September 1, 2010, 12:00 AM

The top retailers in search

The Internet Retailer 2011 Search Marketing Guide ranks merchants in paid and natural search—and explains how they made it to the top

In theory, retail paid search is a wide-open system where any retailer with the right bid at the right time can land a top spot in search engine ads.

But in reality, as pay-per-click advertising becomes more complex and specialized, it's the big merchants with the best-known brands, deepest pockets and most sophisticated technology that dominate paid search marketing in major merchandising categories, according to data from Internet Retailer's recently released 2011 Search Marketing Guide, which includes the natural and paid search rankings of the top 250 retailers.

In natural search, smaller retailers with specialized names and niche products can take business away from bigger competitors by doing a better job of optimizing their web sites to improve their positioning on major search engines (see story, p. 40). But in paid search, especially in bidding for the more expensive and general keywords and phrases that can generate significant web site traffic, it's a medium dominated by major chain retailers, catalogers, web-only merchants and consumer brand manufacturers.

The rankings on these pages are the product of a nine-week study. Merchants were assigned points every time they appeared in the first five paid and natural results within their core merchandising segments and the points added up to achieve a final score. While Inc. held the top spot, the next six top-ranked retailers were retail chains including Lowe's Cos. Inc., Sears Holdings Corp. and Target Corp. In all, retail chains held 21 of the top 50 spots.

And across categories, it was big companies that showed up on this list. Dell Inc. and Hewlett-Packard Co. were among the consumer brand manufacturers listed, and the rankings included such well-known catalog and web merchants as Guitar Center Holdings Inc.'s Musician's Friend, L.L. Bean Inc. and Redcats USA.

"Paid search is where big retailers are going to continue to spend more of their marketing budget because this is the program that best identifies the customers who are ready to make a purchase," says Michelle Stern, client services director for search engine marketing agency iProspect.

Big spenders

Amazon headed up the paid search rankings with 722 points, up 5.6% from 684 points in Internet Retailer's keyword analysis last year. And Amazon was the top-ranked merchant in the paid keyword category for CDs/DVDs/Music, second in its prime merchandising category of books behind Borders Group Inc., and among the top 10 in several other mass merchandising categories such as consumer electronics, digital media, hardware and appliances.

Amazon can consistently control high-traffic keywords and phrases such as "DVDs," "art books" and "screwdrivers" because it has a large and coordinated marketing staff with the resources and expertise to drill down on keyword usage patterns and use web analytics to create highly specific pay-per-click campaigns, says Udayan Bose, CEO of search marketing firm NetElixir Inc.

"A big web merchant such as Amazon, with a sophisticated bid management system and the staff and resources to create highly precise pay-per-click campaigns, can accurately predict how a paid keyword will perform at a specific time of day and on a particular search engine," Bose says. "Because they are so sophisticated, Amazon can often outbid everyone else for longer periods of time and procure the keywords they want to drive very cost-effective paid search campaigns."

Target is tops

It's not all about how much a retailer bids: Google and other search engines also consider how likely a consumer is to click on a particular retailer's ad when assigning ad positions, and well-known retailers like Amazon benefit from their proven ability to generate the clicks that produce revenue for the search engines. But the big retailers also spend heavily on paid search.

For this year's Internet Retailer keyword analysis, search engine optimization firm Conductor Inc. studied more than 2 million keywords and paid ad positions to estimate monthly pay-per-click spending for the 250 biggest merchants by online sales. Topping the spending list was chain retailer Target, which shells out an estimated $5.06 million each month on pay-per-click campaigns, Conductor estimates, while Amazon, the top web-only merchant, spends an estimated $4.76 million. Dell, the highest-spending consumer brand manufacturer, commits an estimated $2.22 million each month, while the largest catalog/call center company, Inc., spends about $1.64 million monthly.

Paid search makes up the biggest portion of marketing budgets across all types of retailers, according to Forrester Research Inc.'s "The State of Retailing Online 2010: Marketing" report commissioned by the National Retail Federation's division. For instance, apparel, accessories and footwear retailers allocate 42% of their marketing budgets to paid search; beauty and personal care retailers 43%; general merchandise retailers, 39%; home retailers, 34%; and sporting goods and accessories retailers, 44%, says Forrester.

With large web retailers casting a wider net for paid search terms, it's becoming more difficult—and expensive—for smaller web retailers to purchase high-traffic and category-specific keywords for an extended period of time. In the hardware category, for instance, Sears, which Conductor estimates spends about $1.15 million each month on pay-per-click marketing, consistently controlled hardware keywords and phrases such as "hand saws" and "wrenches."

"There's a gap in paid search spending between the biggest online retailers and everyone else, and it's only going to get wider," says Bose. "The biggest merchants have the budget to bid on more expensive general category keywords and phrases and use them more consistently over time, and that puts smaller players at a big disadvantage."

Unlike smaller web retailers, who often will pay a premium for a category-specific keyword to generate traffic and sales for a current pay-per-click campaign, big retailers are holding onto general merchandising paid terms longer in order to break down sales channels and study marketing trends.

"The analytics technology has become so advanced and paid search so important that many of the biggest merchants are purchasing high-traffic category words and phrases more consistently, and taking a longer-term view of how those terms are performing," says Jamie Smith, CEO of search marketing agency Engine Ready Inc. "They want to know how those terms generate sales across multiple channels and how they impact customer buying behavior, especially for new products."

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