The Incremental Value of Paid Search

What portion of sales driven by paid search advertising is incremental?

For catalogers, incremental PPC contributes 14% of total online sales, for retailers with bricks and mortar outlets 7%, for e-commerce pure plays 52%.

These are among the findings from the Rimm-Kaufman Group’s recently completed study on brand vs. non-brand search advertising.

Over 18 months, we studied a random sample of 50 marketers with significant search programs. We studied key performance indicators including closing ratio, order size, sales per click and paid search sales as a percentage of total site sales. For each of these dimensions, we sliced the data to divide the incremental and non-incremental effects of PPC advertising.

Defining “incremental”

Actually assessing incrementality for individual orders is nearly impossible. As a meaningful proxy, we divided each advertisers’ search ads into two buckets: those involving the advertiser’s brand and those that do not.

When a person starts their search with a brand name, they’ve already selected the retailer they wish to buy from. These searches largely reflect a retailers’ off-line marketing — catalog mailings, television, radio, print, word-of-mouth, and brand awareness. In most cases, brand searches are not incremental. (The situation differs for manufacturers who sell direct and compete with their distributors – for example, Lego Corporation advertising on “Lego”. We excluded such advertisers from our sample.)

Catalogers traditionally divide their orders into those from previous buyers and those from new buyers. But in the age of the web, the brand / non-brand categorization is equally important. A name’s presence on a catalog housefile is not an indicator of loyalty. When a prior buyer types in a non-brand search, she’s considering multiple merchants: that order is in play.

Study Results

Not surprisingly, the study reveals the strong influence of offline advertising. But while brand-driven search is a powerful lever for both catalogers and retailers, the opportunity for a growing a program on the more competitive terms is large. Non-brand search contributes 46% of all PPC sales for retailers, 62% for catalogers, and 97% for e-commerce pure plays.

The data also affirms that many catalog readers are “closed” in print before using search and the web as an order channel. Catalogers enjoy a 10.3% closing ratio on brand searches, but only a 1.2% closing ratio on non-brand searches. Catalogers should beware of paying commissions on brand searches. It’s the orders on competitive, non-brand searches that matter–and should command the bulk of expense and effort.

Marketers with a significant retail footprint should also expect channel spillover. For catalogers, sales $ per click is 7.5 times greater on brand($11.81) than searches than non-brand searches($1.58), for retailers the multiplier is only 2.3. For retailers, a large percentage of brand traffic is doing research online and then buying in their local retail store.

The study also provides findings on how competitive non-brand search contributes across 11 categories of goods sold, and assesses its value by business types and size. For a look at the study data and more key findings, see the Non-Brand Study Data Set.