February 28, 2008, 12:00 AM

Better bang, bigger bucks

By using advanced techniques, retailers are getting a greater return on investment in search engine marketing.

There’s no form of digital marketing with higher stakes or a more fluid process than search engine marketing, especially as retailers constantly recalibrate their pay-per-click campaigns and site optimization to generate higher rankings.

But even as e-retailers shift marketing dollars and spend more money advertising on Google and other engines, they are finding ways to diversify their search engine marketing programs and produce better results. This Internet Retailer survey on how effectively retailers manage paid and natural search programs finds that search engine marketing performs better and generates higher online sales than other forms of traditional and digital marketing, including direct mail, print advertising and e-mail.

Of the 200 merchants taking part in the survey, more than two-thirds-66.8%-rate search engine marketing as performing better or much better than other forms of marketing and advertising. Search engine marketing is also a key driver of sales, with 54.5% of retailers generating more than 25% of all sales from their pay-per-click campaigns and natural search, including 28.6% who drive more than 50% of sales with search marketing.

Today 46% of retailers list pay-per-click advertising as their top search engine marketing initiative, compared with 33.2% that favor natural search and 20.8% that use both forms equally. But as retailers increase their use of search engine marketing, they are also looking at all aspects of their programs and putting in place specific strategies that generate more effective paid campaigns and enhance site optimization.

More diversity

For example, 66.5% of merchants taking part in the survey are adding multiple-word phrases to their keyword inventory, followed by 60.4% who are writing more succinct and descriptive advertising copy, 54.3% who are testing keywords and phrases to land on appropriate home and product pages, 38.6% who are monitoring their competitors’ use of keywords and 22.3% who are syncing keyword inventory with product availability.

Clearly diversity and more targeted advertising campaigns are helping retailers achieve better pay-per-click results as evident by the 49.5% of merchants who have increased their pay-per-click conversion rates in the past year, including 39% between 5% and 10%, 12.1% from 10.1% to 15%, and 13% by more than 15%. A successful pay-per-click campaign should generate conversion rates of 1.5% to 3%, according to search engine marketing analysts and digital advertising agencies with retailer accounts.

In comparison, 64.1% of merchants taking part in the Internet Retailer survey put their conversion rate on a typical paid search campaign at higher than 5%, including 13% that say 15% of searchers landing on a home or product page complete a purchase. Conversion rates are rising because more retailers are relying less on expensive generic keywords and are concentrating bids on more SKU- and product-specific words and phrases that attract motivated shoppers, says Jeffrey Pruitt, executive vice president for corporate partnerships with digital marketing agency iCrossing Inc. and a board member of the Search Engine Marketing Professionals Organization.

“Search engine marketing is mature enough that retailers now understand the medium and they are taking the time and making the effort to figure out different strategies that are really going to generate a higher return on investment,” says Pruitt “They understand that striking the right balance between paid and natural search is going to net them better sales results and higher rankings.”

Big investment

The survey was e-mailed in early February to all subscribers of IRNewsLink, the magazine’s e-newsletter, and all responses were collected and analyzed by Vovici Corp., which has partnered with Internet Retailer in a series of surveys of the e-retailing industry. The survey, which summarized answers from 120 virtual merchants, 34 chain retailers, 23 consumer brand manufacturers and 23 catalog companies, finds that retailers across the board continue to invest heavily in search-related marketing activities, with 58.7% planning to increase spending on paid advertising and page optimization this year. Retailers already are committing a significant amount of digital marketing budgets to search-related programs, with 51.5% spending at least 40% of their budgets on search engine marketing, including 25% greater than 75%.

In the early days of search engine marketing, many marketers relied on a large general keyword inventory to drive traffic. But as a response to high bids for retail-oriented keywords and phrases, more merchants are diversifying their search marketing programs, optimizing pages better, testing keyword effectiveness and measuring shopping behavior. For example the survey reveals that 70.1% of retailers are improving their natural search engine optimization by rewriting keyword descriptions on home and product pages. 58.9% are also including on product pages actual phrases that searchers use, 58.9% have enhanced site navigation to make it easier for search engine shoppers to find additional products on a product page, and 55.3% are doing a better job of using web analytics to track search-related traffic and sales and react more quickly to changing shopper behavior.

Smarter campaigns

“The biggest changes I am seeing with retailers and search engine marketing are the level of detail they are monitoring and how much more testing they are doing now than before,” says Robert J. Murray, president of search engine marketing agency iProspect. “To get more traffic and drive sales, smart retailers are making ad copy in paid campaigns much more specific. They are also using search engine marketing to identify more targeted selling opportunities in each customer’s purchasing cycle.”

Today most retailers continue to operate their search engine marketing programs in-house and aren’t likely to outsource those campaigns. Of the retailers participating in the survey, only 23% use an outside digital marketing agency to manage search-related sales and marketing initiatives and only 12.3% expect to hire an agency within one year. Retailers also use Google more than any other search engine to drive sales: 82% say Google generates their best search marketing results, followed by Yahoo at 9%, MSN at 3.2% and others at 2.6%. “Retailers are going to use Google as their top sales benchmark if they measure their results by sheer quantity of visits to their site,” says Murray. “But retailers can also generate very high conversions on product- and SKU-specific campaigns on other engines. Retailers get the best search results when they use multiple strategies and take a balanced approach.”

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