Searching for Answers (Part 1)

Ready to sell against paid search?

All precincts are almost done counting. And the results don’t look good at all.

No, I’m not talking about red states, blue states, or any political election. I’m talking about October’s retail and media numbers.

Many indicators point to last month being the worst October in 40 years, in terms of consumer and retail activity. A similar trend is occurring in the media world, as if we aren’t all aware.

One area of advertising that looks as if it’s not affected by this economic contraction is paid search. Companies are pouring more into their search engine marketing (SEM) efforts today than ever before. ComScore has Search-marketing expenditures pegged at $14B for 2008, while local search alone will be up 50% to $3.7B, with more growth on the horizon. It is a large and growing component of internet advertising, which at the local level is the fastest growth medium. Must be working, right?

The stark reality is that most traditional media sales teams are not equipped to sell against paid search today. Every day, we sell in a competitive field which includes cable, radio, newspaper, direct mail, yellow pages, outdoor, etc. But there is very little evidence that broadcast stations are doing a good job to counter paid search. Given its current growth trend and our clients’ welfare, this is a huge void in our capacity as media salespeople.

Paid search will be tomorrow what cable television is today. How big could that number be, exactly?  Consider that today, local cable does about as much as an average broadcast station with a product that is clearly inferior for the destination retailer.

Stated another way … how many new business prospects have you met recently that have stated they’re using cable today because it’s the “cheapest” alternative?

“Well, I’m getting a great deal with my current cable buy, it’s priced at $10 a spot … can you beat that?”

Sound familiar? Now, take that same logic and add the phrase “$2.50 per click”. Can you see where this is heading?

Cable television has been around for decades, and in most markets, we have only just begun to correctly position the broadcast product against local cable. In too many situations, we talk about our #1 news product and local cable’s penetration, instead of pointing to glaring differences in cost efficiencies. An eerily similar challenge (and opportunity) is staring us in the face with local paid search.

Of the total budget going to paid internet search, 13% of it is coming as a result of lower broadcast TV spending, while 64% is coming from a reduction in newspaper, magazine, and DM spending. Somebody must think paid search provides a better avenue to find a lead. Does it?

Many advertisers use paid search today … but not all are convinced it works. In fact, just the opposite. A SEMPO study revealled that only 13% of advertisers think local search “works great”. Three times as many (38%) labelled their experience as “okay” or “unimpressive”. There are only a handful of reasons that can explain such a negative skew of opinion: it’s not working the way they thought it would. Why is that?

It comes down to cost per lead. Cost per customer acquisition. Whatever you want to call it, the actual return delivered by this medium is either no better (chances are, it’s worse) than their traditional media plan.

Paid search click-thru rates are down 33% since summer of 2008.
Paid search click-thru rates down 33% during 2008.  Source: Rimm Kaufman Group

One place to look is recent paid search performance. The old adage is true: Live by the click-thru, die by the click-thru. Paid search must live and die by click-thru: it’s the Holy Grail of this highly-measurable medium. Paid search click-thru rates have fallen by more than a third since summer, meaning that the paid position advertisers bought — the one that used to generate 30 leads — is now generating 20. The advertiser has a few options here:

– Wait 50% longer for leads
– Buy up 50% more positions
– Be satisfied with selling 1/3 fewer items
– Find another solution that works better

Simply stated, search engines are displaying more ads to users (on average) before winning a click.

I’m not arguing against paid search altogether. For a few business models it has been a goldmine. The ease and manageability of it is a strength.  But, at least today, highly successful SEM campaigns are the exception rather than the rule, especially in the local market.

Good advertising is about reducing the cost of customer acquisition. A successful paid-search campaign is predicated upon an highly-efficient CPC (cost per click) buy across the right targeted keywords. And at the local level, that alone is presenting advertisers with a new challenge.

The opportunity is huge here, and we need to make sure we have all the facts to help our clients, and ourselves. In Part 2 of Searching for Answers, we’ll look at the true nuts-and-bolts of paid search, and how to position the local broadcast station in light of this.

Dave Eckstein does not play shortstop and was never the MVP of the World Series. He is a partner in the firm ESA & Company, based in Red Bank, New Jersey.

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