Paying for Shelf Space in the Search Supermarket

By Kevin Lee , September 1, 2006

Sometimes, it's useful to consider PPC (define) SEM (define) from a new perspective, particularly when it comes to explaining to others what exactly paid placement means to marketers.

Marketers struggle with understanding both the short- and long-term effect search placements have on purchase and sales. One analogy I've been mulling over recently is that of slotting fees and retailers' practice of charging for shelf space. Marketers who pay for shelf space are quite similar to search engine marketers who seek top positions. As I thought more about grocery stores and the how products are marketed in them, I found significant parallels between in-store advertising, promotional marketing, and slotting allowances as a whole, and overall SEM, both organic and paid.

These parallels may help you explain SEM to a senior executive who perhaps doesn't live and breathe SERPs (define) and real-time keyword auctions the way we do. Although there are no perfect analogies for SEM, we need a handy arsenal of appropriate analogies when discussing SEM with senior managers who haven't delved into the nuts and bolts of search. The slotting or shelf space analogy may be perfect. Let's look at all the ways it works:

• Visibility correlates with action. Stores know final purchase decisions are often made at the point of purchase. Visibility influences purchases, particularly among shoppers with no strong brand preference. This allows retailers (particularly grocers) to charge manufacturers slotting allowances. Essentially, this translates into an increased guaranteed margin for the retailer.
  
  
• Shoppers arrive with the intent to purchase, particularly in grocery stores (perhaps not in stores where shopping can be considered entertainment). In SEM , consumers arrive with a question. Search engines make money from an existing demand for information. Sure, searchers can become more curious and search more aggressively to find exactly what they're looking for, but searchers rarely spontaneously search; instead, they're driven by some external force or influence (marketing, advertising, PR, buzz, news, educational interest, or, rarely, spontaneous curiosity).
  
  
• Some brands are so strong consumers expect them to have high visibility. Stores must comply. Procter & Gamble refuses to pay slotting allowances (but does engage in in-store advertising). Some advertisers have built brands that are so strong the retailer must give the brand good placement or risk losing customers. Similarly, search engines tune ranking algorithms to make sure that unless something's horribly wrong, top results for general category searches are known brands. Consumers expect to see them. In searches for the brand itself, consumer expectation is 100 percent.
  
  
• There's both an immediate and a lagged outcome of increased visibility. When stores use end caps to promote a particular product (often one that's on sale and heavily promoted), consumers become more aware of it. There's a residual effect on sales (both repeat sales and sales likely influenced by high promotion visibility).
  
  In PPC search, not every searcher is ready to buy. Several public studies have quantified lagged on- and offline conversion in which search clearly played a role in final product selection or retailer selection (on- or offline). Marketers have learned to quantify the delayed effect of in-store promotions and slotting allowance spending. The same efforts must be made to understand search's role in buying decisions over a long period, including the interaction effects with other media.
  
  
• If you don't pay the slotting allowance or advertise in store, your competition will. In SEM, there's always someone ready to take your position if you can't afford it or drop out.
  
  
• Many marketers feel pressure to pay slotting allowances or spend on in-store media simply because the competition does. Paid search competition for position is often driven by an irrational need to match or fight the competition for position with no regard to how to best allocate limited budgets.
  
  
• Consumers usually aren't aware of slotting allowances. Similarly, many searchers don't know sponsored listings are paid for by advertisers. An even smaller percentage of searchers understand the lengths to which marketers go to manipulate organic listings. Of course, there's nothing pristine or pure about organic listings; they're simply manifestations of an algorithm. Most factors that contribute to relevancy scores in the organic environment are well understood.
  
  
• Consumers are aware of in-store advertising, particularly promotional advertising. Ad copy in paid placement results has become quite promotional, signaling to consumers that they're being advertised to.

When the CEO or marketing VP asks you why SEM budgets need to grow, perhaps the above analogy will help explain that it pays to be in the SERPs, both for immediate ROI (define) and because search affects consumers as they make their buying decisions.

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