February 28, 2006, 12:00 AM

Are these guys making too much money?

(Page 2 of 4)

Keeping search profitable isn’t easy, especially when it has become such a standard marketing performer, leading some to take for granted its impact and efficiency.

After FTD.com posted a 4% year-over-year decline in its 2005 holiday season orders, president and CEO Michael J. Soenen blamed the company’s decision to forgo its Christmas season paid-search marketing campaign to avoid surging click costs and announced that the company was looking for a new chief of marketing. “Online search engine costs increased significantly over the prior year and we made the decision not to pursue the resulting high-cost order volume,” he said in a special year-end statement.

FTD’s decision to drop paid search was the prime reason behind its meager 0.9% year-over-year rise in revenue for the usually busy fiscal second-quarter ended Dec. 31, to $109.2 million instead of the $118.4 million that Piper Jaffray had projected, Kessler says. By comparison, the year-earlier quarter had risen 17% year-over-year.

Soenen attempted to put FTD’s search engine marketing decision in the best light by noting that the move presented FTD with an opportunity to build a new marketing team and to fashion a “more diversified” marketing portfolio. “We believe these initiatives will enable us to retain our competitive position in the marketplace,” he said.

Blue Nile’s Vadon agrees. “We have to try new things and tactically change how we find new customers,” he said.

While retailers search for alternatives to search engine marketing, most are not forthcoming with their specific plans. The extreme competition in search engine marketing is pushing executives to keep their plans close to their vests.

Vadon and Soenen each declined several requests to be interviewed for this story, even though their search woes had already been revealed in their financial records. “We’re reluctant to go into details on what we’re testing,” Vadon told the analysts in last month’s conference call. “In the past we’ve seen a lot of our smaller competitors use this phone call and our 10K as their playbook for what they do.”

The online-offline axis

Although Vadon and Soenen aren’t ready to talk publicly about their new marketing strategies, many retailers are already deploying new paid-search and natural-search strategies and implementing broadened and coordinated marketing plans spanning offline and online advertising venues.

The key to successful search marketing, experts say, is to find a way to fit it into a complete marketing strategy. “Our SEM effort has been very profitable because we manage it as part of an overall online advertising portfolio and because of our strong brand, which we build through multi-channel national advertising and in-store service,” Best Buy’s Taylor says.

Best Buy also combines extensive research about how customers search and shop with new uses of marketing technology, including in-home visits to observe search habits, he adds.

Blue Nile’s and FTD’s experiences notwithstanding, practitioners believe the future of search marketing is as rosy as it ever was. “Search engine marketing is only going to grow in effectiveness,” asserts Fredrick Marckini, one of the early developers of search as a marketing tool and founder and CEO of search marketing firm iProspect. “As more consumers come online and search, search indexes grow, and searches are more successful, so it reinforces the value of search.”

“The only question,” he adds, “is if marketers are ready to pay the necessary price.”

That price isn’t only the going rate of a marketer’s desired keywords, which can range from pennies to several dollars, but the time and cost of deploying search effectively as part of integrated marketing campaigns and offering a web site that arriving searchers want to shop, he and other experts say.

Endless testing

Moreover, effective search marketing requires what can be endless testing to find what works. The testing is not just in bidding on the right keyword or trying new content to optimize a site for natural search, but also in using new tools like algorithm-based bid management, optimizing landing pages to increase conversions and repeat traffic, integrating search with TV, print and other forms of advertising, and trying out new tools from the search engines themselves, including Google Analytics and MSN AdCenter, which is the first to offer the ability to target paid-search campaigns on consumer demographics.

“A search strategy has to be constantly updated,” says Zia Daniell Wigder, vice president and research director for Jupiter Research. “You can’t just wait for your ROI to come in because you think you did something right.”

Some marketers have seen success after trying out new content sister sites, a strategy that sent natural search traffic surging without increased keyword spending at Batteries.com, while others like Ice.com have boosted traffic and sales through the use of blogs that complement e-commerce sites with related content.

But while there are multiple approaches and tools for improving the effectiveness of search marketing, there are also many questions that can be difficult to answer: Having highly ranked paid and natural search keywords is usually considered ideal, but does it always support conversion rates, or will a marketer sometimes get more bang for a search dollar when keywords fall lower in rankings? Experts also say marketers need to better learn the search behavior of their targeted customers, who may start searching on generic terms and responding to top-ranked keywords, then refine their search over several queries before settling on a particular brand and responding to results further down in rankings. The typical consumer enters about five search queries over a week’s time before clicking on a keyword to make a purchase, experts say.

“Looking at what a consumer actually does during the search lifecycle is important to a retailer’s ROI,” says Stuart Larkins, vice president of search for Performics, the search marketing unit of DoubleClick Inc. “The first search is generic, but as the consumer gets closer to making a purchase, the search queries get more defined to a specific product. You want to make sure you’re in the first round of queries, but also make sure you’re in the last round.”

Getting specific

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