February 28, 2005, 12:00 AM

Search Engine Marketing

In the first of a series of surveys, Internet Retailer’s exclusive survey of search engine marketing practices shows some surprising results.

Search engine marketing--the practice of buying keywords on search engines or using language and design elements on a web page in order to appear high up in the results of web site searches--has been touted by many e-retailers as the best way to drive traffic to their sites. And the phenomenal success of search engine Google is attributed in large measure to the growing use of search engine marketing by e-commerce business.

Based on a recent online survey by Internet Retailer, this enthusiasm for search engine marketing appears well justified. The online survey, conducted in the second week of February using the online survey system of WebSurveyor, was distributed to all 32,000 opt-in subscribers of Internet Retailer`s e-mail newsletter, IRNewsLink, asking respondents to provide details about and rate their experience with search engine marketing techniques to promote their e-retail sites.

Extremely efficient

A tabulation of the answers provided by the 343 IRN subscribers who completed the online survey clearly indicates that search engine marketing is an extremely effective tool in driving traffic to web sites and boosting online retail sales. More than half of all respondents, who consisted of executives at retail chains and stores (24%), catalog firms (19%), web-only merchants (32%), consumer brand manufacturing and service companies (12%), and business-to-business products and service companies (13%), report that search engine marketing performs somewhat or much better than other forms of marketing for their e-commerce sites. Indeed, only a quarter of respondents report that search engine marketing performs worse than other forms of marketing.

Yet, it is also clear that search is only now becoming a well established marketing form. Fully 13% of those responding to the survey still do not use search engine marketing and another 18% have begun using it only in the last year. Only 21% of those surveyed report using search engine marketing for four years or more.

The use of search engine marketing varies significantly depending on the e-retailer`s primary business. Pure-play e-merchants are the most experienced users of search engine marketing, with 54% reporting using search engine marketing for three years or more. By comparison, only 40% of retail chains and stores have used search engine marketing for more than three years. Among catalogers, which as a group moved more aggressively into e-commerce than the chains did, that figure jumps to 47%; and consumer goods manufacturers report adopting search engine marketing even more recently than the retail chains.

The amount of experience with search engine marketing matters, because results from the survey reveal that search engine marketing is something that takes time to get good at. For most e-retailers, the survey shows that the longer they have been using search engine marketing, the better the results they are likely to receive from it in the form of improved online sales. For example, nearly two-thirds of e-retailers who report that they get 60% or more of their web sales from search engine marketing have been using search engine marketing for three years or more. Conversely, less than 25% of e-retailers who attribute 10% or less of their online sales to search engine marketing have been working with search engine marketing for that long.

Spending = sales

It is not surprising that the pure-plays are more experienced and committed users of search marketing. Since they lack well-known store or catalog brands and merchandising channels, they have fewer marketing alternatives. But it is also surprising that e-retailing operations of retail chains, catalog firms and consumer goods manufacturers do not use search engine marketing more aggressively, given their generally favorable impression of it and the fairly close correlation between the effective use of search engine marketing and retail web sales.

The survey reveals a surprisingly strong correlation between search engine marketing`s share of an e-retailer`s overall web site marketing budget and search engine marketing`s contribution to web sales. At most levels of search spending, e-retailers report that the percentage of their web site marketing budget that is devoted to search is fairly evenly matched to the percentage of web sales they consider attributable to search engine marketing. In some cases, search engine marketing is credited with generating a higher percentage of online sales than its share of the web site marketing budget. The payoff is particularly good for those with relatively modest search programs. For example, 63% of e-merchants who spend less than 10% of their e-commerce marketing budgets on search attribute the same percentage of their web sales to search; but the remaining 37% of those low-budget search spenders attribute more than 10% of their online sales to search engine marketing. Similarly, fully two-thirds of those whose search engine marketing spending is between 11% and 20% of their web marketing budgets report that they get that percentage or higher in web sales attributable to search engine marketing.

In addition to the amount of experience with and the level of budget commitment to search engine marketing, other factors affecting search performance relate to the way it is used in generating online traffic and sales. The survey asked e-retailers whether they preferred paid search or search that optimizes natural language, how many key search words they manage, whether they manage search engine marketing in house or rely on outside providers, how much they pay on average for key search words, and which search engine produces the best results. Here is what the responding e-retailers reported:

Paid vs. natural language search: 57% of respondents report that they use both paid keywords and natural language search optimization, and the remainder are split evenly in the paid and natural search camps. Those who use only natural language search marketing report a higher level of online sales attributable to search than those who use only paid search. But for those who use both--the majority of respondents--search engine marketing produces more web sales than either method used on its own.

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