November 15, 2011, 3:00 PM

Retailers pump up paid search spending as holiday season begins

And this year’s larger marketing investment comes amid higher online sales. 

Allison Enright

Editor

Lead Photo

Paid search advertising is getting an early holiday shopping season boost as consumers go online to start researching and buying holiday gifts, according to two new reports. Retailers spent more on paid search ads in October and early November than they did a year ago, and paid more each time a consumer clicked on one of their ads on search engine results pages.

Early season sales data suggests that retailers’ investments in paid search are paying off. Online sales for retailers were up 25% year over year during the first two weeks of November, according to data released today by payment processor Chase Paymentech. The vendor’s Cyber Holiday Pulse Index tracks transaction activity for 50 U.S. online retailers. Chase Paymentech did not disclose which retailers it includes in its index but the vendor provides payment systems to 130 e-retailers ranked in Internet Retailer’s Top 500 Guide. Collectively, those 130 e-retailers accounted for more than $66.75 billion in sales last year. 

The average cost per click in October cost retailers 56 cents, up 21.7% from 46 cents a year ago, according to digital marketing agency Efficient Frontier. The agency based the average on the price its retailer clients paid per click during the month. It says more competition for keywords among retailers and more demand from consumers clicking on paid search ads early in the holiday season are driving up costs. “The fact that cost per clicks in retail have gone up tells us that retailers are seeing strong demand from consumers and retailers are seeing greater revenues from them,” says Siddharth Shah, senior director of business analytics at Efficient Frontier.

Data covering the first days of November from digital marketing agency Performics Inc. show even greater increases in per-click costs. It says the average price per click increased 32% during the first week of November compared with the same week a year ago; it did not disclose the average price. The agency bases its calculation on the prices its retailer clients paid per click during the week.

The agency says the size of the budgets retail marketers are allotting to paid search early in the season is also significantly larger than a year ago. Performics retail clients’ spending on paid search during the last week of October increased 73% from the same week a year ago, and up 88% during the first week of November from the prior-year week. Greater per-click costs are partly responsible for the greater spending, but consumers also clicked on paid search ads more frequently during those weeks. Performics says paid search clicks were up 47% during the last week of October and up 43% during the first week of November from the same periods a year ago.

“Retailers are attempting to capture market share in the weeks before Black Friday,” says Dan Parks, associate director of strategy and analytics for Performics. Black Friday, the day after Thanksgiving, is known as the traditional kickoff day for holiday gift shopping. “We’re seeing heavier spending pushes coming one to two weeks earlier than last year,” Parks says.

He says he does not expect to see such dramatic increases in year-over-year paid search spending to continue throughout the season because the early spending is meant to capitalize on the push to start the holiday shopping season earlier each year.

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