May 5, 2004, 12:00 AM

SPONSORED SUPPLEMENT: Search Engine Marketing

As consumers use search engnes more, retailers boost their search engine marketing budgets.

For many online retailers, search engine marketing has become the marketing tool of choice. From 2000 to 2003 use of paid search engine marketing grew fivefold from 5% of the online ad market to 26%, Jupiter Research reports. 35% of marketers expect to increase their search engine marketing budgets this year, according to Forrester Research.

And it’s no wonder that online marketers are moving their budgets to search engine marketing. “Almost everybody using the web uses search engines,” says Todd Daum, vice president of search engine marketing company Overture Services Inc., which was acquired by the granddaddy of search engines Yahoo Inc. last year. In fact, comScore Networks Inc. reports that 107 million online consumers use a search engine at least once a month. And another study reports that 85% of users first discover web sites through search engines. “Search engines have become part of how people shop,” Daum says.

The new reality

As a result of the importance that search engine marketing has assumed, retailers are demanding more from search engines and developers are providing more. “The biggest question retailers face is how to convert more of the traffic they’re already paying for to sales,” says Fredrick Marckini, CEO of search engine marketing company iProspect.com Inc. “When you’ve got a conversion rate of 2%, you’re converting only those who arrive ready and looking to buy.”

When the Internet was young and retailers were just discovering the power of search engines in driving traffic, few would have thought that they would pay directly for that traffic. Their costs were in indirect expenses of optimizing pages to land high in search results. Today, though, retailers are incurring costs in paying for inclusion in indexes, for placements in results and for each customer who clicks to the retailer’s web site from the search results. When direct costs come into the equation, marketers are prone to measure the direct benefits.

And that’s where search engine marketing companies have been focusing their efforts lately. For instance, online marketing company Advertising.com Inc. recently developed an automated bid management platform for search engine marketing terms. Just before the holiday season 2003, it took on the management of 1,300 terms for Hallmark Flowers. The platform analyzes results of each term on the basis of sales, bid cost, season, competitors’ bids and other factors, then determines the optimum price for bids. The result at Hallmark Flowers: three times the sales from search engine marketing efforts as anticipated.

“Advertising.com’s automated bidding platform ensures our most profitable search listings--from hour to hour, day to day, season to season,” says Lori Graham, Internet marketing manager of Hallmark Flowers. “Plus, their pay-for-performance pricing model enables us to pay only for delivered sales.”

While paid-search marketing has attained a high profile lately, some search engine marketing companies are encouraging retailers not to ignore the value of making sure their sites appear high up in natural language search listings. “Visitors who come in through natural language search convert at a higher rate than those who come in from a paid keyword,” says Robyn Walton, chief visibility officer of search engine site optimization company Visibility Factor Inc. “Searchers are typing in exactly what your content says.” Visibility Factor applies a patent-pending technology that allows search engines to more easily include data from database-driven web sites, which account for most online retailing sites, in search results. “We have a good chunk of clients who no longer do keyword buys,” Walton says.

More traditional advertising

Converting searchers to buyers has become the promised land to marketers and the companies that serve them. Search engine marketing companies have taken a variety of approaches. Among Overture’s offerings to reach that goal is its Content Match program by which online users searching on terms at sites other than search engines or portals will receive marketing messages relevant to the terms they are searching on. “Search as we’ve known it is a pull strategy; Content Match pushes the message out,” Daum says. “It puts the search listing in a context.”

For instance, a baseball fan searching a local newspaper site for stories or information about the Chicago White Sox might get a message from a sports apparel retailer with a special deal on White Sox jerseys or caps. While there is no more guarantee that a customer will click on the message than that a customer will click on any search engine results, the marketer pays only when there is a click-through. Further, Daum argues, the premise underlying the Content Match offering is closer to traditional, proven marketing tactics than is the premise that underlies search engine marketing at typical search sites. “Content Match is a more traditional type of advertising in that you are targeting your audience based on perceived behavior,” he says. In that way, it’s part of the continuum of advertising that extends from advertising in magazines or on TV shows whose demographics match an advertiser’s targeted audience. “You’re making an inference based on what they are reading,” he says.

Not geographically limited

Focusing search results can also take the form of walking an audience through the pages they need to make a buying decision. Thus iProspect.com has started offering web site development services to help retailers craft sites that align with their target markets and with the results from search engine marketing. Marketed under the concept of conversion rate enhancement, the services look at the big picture of search engine marketing. “Conversion enhancement is a rigorous process that requires the participation of higher level people,” Marckini says. “This cannot be delegated to the marketing manager or the IT manager. It requires intimate knowledge of the customer and the audience.”

The rationale behind conversion enhancement is that one size of search engine results does not fit all customers. “The biggest part of any retailer’s audience needs to go through a longer buying cycle,” Marckini says. “Converting those people is when search engine marketing pays off.”

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