Playing a Smart Game of Search Marketing
When Michael Sack wants analogies to describe the search marketing industry, he reaches out to either Wall Street or Las Vegas. “Those are both places where they take money seriously,” says the chief technology officer of search services provider Inceptor.
And one apt comparison between the search industry and a Vegas blackjack table jumps out at him: In both places, uninformed players can change or even ruin the game for everyone else.
“When you’re in an open market such as search bidding, you tend to think that you’re competing individually,” says Sack. “You don’t realize the effect that other players have on the condition of the landscape you’re in.” At a blackjack table, even a genius card-counter can bust out if another player makes a mistake. “If a professional gambler is at a table where one of the other players at the table is showing a 14 and the dealer’s showing 6, and that other player pulls a card, the pro will get up and walk away. That pull might have been the card that would bust the dealer. You could be sitting there with an 18 and still lose.”
Sack, who describes himself as a statistician both by nature and by training, says the same thing happens in the booming keyword market. Ten competitors can be bidding away at terms at an average of about $1 per click when a new player comes in and starts inflating bids to $2.50. The result: Floor bids rise to $2 or $2.25, and return on investment (ROI) drops for everyone competing in the market, winners and losers.
Sack saw this in real life about a year ago. A month before Inceptor was about to take over a large company’s search management from another agency, the account manager laid out $15,000 to bump up the company’s maximum bids, in order to ensure top placement. That immediately forced the terms up to the max bid price, killing ROI. It took Inceptor months to bring bid prices down from that peak and rebuild ROI for those terms.
“We actually had to abandon some of the terms they had bid up because the market refused to recede,” says Sack. “We had to employ a portfolio approach and go wide across a lot of terms, de-emphasizing the terms that were no longer profitable.” Inceptor continued to bid on some of those high-dollar terms, but only because they were bidding on many more terms at lower cost per click; that kept the average cost per click down to an acceptable level. “Even so, we only got the average max bid down from $2.50 to $1.86. That big spend only made our job harder.”
The smart company’s defense against this kind of dumb play by others is to set strategic goals for average cost per acquisition (CPA) and stick to them. And be clear what you’re doing when you bid on keywords. If you want to own a term no matter what the price, you’re not managing advertising—you’re branding, which is untethered to ad costs.
In setting targets for ROI and CPA, Sack advocates taking a broad view of those metrics and managing for it not keyword by keyword but over a portfolio of terms. Some search marketers zero in solely on the cost per clickthrough; others track conversions on a term-by-term basis . But one of Inceptor’s clients, a large multi-brand retailer, calculates CPA with a view toward the lifetime value of the customers they acquire.
“They know that the average customer will come back and buy from them 2.3 times over the next 12 months,” Sack says. “So that’s factored in to an acceptable CPA of $10 per acquisition.” In setting CPA and ROI targets for their search campaigns, the same retail customer also factors in such operational metrics as cost of returns or cancellations, customer service costs, overhead, and the value of inventory turnover.
Once a marketer has these targets established, it also helps to look beyond individual search terms to managing portfolios of 1,000 or 2,500 terms for performance. If on average your portfolio of terms is achieving your desired CPA metric—say, $10 per acquisition—then you can afford to go to $12 on the occasional term that might be valuable to you over time without trashing overall ROI.
The other key to successful keyword management is to handle that portfolio in the context of time. Market behavior has cycles, and successful players adjust their behavior based on those cycles. A marketer might retreat from a term on which ROI has shrunk, only to come back to it later when that measure falls in line with its goals.
Again, Sack sees a Vegas analogy. “The handicap weekend gamblers have is that they arrive on Friday and leave on Sunday, and they want to gamble as much as they can in between,” he says. “It doesn’t work like that. Sometimes you’re down for three or four days and then you’re up again. It needs to be something that you do consistently, so you can win over time if you also play smart.”
As an antidote for the bet-a-million, lose-a-million mentality that sometimes prevails in the search term market, Sack recommends that search marketers emuilate the savvy gambler who sits down at a table telling himself he’ll walk away when he wins $1000 or loses $500– and then does just that. “Those measured gamblers do far better at the casinos than they cowboys who just stick in the game no matter what, hitting their credit cards when they lose,” he says.
