March 30, 2007, 12:00 AM

The search is on

Web merchants are spending more to get better results on their investments in natural search and pay-per-click.

These days two things look certain about retailers and search engine marketing: most merchants believe a bigger digital marketing program will deliver more sales and the amount of money and other resources they’re devoting to pay-per-click advertising and natural search is accelerating.

When Internet Retailer conducted its first industry survey two years ago, the research found that search engine marketing was relatively new-only 21% of companies that responded to the survey had used search engine optimization or pay-per-click advertising for more than four years, compared with 40% with search engine marketing programs less than 2 years old and 13% with no search-related initiatives. In 2005, the Internet Retailer survey also found that only 20% of chain retailers, catalog companies, virtual merchants and consumer brand manufacturers spent more than 50% of their online marketing budget on search vs. 42% that devoted under 10%.

Big uptick
But times change. Today, attracting visitors and shoppers by advertising or optimizing natural listings on Google, Yahoo and other search engines is clearly a top marketing priority. In fact, Internet Retailer’s latest survey on search engine marketing, with detailed responses from 245 web retailers, reveals that merchants are increasing virtually every aspect of their programs, both pay-per-click and optimizing their sites, to rank high in search engine results.

The survey finds that search engine marketing drives more than 50% of sales for 30.2% of responding e-retailers. 82.8% of all survey respondents also have no plans to reduce their overall spending on pay-per-click search engine marketing this year.

The survey notes that web retailers view their paid and natural search engine marketing programs as a better sales and advertising tool than other forms of marketing, including affiliates, e-mail and direct mail. Of the 142 virtual merchants, 50 chain retailers, 33 catalogers and 20 consumer brand manufacturers taking part in the research, 57.4% maintain that search engine marketing performed better or somewhat better than their other marketing programs. 17.2% say search marketing performs as well as other forms of marketing. 12.7% said it performs worse, and no one said it performs much worse. 12.3% don’t know how search compares to other forms of marketing.

“Search has become mainstream over the past two years,” says Greg Jarboe, president of digital marketing firm SEO-PR LLC and a member of the Search Engine Marketing Professional Organization. “Compared to other types of marketing, retailers like search because it delivers more pre-qualified buyers who are motivated to find a product or service and then make a purchase.”

Retailers are mixing and matching types of search engine marketing to drive traffic and convert visitors into buyers. But it’s clear that merchants taking part in the current research prefer to execute their own strategy-only 26.4% of merchants use an outside agency or pay-per-click program. Most retailers also aren’t looking to hire a third-party service any time soon, with only 10.8% expecting to outsource their pay-per-click or optimization program within six months and 7% in more than six months. More than two-thirds-66.5%-have no intention of outsourcing.

The survey was e-mailed in early March to all subscribers of IRNewsLink, the magazine’s e-newsletter, and all responses were collected and analyzed by WebSurveyor Corp., which has partnered with Internet Retailer in a series of surveys on the e-retailing industry. The survey finds that merchants across the board are looking for a balance between their pay-per-click and optimization strategies. For instance, 39.2% of retailers responding to the survey use more pay-per-click than search engine optimization to drive traffic, while 34.7% use more natural and paid and 26.1% use both equally. But nearly one-half-46.1%-maintain that natural search delivers better sales conversions vs. 37.3% who cite pay-per-click as a better conversion generator and 16.6% who say paid and natural search perform equally as well.

Natural approach
Enhancing natural search is becoming a higher priority for some retailers given the rising costs of pay-per-click advertising. Retailers also are adjusting their strategies to enhance their natural rankings on Google, Yahoo and other engines. For instance, 80.9% are rewriting keyword descriptions on the home and product pages to achieve better rankings, followed by 67.9% including the actual phrases commonly used by searchers on product pages, 58.1% including common product keywords in the image file names and in image display captions and 61.8% improving overall site navigation. “70% of all traffic is generated by natural search and 30% by pay-per-click so retailers should be doing multiple things to get better natural results,” says Jarboe. “They can’t just throw a couple of header tags around certain keywords any more and expect to get significant traffic.”

Some retailers are taking a closer look at natural search simply because they aren’t willing to pay for higher priced keywords. During the recent holiday shopping season, Ice.com paid about 20% more for jewelry-related key words and phrases. But Ice.com’s year-over-year holiday conversion rate dropped from an average of 0.75% to less than 0.50%, says CEO Shmuel Gniwisch. As a result, Ice.com will likely reduce its spending on pay-per-click campaigns around the Christmas shopping season while increasing the use of alternative marketing such as embedding links to videocasts in e-mail campaigns. “I hear it more from other retailers that the cost of search keeps going up, but the conversions keep coming down,” Gniwisch says. “The situation has a number of retailers looking for alternatives and doing a better job with optimization.”

PPC spending spree
Doing a better job with natural rankings can help budget-minded retailers achieve better results. But across the board the Internet Retailer survey also finds that merchants will be spending more-and not less-on pay-per-click advertising while at the same time editing down their keyword inventory to produce a better marketing return on investment. For instance, 35.8% expect to spend significantly more and 22.7% more on paid search this year, compared with 32.8% that will spend the same and 8.7% that will cut back on pay-per-click advertising. 76.9% of merchants in the survey rate Google as producing the best sales results followed by 13% for Yahoo, 4% for MSN and 2% for AOL.

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