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Many catalogers are enjoying great results from paid search marketing.

In an earlier article, I presented tactical suggestions for winning at paid search.

This article answers 8 strategic questions about this new channel.

What is paid search marketing?

Paid search marketing consists of placing ads for your products or services on search engines and on content sites across the internet.

These ads are typically small snippets of text linked to your merchandise pages. You pay when someone clicks through to your site from the ad.

Cost-per-click (CPC) fees range from 5 cents to several dollars per click, with an industry average near 35 cents.

Leading search marketing channels include Google, Overture, and Inktomi (now Overture Site Match).

There are additional smaller channels, and new large channels anticipated soon.

What sort of catalogers do best at paid search?

Paid search works best for catalogers with fair pricing, good websites, and strong brands.

Paid search marketing also favors retailers with focused merchandising.

Merchandising depth increases the odds you win the click, and the odds that click yields an order.

Here’s an example.

Two ads, compared

Consider two recent ads on a Google search for “wine glass”:

Stemware - Free Shipping
Bohemia, Riedel & Ravenscroft.
Wine glasses, barware and decanters.
www.bestwineglass.com

Pottery Barn Entertaining
Find all your home essentials &
easy home updates at Pottery Barn.
www.PotteryBarn.com

Pottery Barn is a great company — I’m a satisfied customer.

For this search, however, the lesser known brand appears more credible.

Their URL and focused copy suggests Bestwineglass.com lives and breathes wine glasses. Of these two ads, Bestwineglass.com likely enjoys the higher click-through rate.

Further, the visitor to Bestwineglass.com finds 47 different glass options, versus 12 at Pottery Barn. Because of this four-fold advantage in selection, it is likely Bestwineglass.com enjoys higher conversion on this phrase.

Pottery Barn’s overall merchandising strategy makes sense: broad selection garners more business overall than niche merchandising.

For paid search, however, merchandising depth beats merchandising breadth.

What sort of products sell best at paid search?

To work well in paid search advertising, products must have sufficient web search traffic and sufficient margin dollars.

They also need to be products that can be sold via short text descriptions, and products that customers understand.

Consider the little-known pet oral hygiene category. The phrase “dog toothbrush” receives fewer than 2 searches per day (as reported by Overture), and these items sell for under $10.

While such products might participate in a larger campaign, dog toothbrushes will never play the starring role in any search marketing campaign.

People don’t search for things they don’t know

Paid search is also a poor choice for introducing new products that consumers do not yet understand.

One retailer shared his excitement over a novel polarized sun visor for car windshields. This unique product includes a small disc the driver aligns to block the sun. The item sells well via its catalog presentation, where a photo, a diagram, and a copy block illustrate its advantages.

Like the dog toothbrush, however, this sun visor is too unusual to be a paid search hero product.

Do paid-search acquired buyers have good lifetime values?

Catalogers often report search-acquired buyers have somewhat lower future values compared with non-search-acquired buyers.

This is probably because search-acquired customers are more web-savvy and more likely to comparison shop than typical direct buyers.

I suggest placing search-acquired names in distinct key codes when preparing mail tapes for your merge-purge, and carefully tracking future sales into these cohorts.

For larger catalogers who commonly acquire customers below first-order break-even, I recommend more cautious paid search acquisition spending.

Don’t bet that typical future purchase rates will hold; make sure you gain a sufficient return on the first order.

How should I track and monitor my paid search campaigns?

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

Your tracking system needs be able to track every click, order, revisit, and subsequent order at the most granular level of detail. Good tracking systems also reconcile the click counts for which you are billed against the visits your site actually receives.

Tracking extends beyond your online systems: I suggest providing your phone agents a dedicated catalog code to assign when callers indicate they found your company via web search.

While callers will not (and should not be asked to) recall the specific placement or wording of your ad, you can allocate this generic spill-over revenue proportionately across your tracked results.

Good reporting systems offer simple dashboards to monitor your overall marketing effort, as well as detailed reports supporting in-depth analysis.

Look for reporting systems which offer flexible categories and subcategories for summarizing results. Advanced systems support easy A/B testing of ad copy and destination URL, and provide statistical confidence estimates to distinguish testing signal from noise.

Should I leave search marketing to my affiliates?

Some retailers delegate their paid search efforts to their affiliate marketing partners: a simple, no-fuss solution.

This strategy suffers three weaknesses.

First, it inserts two levels of intermediaries between the retailer and the search advertising channel — the affiliate and the affiliate network — both marking-up the true cost of the advertising to generate their profit margin.

Retailers or their search marketing manager can buy the same advertising directly from the search venue at cost.

Second, affiliates have no interest in sharing marketing insights with the retailer: the affiliate aims to buy low advertising low and sell it high, and has no incentive to share how they are driving sales.

Indeed, when retailers dig into the details of their affiliate programs, many find their affiliates are driving much their sales via advertising on the retailer’s own brand name, a monstrous exploitation of the retailer.

The “black box” nature of the affiliates’ campaigns deprive the retailer of valuable marketing insight.

Third, retailers do not control their affiliates, and thus cannot execute campaigns or tests at will. Retailers managing search internally, or working with a search management firm, can drive the marketing effort to support corporate goals.

Should I handle search internally, or outsource it?

Retailers with small search campaigns typically manage them in-house. Small programs don’t generate enough earnings to justify outsourcing them.

Retailers running medium to large search marketing programs find maximizing the channel requires two key ingredients: smart technology and smart people.

Retailers can develop rudimentary tracking and reporting technology internally, rent systems from ASP providers, or use a platform offered by their search management firm.

The right choice for your company depends on the availability of your IT resources, functionality and ease-of-use desired, and the relative costs.

Who manages your search campaigns?

A smart search marketing analyst can wring huge improvements from a search campaign.

Such a person — or, sometimes, people — must understand your merchandising, your value proposition, and your economics, and be skilled in the nuances of online marketing and the various search venues.

Strong reporting systems empower your analysts. They should earn their salary by thinking, analyzing, and discovering; not wasting hours chiseling out crude reports using dull tools.

When choosing to in-source or outsource analysis, the right choice for your firm depends on the availability of in-house online marketing talent, the incremental return gained via better marketing, and the relative costs of in-house salaries versus management fees.

How much should I spend on paid search marketing?

Search marketing is an ideal direct marketing medium: it supports low-risk tests and aggressive rollouts of profitable campaigns.

Many retailers start with a small test of a few thousand dollars. After a successful test, e-retailers seek scale: the next question is “how much advertising can we buy while still meeting our ROI target?”

This figure illustrates the quantity versus quality tradeoff for a niche B2C cataloger for whom my firm manages search.

The smoothed graph plots revenue (defined as online sales directly tracked to the search marketing effort) and marketing income (defined as online revenue from search, less cost-of-goods, less variable costs, less advertising) against search marketing expense.

Balancing sales and earnings

After testing a portfolio consisting of very large number of search terms for this client, my firm bucketed the ads by deciles based on efficiency, as measured by advertising-to-sales ratio.

This graph suggests the retailer gains maximum marketing income when spending near $7000 on search advertising per month (A).

The plot offers other options available to the retailer for trading-off revenue and earnings (B, C).

More advertising increases revenue, but once beyond break-even, additional spending cuts into profits.

This particular retailer opts for a strategy near B, investing some but not all of their earnings for more revenue.

Once you determine your tradeoff between advertising cost, sales, and profits, you can scale up your marketing spend and still meet your marketing goals.

Some large retailers spend hundreds of thousands of dollars on search advertising monthly, and do so while hitting their ROI targets.

Conclusion

Paid search is one of the most exciting customer acquisition opportunities for catalogers available today.

If your firm is not yet using this new channel, run a test to see if paid search can work for you!