This article was written in 2003. Check out our blog for newer content.
Introduction

Search engine marketing is the rising young star in the direct marketing universe.

As more retailers roll out successful paid search campaigns, online ad dollars are pouring into the channel. Analysts predict that retailers will spend almost $2 billion on search advertising in 2003, representing a third of the total online advertising spend. This spend will generate over $10 billion tracked online sales for e-merchants, with additional untracked spill-over revenue going to call centers and retail stores.

Simply, search engine marketing works because search is how consumers find products today: 40% of online shoppers report finding retail websites through search engines.

And search is still a bargain, averaging 35 cents a click across the industry, compared to $1 per lead from Yellow Page advertising. As email evolved into the web’s “killer app” for customer retention, search engine marketing will prove the web’s killer app for new customer acquisition.

Google, the current king of the search mountain, claimed 250 million searches per day during the first quarter of 2003. Running second and gaining fast is Overture, with 167 million daily searches during the same period.

The industry is consolidating: Yahoo! purchased Inktomi for $235 million in December, and Overture for $1.6 billion in June. Microsoft, too, is jumping into the game, with early sightings of the “MSN-bot” web crawler suggesting Redmond has large plans for the paid search space.

How can a smart cataloger use search engine marketing to drive profits?

This article offers twelve tips and one prediction.

Optimize Your Site For Organic Search

In addition to paid search advertising, gain the best rankings you can in the free listings.

“Best practices” for organic SEO are well-known, and make good sense:

• Use well-written title tags and H1 tags.
• Use text links for navigation and internal site linking.
• Provide a well-organized site map.
• Get as many inbound links from reputable, high-traffic sites as possible.
• Keep your urls simple: avoid session ids in the path and minimize urls that appear dynamic.
• Make sure your site loads quickly, your html is well-formed, and your site is never down.
• Most important, complement your commerce with content: provide as much well-written well-organized writing as possible. Content is king when it comes to organic search.

To do: Hire a reputable consultant to train your web designers and programmers in organic search best practices.

Use Ethical Techniques

Never try to trick the spiders.

Link farms, cloaking, gateway pages, keyword spamming, bait-and-switch submissions, invisible text, text placed off the viewable page — don’t waste time on unethical and out-dated techniques in a misguided attempt to gain higher unpaid rankings.

Such methods are dangerous and often ineffective.

To do: Avoid consultants or vendors which promote these approaches.

Tracking Is Essential

Running paid search campaigns without proper tracking is like flying an airplane blindfolded.

At minimum, you need tracking to match your paid search ad expense to resulting revenue and orders at the most granular level. Your site infrastructure may provide these data, or you may need third-party tracking.

Advanced tracking systems should offer bid management, statistical analysis, meta-data management, automated testing, and solid reporting. Choose a system that encompasses all your paid search and paid inclusion programs.

To do: Buy, build, or rent a solid tracking system.

Know Your Economics

What should you pay for a click? It depends on your site conversion, your average order, your margin, and your profit hurdle. (See Table below.)

And, most critically, note these key metrics vary by phrase. A more targeted phrase should attract traffic from more qualified buyers, typically generating higher conversion and possibly justifying a higher cost-per-click.

To do: Combine solid tracking with the fundamental economics of your business to compute profitability at the phrase level.

Sample P&L Analysis for One Specific Medium-Traffic High-Conversion Phrase

Average Daily Clicks	100
CPC (Cost Per Click)	$ 0.35
Daily Marketing Spend	$ 35
Tracking Loss (Visits/Clicks)	95%
Daily Visits	95
Conversion (Orders Per Visit)	1.5%
Average Daily Orders	1.4
AOV (Dollars Per Order)	$ 100
Daily Revenue	$ 143
Less: Daily COGS (Cost of Goods Sold) @ 50%	$ (71)
Less: Other Variable Costs @ 10%	$ (14)
Less: Daily Marketing Spend	$ (35)
Average Daily Contribution	$ 22
Revenue Per Click	$ 1.43
Contribution Per Order	$ 15.44
Contribution Per Click	$ 0.22
Marketing Spend Per Revenue Dollar	25%

Test, Cull, And Refine

Test many, many phrases.

As Babe Ruth said, “Each strike brings me closer to my next home run”.

If your phrase success rate — the ratio of phrases which perform profitably to the total number of phrases you have tested — exceeds 50%, you may not be doing enough testing.

To do: seek to grow your phrase list.

Link Deeply

Bring paid search visitors directly to the relevant product or category page.

Unless you are advertising your brand name, do not bring visitors to your homepage.

If you don’t have a relevant product page for an important phrase, create one. If you don’t have a relevant category page for a more general phrase, consider using your site-search application.

To do: Use A/B testing to optimize destination pages.

Make Every Page A Mini-Home Page

Do you know how many of your web sessions today start at an interior page?

The fraction is larger than you think and search will cause this fraction to grow. Make every page on the site a “mini-home page” by clearly presenting your value proposition.

On every product page, tell visitors why they should buy from you. Provide clear links to services and guarantees. Promote your toll-free number.

If your site technology can handle it, serve two versions of each product page: your standard product page, with side-bars devoted to up-selling and cross-selling; and an entry version of the product page, generated when your server detects a new session starting at an interior page, using the side-bars to trumpet your value proposition.

Remember that for many visitors, that interior product page will be their first, last, and only exposure to your brand.

To do: Conduct web usability sessions focusing on your product pages as entry pages.

Beware Prospecting Too Deeply

Many catalogers prospect to below break-even, willing to lose money on the first transaction in exchange for the subsequent lifetime value of the customer. Successful catalogers understand these economics well for their traditional buyers.

Do not assume search-driven buyers repurchase at the same rate as catalog buyers. Many catalogers find they don’t. As repeat purchase drives lifetime value, use caution when using LTV arguments to justify prospecting below break-even.

At worst, aim to break-even on the first sale, then carefully track repurchase rate for search-acquired buyers going forward.

To do: Understand your economics before deep prospecting.

Monitor Response Rates for Search-Acquired Buyers

If you find search-acquired buyers are less likely to repurchase, cut off their catalog mailings sooner. Distrust the simplistic maxim, “a buyer is a buyer is a buyer”. All buyers may not be created equal.

Even with lower repeat purchase rates, however, these weaker segments can be mailed profitably, if you employ an appropriate catalog contact strategy.

To do: Assign dedicated catalog tracking codes to search-acquired buyers.

Your Brand — Advertise It or Not?

For established brands, the highest-traffic highest-converting phrase will be the brand name itself.

If your brand is unique, if you hold the trademark, and if you do not wish affiliates advertising in your behalf, consider not paying for your brand name, and disallowing others from doing so. Send legal notice to the search engines indicating your ownership of the mark, and request they not sell your mark to other firms. The savings can be considerable, and you should gain the high positions on the results page naturally. (You already paid dearly for this traffic — searches on your brand are the result of your catalogs, print ads, radio, and DRTV.)

On the other hand, if you are a manufacturer selling to retailers, or if you have an affiliate marketing program, you may wish to allow others to advertise your brand.

To do: Analyze the pros and cons of advertising your brand name.

Use Databases And Statistics To Conquer Complexity

Paid search campaigns quickly get complex: you should be testing thousands or tens of thousands of terms, across multiple engines, crossed with different creative treatments and bidding strategies.

Well-designed databases and/or technology platforms can keep all these tests organized.

Demand simple and useful reports to drive marketing decisions. Statistical methods help by clustering and summarizing results. When evaluating performance of a cell, or a cluster of cells, or a campaign, always consider the statistical uncertainty of your results. Lacking confidence intervals, marketers often run under-performing ads too long, or drop slow-starting ads too quickly.

To do: Buy, build, or rent a tracking system that supports sophisticated direct marketing.

Mine Your Logs

Log the entries in your site search box and review them regularly.

Scrub your web server referrer logs for inbound search terms embedded in referral URLs from the search engines.

Your logs offer useful insight into the phrases your customers use when searching for your products.

To do: Review your site-search results weekly.

Prediction: Tremendous Opportunity In Local Search

Let me close with a prediction for the future of this young advertising medium: I believe in the next few years geo-targeting will create tremendous opportunity for search marketers.

Yellow Page companies generate healthy cash flows and are attractive acquisition targets. Once a major search provider buys a Yellow Page company, they will have an valid mapping of URL to phone number, and thus URL to zip code.

This mapping will enable geo-targeted search: imagine the Google homepage with an extra entry field labeled “Zip code”. Expect to see geo-targeting open up online marketing for local brick-and-mortar stores, increasing the size and importance of the advertising channel fifty-fold.

Conclusion

If you follow these twelve tips, you will enjoy success in your paid and unpaid search marketing programs.

May your company enjoy great success with paid search, the newest direct marketing opportunity for catalogers!