Holiday Search Means Front-Loaded Spending: Performics

For going on two years now, Performics, the search marketing agency owned by DoubleClick, has been reporting a quarterly index of what it calls the Performics 50, a basket of 50 actively managed client search marketing accounts from a range of industries. As a primary metric, the index tracks cost per keyword (CPK), which takes in both the total bid prices on term and multiples by the total number of clicks on those terms during the quarter, to arrive at a measure of the cost of owning and operating those keywords.

It’s an interesting and revealing look at the true cost involved in search marketing, and the latest report, covering the final quarter of 2006, finds that those costs grew rapidly in the run-up to the last holiday shopping season—substantially ahead of any corresponding increase in sales.

According to Performics’ findings, consumers started online holiday shopping earlier than in previous years and tended to begin their purchase research on generic keywords. These are usually more competitive and thus more expensive than branded keywords. The result was a 36% jump in CPK from October to November last year.

With that early research phase of the buying cycle behind them, consumers then began searching using cheaper branded terms, so that CPK growth from November to December was relatively small. Another factor in this lower increase was that advertisers were aggressive about expanding their keyword lists during that last month of 2006, exploiting the less costly long tail and thus damping down CPK.

As a result, the overall CPK for November was $52.42, far higher than the Q3 peak of $35.37 in September 2006 and just short of its year high of $54.15 in December.

Performics also found that while searchers were clicking more often on the expensive terms, they were buying more often on the cheaper ones. The percentage of clicks from keywords costing more than 50 cents grew sharply from October 2006 to November, increasing to just short of 40% of all clicks from about 30% within that month, then continuing to grow more slowly in December. But the percentage of transactions coming through keywords costing 10 cents per click or less also grew steadily during November and December 2006.

“It appears that consumers are doing more searching earlier on, in November especially, and also that marketers are doing a better job of connecting with those people while they’re searching,” says Cam Balzer, Performics’ vice president of strategic planning. “People are driving search activity earlier in the season, using search more as part of their shopping process. That would be a moot point for paid search if the marketers weren’t also showing up aggressively for those keywords.”

With online browsing starting earlier but actual buying remaining centered in December, marketers found their holiday costs shifted to the front edge of the season. That’s a trend advertisers can expect to see continue in 2007, Balzer says, if media reports continue to promote the notion of “Cyber Monday”.

Yahoo!’s new Panama platform may also contribute to the shift in costs. The new quality index built into its ranking algorithm seems to be holding down branded keyword prices; if that trend holds until the end of this year—Panama’s first holiday shopping season—then the lower end of the buying funnel, where branded terms are used most, might see even flatterer CPK growth than occurred last December.

“We’re seeing indications that [Yahoo!’s Panama platform] is behaving in a more Google-like fashion, where strong brand names typically can get clicks for cheaper because they’re likely to get a higher clickthrough rate and thus been perceived as more relevant by the algorithm,” Balzer says.

The Performics report suggests that marketers boost spending on generic terms earlier in November to accommodate the way consumers’ shopping behavior is changing. This should help speed searchers through the buying decision process and move more sales closer to Thanksgiving. Advertisers should also ramp up promotions in November to help shorten the lag time between search spending and sales.

But Balzer also thinks search marketers will need to adopt a more complex view of their return on investment (ROI) when planning and evaluating their holiday search campaigns. Basically, they’ll need to reconcile themselves to spending money in November on efforts that won’t pay off until December. They’ll also need to take a broad view of how search marketing may be behind transactions that occur offline, or long after the search is conducted, or perhaps on a different computer, with users searching at home but buying at work.

“Marketers are getting more savvy about latent transactions from search,” he says. “They’re running their programs with longer cookie durations than in the past, moving from a session cookie to a seven-day or 14-day cookie, for example. They need to do as much as they can to understand the cross-channel impact of search.”

Overall search spending in Q4 2006 was up 78% from the previous quarter and up 105% from Q4 the preceding year; total annual spending on search grew 126% from the 2005 figure. And companies in the Performics traced more quarterly and annual sales to search than in the past: 43% more year-over-year in Q4, and 55% more for the year than in 2005.

Much of that spending increase came from new companies included in the Performics 50. This quarter’s report widened the field of selection for the top 50 to include advertisers whose campaigns Performics manages on DoubleClick’s DART Search platform and also on Microsoft’s adCenter platform. Those newcomers made up about 25% of the index by the end of 2006, but accounted for a much larger share of the growth in search spending by the indexed companies.

The disproportion was largely due to the fact that these newbie companies are in vertical markets that have not been large search investors until recently, such as automotive and financial.

“Large branded advertisers in these fields are beginning to transition dollars from other channels into search,” Blazer says. “Lots of them were basically not spending anything on search in prior years, so their entry is driving a lot of growth. By contrast, mature advertisers are growing at rates that would seem pretty healthy in other channels but in search seem sort of low.”

Balzer foresees those newcomer marketers and verticals accounting for an even larger share of total search spending growth in the years to come. “If you’re a pure-play advertiser looking at search purely as an ROI-based channel and you’ve been doing search since Goto.com in 1998, you may not be able to double down on search this year,” he says. “But if you’re Chrysler or Toyota and haven’t spent much on search in the past, you can probably double or triple your search spend and see some pretty dramatic impact in terms of online visibility.”