By David White, European Operations Director for Efficient Frontier.
Whilst U.K. consumers continue to increase online spend, many organisations in finance, travel and retail are finding their paid search campaigns are starting to plateau.
With escalating online marketing costs and the rest of the search engine market now following Google’s opaque bidding model, marketing agencies cannot continue to add headcount in a bid to boost pay per click campaign value.
Search marketing is a highly complex environment, demanding sophisticated bid management algorithms akin to those used within financial markets
It is only by automating the bid management function that agencies can drive up results and, critically, free up the time and resources to drive additional value from pay per click, from in-depth analysis of keywords to real time comparison of ad success and the creation of highly accurate forecasts.
In 2007, online sales rose significantly, accounting for 15 pence of every pound spent on goods and demonstrating the extraordinary transformation in consumer confidence in the security, reliability and value delivered by the online retailer.
This shift in consumer behaviour is creating unprecedented pressure on online campaigns. With escalating competition and opaque search marketplaces, organisations are seeing an upward spiral in costs without commensurate results.
Indeed, with the entire search engine market now following Google’s model, organisations cannot predict where an ad will appear for any given bid, how much each click will cost or what conversion rate will be achieved.
Optimising investment is a massive challenge; even those organisations achieving an apparently decent return have no way to determine whether or not that return could be improved through simple campaign adjustments.
With online campaigns now reaching a plateau, especially in established markets such as retail, travel and finance, there is a very real need to adopt far more sophisticated search techniques. It is simply not possible to keep up with the pace of change using the traditional manual approach.
In the last year alone, Google tweaked its quality score rating over five times, each time resulting in different ad placement and bid pricing. With no visibility of the market, agencies are having to spend hours manually sifting over data and still coming to no sound conclusion about the best way to proceed – the result is an over-reliance on gut feel and a lack of market confidence.
To operate successfully within the opaque markets operated by Google, Yahoo! and MSN, an agency needs to accurately model the maximum cost per click (CPC), the effective bid position and, critically, the resultant revenues. Managing this manually, when a single client campaign will involve hundreds or thousands of keywords, is an impossibly onerous task.
There is now a growing acceptance that manual methods must be replaced by technology if agencies are to keep pace with the increasing demand and complexity within the PPC marketplace. However the majority of the technology options are seriously flawed.
Typical rules-based systems are still constrained by a need for up front manual processes which both undermine productivity gains and introduce the potential for errors before the bidding process is even undertaken. Fundamentally, these systems are not up to the job of calculating optimal bids on multiple positions across over 10,000 keywords.
Consider a campaign consisting of two keywords that can be bid to 10 different positions. If there is one bid combination that will maximise revenue for a given budget, 100 trials would be needed to find the optimal solution for those two keywords. Increase the portfolio to 10 keywords, and that number increases to 10 billion combinations.
Even this limited campaign cannot be calculated effectively by individuals using Excel spreadsheets and applying rules to keywords.
Add in to the mix the three search engines, with the vagaries of broad match, exact match, content versus search and different syndication, and the number of decisions required to figure out optimal positions is far beyond the scale of any rules-based technology.
In an attempt to deliver some productivity gains, rules-based systems force agencies to take short cuts, such as managing keywords in groups, rather than individually. In addition, this technology fails to leverage effectively historical search data, forcing agencies to take a trial and error based approach to managing campaigns.
The result is the use of round numbers (£1, £2, £3,) to determine the right bid level – which means a significant waste of the client’s investment.
Without real time analysis of historical and actual impression cost and click history, or keyword conversion and the revenue/profit impact, it is simply impossible to accurately forecast costs or results or, critically, drive additional value from a PPC campaign.
Search advertising is a $20 billion global industry, and one demonstrating increasing maturity as well as an expected 28% CAGR through 2011 Relying on an inadequate combination of manual and rules-based technology is no longer acceptable.
The portfolio approach is the next generation of search marketing, enabling advertisers to better manage complex campaigns. The application of portfolio theory to search marketing enables an organisation to determine the maximum expected return for a specific spend across a portfolio of keywords.
By using mathematical models to determine both cost per click and conversion rate, an agency can leverage optimisation systems to create a bidding strategy that reflects business goals – from maximising revenues within a fixed budget, to minimising costs to a fixed revenue target.
This model provides far greater forward visibility into campaign performance. It also enables organisations to make key end of month/quarter decisions about the value of increasing spend to meet specific volume targets.
Taking this approach delivers significant bid optimisation to drive consistent volume growth and margin improvement – with campaigns achieving a minimum 20% uplift simply from applying a more effective technology.
Furthermore, the automation of this process frees up critical resources to undertake far more sophisticated search processes, including campaign simulation and accurate forecasting.
Of course, while sophisticated algorithms will give any campaign an uplift, failure to use the right keywords, write relevant ad copy, test that copy, and structure the campaign in the right way will undermine the full potential of that technology.
It is by leveraging the additional resources freed up with the use of technology to gain insight into the search market and create increasingly strategic campaigns that an agency can continue to deliver incremental value irrespective of competition or complexity.
This is a marketplace that demands close monitoring, rapid reactions and real-time campaign management. But it also requires continual testing of keyword usage and consumer response to ads to refine and maximise campaign value. Building keywords is a repetitive process – with often surprising results.
Without detailed, on-going analysis of consumer behaviour organisations will not keep pace with the extraordinary rate of change and potentially miss out on significant commercial opportunities.
Paid search is a highly complex, but also potentially highly effective online marketing channel. Technology is undoubtedly the key to driving new life into search marketing campaigns, with automated bid management and accurate forecasting. But this is just the first step.
Organisations need to be working with agencies that are leveraging highly functional algorithmic-based technology that mirrors the trading techniques used in financial markets.
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