July 22, 2014, 12:25 PM

Paid search pays off in a bigger way for online retailers

Online retailers continue to spend the most money on paid search, but that’s because it’s the most effective way to attract new customers, a Forrester Research and Shop.org report says. And it was more effective in 2013 than the year before, retailers say.

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Paid search dominates marketing budgets for e-retailers, and for good reason, says a Forrester Research Inc. and Shop.org report released today. E-retailers surveyed most often cite paid search as the best way to acquire customers—and 76% of e-respondents say paid search was more effective in driving sales in 2013 than the year before.

The results come from the marketing part of The State of Retailing Online report, an annual study conducted by Forrester Research and Shop.org, the e-commerce arm of the National Retail Federation. The results come from a survey of 81 online retailers completed in April and May. 45% of respondents generate more than $100 million in web revenues, 50% have had an e-commerce site for at least 10 years, and 32% of the respondents have interactive marketing budgets of more than $10 million.

99% of e-retailers responding spent some money on pay-for-performance search placement, such as Google AdWords and Yahoo Advertising. 19% of respondents allocated more than 50% of their marketing budgets to paid search. 17% allocated 41%-50%, 14% allocated 31%-40%, 19% allocated 21%-30%, 19% allocated 11%-20% and 9% allocated 6%-10%. The total does not equal 100 because of rounding.

85% of respondents cited search engine marketing as one of the top three best ways to attract customers. 41% cited organic traffic, 40% affiliate programs, 29% remarketing and retargeting of advertising, 15% direct mail campaigns. 10% sweepstakes and 10% behavioral targeting of ads. Respondents also cited online marketplaces, offline advertising, social media and text advertising, though fewer than 10% of respondents selected those tactics .

And paid search is paying off. 76% of the responding retailers say paid search in 2013 was more effective in terms of revenue than paid search in 2012. Only 8% said it was less effective, and 16% said it was just as effective. In terms of cost, 39% said paid search was more effective in 2013 than in 2012. 39% said it was less effective, and 23% said it was just as effective.

Online retailers are also beginning to spend more on such marketing tactics as display advertising, specifically remarketing and behavioral ads, the reports says. While 97% of retailers allocated some of their budget to display advertising, only 9% allocated more than 30% of their budgets to it. But 77% of respondents said they spent more on display advertising in 2013 than they did in 2012.

The report says e-retailers are allocating more of their marketing budgets to smartphones and tablets, though much of that is focused on the tried-and-true tactic of e-mail marketing. E-retailers reported that 42% of their e-mails were opened on smartphones, 41% on desktop computers and 17% on tablets.

“As more web traffic for retailers has shifted to mobile devices, e-mail has turned out to be a key tactic to engage shoppers on mobile devices, particularly smartphones,” says the report by Forrester e-commerce analyst Sucharita Mulpuru. “While virtually all the top online retailers have invested in apps, the majority of their mobile traffic continues to come from the same sources as their desktop traffic: search, e-mail, and organic traffic.”

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