Blue Nile is pulling back from paid-search marketing, CEO says
Following a disappointing December in terms of traffic and sales, online jewelry retailer Blue Nile Inc. is pulling back from its long-held emphasis on search engine marketing due to extreme competition over paid-search keywords, CEO Mark Vadon said this week.
“In December, we had three weeks of sales that were below expectations,” Vadon said in a conference call for analysts this week. Q4 sales rose 13.5% year-over-year to $73.2 million, compared to the full-year growth rate of 20% that resulted in total full-year net sales of $203.2 million.
As it had in the past several years, ever since search marketing had replaced portal advertising as its preferred advertising channel, Blue Nile placed most of its ad dollars into search for the 2005 holiday season, Vadon said. The season started out strong in November, but by December, “irrational competition” over bidding for search keywords, Vadon said, had pushed up Blue Nile’s cost per click search advertising on Google more than 50% over the prior December.
“Our marketing skewed toward search engine marketing, and given our experience, it had seemed like the prudent thing to do,” he said. “But we were unable to drive traffic as we had expected.”
As the season got closer to Christmas, Vadon figures, more retailers jumped on the paid-search wagon, hoping to hit the peak of the shopping season at or near the top of search rankings. That not only sent keyword prices sky-high for popular terms, but it crowded the paid-search listings with additional advertisers, making it harder to grab searchers and convert them into buyers. When consumers click through more search listings to check out offers, it leads to lower conversion rates, Vadon said. “As bidding goes up, it causes downward pressure on conversions,” he said.
Blue Nile will fall back to lower positions in search rankings rather than “slugging it out” with ever-rising keyword prices, while also exploring other advertising strategies, Vadon said. Nonetheless, search will remain important to Blue Nile’s growth, he added. “We’ll not by any means stop advertising in search, but we can’t rely on it to be the only channel,” he said.
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