Is The Rate of Rising PPC Costs Susutainable?

I was going through my edition of SearchCap today from SearchEngineLand and came across this great article Paid Search Moving Beyond The Keyword by John Federman. It is very timely as it mentions how fast PPC costs have risen due to competition. It is the opinion of IWB that competition will top bid prices out in about a year or so if it continues at this pace. A lot of this is based on an IWB case study of a 3 yr. Payday Loan PPC campaign. Not included in the document is my belief that PPC pricing is not sustainable at the current rate of price inflation! IMO, that inflation is the direct result of Quality Score.

 openAccording to the latest Forrester research, online shopping is growing five times faster than brick and mortar stores, with a projected growth of 14 percent by 2012, a trend that the economy will no doubt fuel further. Knowing this, savvy marketers have begun to incorporate paid search as part of their internet advertising strategy as a means of reaching the buyer while they’re online. However, the cost of doing so has risen exponentially year over year, with more and more companies competing for similar keywords and market share.close

John does not go into the competition issue but IWB believe we need to look at this because we may be putting clients into a short term solution when an SEO campaign isn't used to augment and backup a reliance on PPC. I have strong feelings about Google's Quality Score and how PPC has gone from a non optimized pure marketing technique to figuring out the "black box" that is Quality Score! Mind you it isn't SEO but many of my favorite techniques were used to get rid of the nags and "irrational pricing" that QS produced. How can a program say something isn't well targeted when it is converting at over 30%? You make the changes and the prices barely move and conversion doesn't change even a tad? IMO, QS is very close in the way it works to those "black boxes" that generate bank profits or losses. Mystifying algos with  assets hidden off the balance sheets. Anyone with half a brain saw what was coming from the US banks. As a former RE agent I was shocked at how houses were appraised in the USA. A house with a crackhouse view was priced the same as the house across the street with an Ocean View! Just another example of the over commoditization that is the marketplace for everything in the US.

The Forrester research is also pretty interesting in that it shows how ecommerce is a juggernaut that won't be stopped, or will it? Well no point in doing the net if the costs are so high that most people are shut out or worse can't make a profit. The rush from PPC to SEO will be awe inspiring when people realize that PPC pricing is not sustainable. I was surprised lately to conclude that in Canada Ecommerce just isn't being taken up like it should be. I was doing a little work for a client who has a number of partners in other geographical locations across Canada. All I can say is it is computer related. Of the 9 vendors only 3 had a website. One didn't even have email! This is likely going to be a topic for some further research!

openthis vendor was looking for ways to engage browsers and buyers at the point of purchase. In store, they are known for purchasing eye-level shelf space, interactive kiosks and end-caps to fully demonstrate products. Online, creating awareness and differentiation is a challenge, and the notion of attaining premium position by applying cost-per-click bids was worth a test.close Excerpt from John's article

Will this kind of innovation exist if the costs are prohibitive? I'm thinking no because in the current downturn merchants are being squeezed at the margin by the rise in PPC costs. I have watched as clients have watched profits erode as PPC prices go up 20-30% yr over yr. Consider that margins on big screen TVs can support this kind of strategy but how many products have the kind of margin that consumer electronics have? So is the rate of bid inflation sustainable... we'll see!

openWithin the first month of the campaign, this consumer electronics vendor saw its average position rise from fifth to first, and with the ability to bid by SKU, the number of products represented in premium positions on SERPs increased three-fold. In terms of clickshare, the measure of success for the campaign, the advertiser’s mix of products yielded a 30% increase and a 220% jump in clickshare; while the competition’s share dropped by 63 percent.close Excerpt from John's article

Ahh yes! The strategies that take share away from finite resources (prime display areas) are competitor killers. Basically if you look at the content network most of the placement is in the less desireable places like at the end of the page. There are very few prime locations and they require more than just text to get them. In reality there is little of this kind of placement because generally that is sold in-house. So the above strategy is actually fairly simple for most marketers to put into play.

Note: I built this payday loan portal to use some of the knowledge I picked up while manageing the PPC campaign. Anyone looking to use the strategy above there I'll gladly give Google the boot and you'll be getting in on a ground floor opportunity.

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April 19, 2009 12:14 by TerryVH
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