December 3, 2010, 1:07 PM

E-retailers rake in more sales by spending more on paid search

Higher spending on paid search during the holiday weekend pays off, search marketing firms say.

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Many online retailers spent more heavily on paid search ads around Thanksgiving this year, and generated additional sales as a result, search marketing firms report.

Here are key data points from several search marketing firms, based on their clients’ spend and sales from paid search:

  • Kenshoo Inc. says its U.S. retailer clients spent 31% more during the 26-day period ending Monday than during the comparable period last year, resulting in 83% more purchases and 60% more in online revenue.
  • SearchIgnite says its retailer clients increased paid search spending 47% in the period leading up to Thanksgiving and on the day after, but only by 6.7% on the following Monday, often called Cyber Monday. The Thursday and Friday ads generated 90% more in sales on the day after Thanksgiving compared with the same day last year, and average order value increased 24%. On the Monday after Thanksgiving, consumers spent 10.5% more than last year after clicking on search ads, but 7.5% less per order on average, meaning they made more purchases.
  • Performics says dollar sales for what it calls its Holiday Retail Group of clients were up 25% year over year for Nov. 1-29 and transactions were up 31%. It did not report on paid search spending, but says same-store sales, order volume and average order value were all up.

Among the retailers spending more aggressively on paid search and other forms of online marketing this year was Rock Bottom Golf, No. 287 in the Top 500 Guide. The e-retailer began its Thanksgiving weekend sales last Tuesday, offering 15% off everything on the site. From Tuesday through Monday, sales were up more than 35% over last year.

“We tried to get a lot more aggressive in terms of marketing budget and prices in general. We probably weren’t as profitable as we were last year, because we spent a lot of money on advertising and lowered our profit margins,” says Brian Schwank, director of marketing.

He says the e-retailer stepped up its marketing in areas like paid search, comparison shopping engines and by providing more deals to certain affiliates. To grow sales, it decided to spend up to 2% of revenue produced by a marketing channel, versus 1% last year, in other words spending up to $2,000 in marketing for every $100,000 in sales compared with $1,000 last year. That means giving up profit margin to bring in more customers. “We definitely focused on customer acquisition,” Schwank, says.

Among the search marketing firms, Kenshoo provided the most detail on its retailers’ results. Here are some of the highlights:

  • Consumers bought earlier, with retailer clients generating 57.66% of their paid search revenue in the 21 days before Thanksgiving this year, versus 51.01% last year. Retailers also spent more of their budgets earlier, 61.62% of their budget for the 29-day period in the three weeks before Thanksgiving this year compared with 57.68% last year.
  • Consumers clicked more in November, as clicks on paid search ads increased 55% though ad impressions were up only 6%. Conversion rate from paid search was up 13.54% year over year.
  • Click-through rate peaked on Thanksgiving Day at over 4.5% this year, compared with just over 3.0% on the holiday last year. For the entire season, the click-through rate averaged about 2.5%, up from just over 2% last year.
  • Average order value for Kenshoo clients dropped 7% to $132.03 from $142.32, but total dollar value of sales increased 60%.
  • Average cost per click this holiday season fell to around 60 cents from about 65 cents during the same period last year.
  • Thanksgiving is becoming a bigger shopping day, as transactions from paid search were up 69.11% over last year and revenue up 56.48%.
  • Competition for paid search ads peaked on the Monday after Thanksgiving, with retailers spending 48.15% more on Cyber Monday and increasing revenue only 16.90%, resulting in a 21.09% decline in return on ad spend compared to the same day in 2009, Kenshoo says.
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