms. According to Nigel Leggatt, direct marketing manager for Microsoft AdCentre, internet users who typically searched on a phrase of two or three words a year ago, are now searching on phrases of between five and eight words. So paid-search advertisers should be looking at more precise terms to attract people who have a greater propensity to convert to a sale. Rather than bidding on "cheap flights", for example, advertisers should bid on "cheap flights from London Gatwick to Barcelona."
An added benefit is that the more precise the term, the lower the cost of the keyword. For example, to finish in first position for paid search on the phrase "Cape Town Hotels" on Yahoo UK last November would have cost 71p per click, while first position for the phrase "Portswood Hotel Cape Town" would have cost just 38p per click.
"Some advertisers are finding that they can't deliver ROI on some of the core generic terms in their industries," says Leggatt. "But the increasing sophistication of internet users means that marketers can start bidding on 'the tail', on more complete phrases where they will get a lower-click-through rate, but much higher conversion rates".
Mike Rogers, chief executive of paid search company Optimize, advises companies to "chase the tail" to take some of the volatility out of the market. Another tactic, he says, is to look beyond the first few positions in the paid results. "Don't assume that chasing the top positions is always the best thing to do," says Rogers. "Just dropping down a position can reduce the cost-per-click."
ANALYSE THIS
Another weapon that online marketers can employ, says Neil Morgan, managing director of paid search company Omniture, is measurement and analysis. While paid-search advertisers tend to look closely at click-through rates, he says, they often ignore conversion rates. This means that they don't know whether the phrases that are driving traffic are also driving sales.
"The top words and phrases for click-throughs are not usually the top words and phrases for revenue," he says. "These tend to be much more specific, so marketers need to measure the performance of each keyword for click-through and conversion, and optimise on that."
US airline JetBlue claims it has reduced its cost-per-conversion by 94 per cent since it deployed Omniture's SearchCenter and SiteCatalyst solutions to manage about 4,000 Google keywords. The software enabled the company to analyse which keywords were working and those that were not, and optimise its paid search activities on the best-performing keywords.
Matthew Wymer, head of planning at interactive agency Green Cathedral, says that some of the more generic keywords can be massively expensive. "We would never recommend not bidding on them, but being able to track through to semi-specific and specific keywords against the revenue generated by those keywords is now vitally important," he says.
As well as honing search phrases and analysing the results of each keyword, Wymer says direct marketers should give some thought to the landing page that a paid-search result takes customers to. This is particularly important since Google recently toughened its stance on landing pages and made them one of the factors that influences the position of the ad in the paid results. Google does not base the position on bid price alone, but on other factors, such as the content and relevance of the ad, and landing page design.
In the majority of cases, the landing page will be the most relevant existing page on the website for the product or service, but if a firm is promoting something heavily, it can be worth investing in a dedicated landing page or microsite, which links to other pages on the site.
"Obviously, you can't do it for every keyword, but this is one of the things we're having to do to counteract keyword price inflation," says Wymer.
The other tool at the marketer's disposal is, of course, the website itself. However firmly brands believe in the value of paid-search advertising, if their sites are not optimised to finish near the top of the 'organic' or unpaid search results, brands are missing a trick, says Webcertain's Atkins-Kruger.
"Many companies have never invested in the development of their site for organic benefits and have focused purely on the pay-per-click (PPC) model," he says. "But successful organic sites will always be more competitive and tend to convert better for PPC because they are designed more around the user."
Optimising a site for search-engine visibility is something best done when the site is being built, of course, but Bob Price, head of European operations at search-engine optimisation company Your Amigo, says owners of badly-optimised 'legacy' sites need not despair. Your Amigo has developed a system that, 'retrofits' optimisation to a website. The technology works by analysing the site top to bottom, then building a view of the site that has optimisation rules applied to it against the current optimisation best-practice criteria. As the criteria change, so can the rules. The system also carries out gap-analysis between important words on the site and the way people search on the web, and then repackages areas within the site to create new unique pages based on these search terms.
For example, Your Amigo found that for one client, clothing retailer Avenue.com, the phrase 'black skirt' appeared nowhere on its website because the two words were separated with the word 'cotton'. A new page was created, made up of content already on the site, to cope with internet users searching on the phrase 'black skirt'.
"Avenue.com had 2,300 products, out of which we created 2,600 extra pages against highly performing simple terms using gap analysis," says Price. "Traffic subsequently increased by 500 per cent."
As more companies discover the benefits of paid search, price inflation is likely to remain a challenging issue for marketers. For now, at least, it seems that brands can't avoid it, but if they follow the experts' advice, they can at least rise to the challenge.
POWER POINTS
Marketers can exert little influence over the prices of keywords or phrases
Use more precise terms to attract people who are more likely to convert to a sale
It may be worth investing in a dedicated landing page or microsite
NEED TO KNOW: Five ways to escape the bidding war
1. Volume versus quality: Brands don't have to get involved in paying higher and higher prices for paid search click-throughs - it's a trade-off of volume against quality. Bid on the simple, generic term, such as "cheap flights" or "cheap insurance", which most people will search when they first start the buying process. Otherwise, brands risk paying more to be returned to the top of the pile.
2. Specific terms cost less: They also attract a higher proportion of people who are interested in a "cheap flight from Glasgow to London" or whatever the phrase is that brands have bid on.
3. Aggregate more precise phrases: The lower volumes generated by each phrase can add up to a respectable number of good-quality leads.
4. Optimise the quality of clicks: According to Matthew Wymer, head of planning at interactive agency Green Cathedral, brands need to drive the volume of clicks, but also ensure that the clicks they are paying for are for the right people.
5. Measurement is key: Only by measuring conversion, as well as click-through rates, against the words and phrases that are bid on, can brands see which ones are best at generating sales and those that drain budgets by generating lots of click-throughs, but proportionately very few sales. Analysing the results of paid-search campaigns in this way can enable brands to identify which of the more expensive words and phrases can justify the high prices they pay for them.
SHOW FACTS: Technology For Marketing 2007
Where Olympia, London
When 6-7 February 2007
Why Technology For Marketing caters for marketing-related, CRM technology and interactive advertising services. These include customer-relationship management and customer-contact solutions, database marketing and marketing analytics, email, interactive and online advertising.
This year's show features speeches from Alan Tapp, research unit director for the Marketing School at Bristol Business School. He will look at CRM issues, while Danny Meadows-Klue, chief executive of the Interactive Advertising Bureau, will discuss digital marketing.
The IDM Academy will offer a series of free briefings covering digital, data and direct marketing strategies, incorporating: search-engine marketing; mobile marketing; direct marketing for Web 2.0; email marketing; database marketing in a multi-channel world; how to get ROI from a web analytics tool and how to manage customer experience effectively.
A search-marketing clinic, held over the two days, will provide free advice for companies on their search-marketing issues. Pay-per-click advice will be offered by Periscopix and search-engine optimisation guidance will be provided by consultants from its partner company XSEO.