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Using Search Marketing to Stay Out of Bankruptcy

  |  April 1, 2011   |  Comments

Three fatal retailer errors in search marketing and how to avoid them.

Over the last year, an inordinate number of retailers filed for Chapter 11 bankruptcy. Interestingly, over the past three years, my firm pitched nearly every one of them on managing paid search, but failed to win their business (generally we have a decent close rate). Given that so many of these bankrupt prospects chose another path, it seemed like a fun exercise to evaluate what these firms did wrong in relation to their search marketing campaigns (paid and organic). I'm not saying that we could have rescued their businesses from bankruptcy, because obviously some of them had multi-channel issues such as unsupportable costs of their retail locations, or larger ecosystem changes for which they were unprepared. Many were also the victims of Wall Street's fiscal engineering and debt levels that were unrealistic given the fundamentals of their businesses.

However, there were several common themes in how these bankrupt marketers ran their online businesses as well as how they treated search marketing. Indeed, upon reflection, review, and analysis, there are some stunning commonalities among companies that didn't make wise decisions about marketing in general and search marketing in particular. Just in case you (or your management) share some of these common traits, let's delve into them in detail.

Retailer Fatal Error 1: "All Technology Platforms Are the Same"

The first macro trait I'd call the "commodity syndrome": a belief that most if not all technology solutions and agencies are basically the same. Let's look first at technology. Technology platforms for paid search are a tool to enable both humans to become more efficient with their time, a way to improve campaign structures, plus bid management. The best suited bid management algorithm for a specific business alone might justify a fee structure double or triple that of an inferior algorithm, yet few prospects and none of the bankrupt prospects ever asked about the bidding logic we would recommend during our discussions with them. Let's look at the math to illustrate why better bidding also makes so much difference in auction-based media, including PPC search.

Each time a search is conducted on Google, Yahoo, Bing, or other top 10 search engines and that search is potentially relevant for your business (i.e., it is in your campaign in some match type with a bid associated with the keyword), there are only three possibilities: overbid, underbid, and just right (sounds like Goldilocks, I know). A better bid management algorithm, given an optimal account structure, will make sure the bid stays as close to a calculated "just right" as often as possible. Overbid and you'll often overpay, spending money that would be best deployed on another bid elsewhere in your campaign. The "waste" combined with the wasted opportunity (opportunity cost) can add up to be substantial, far in excess that one might pay for a bid management or campaign management solution (the full fee). Therefore picking a campaign management and bid management technology based at all on price is a fool's play. That said, if one is convinced that two or more may in fact be the best, then sure, play them off against each other to get a reasonable price. But understand, the less you pay, the less customer service and tech support you can expect.

Retailer Fatal Error 2: "Anyone Qualified Can Run my Campaign"

"Anyone qualified can run my campaign" is a statement I've heard, particularly among marketers looking for a campaign management and bid management solution à la carte. Several factors make this statement unlikely to be true. First, is the marketer in a position to really determine who is fully qualified? In addition, for many competitive, highly promotional or seasonal campaigns, no single person can ever handle the peak workload and get even the "low hanging fruit" work done. For this kind of high-level workload, an agency with flexible production capacity and specialists within the areas of keyword research, creative, account structures, landing page testing, and strategy is far more likely to deliver significant performance improvements, including those with yields far in excess of any associated fees.

Retailer Fatal Error 3: "Low Fee Syndrome"

That brings us to the commodity agency mindset that is similarly prevalent when making agency decisions, not just among the prospects that went belly-up, but across the overall search marketing ecosystem. Often decisions between agencies are heavily influenced by the fee the agency is requesting. Even if the agency is deemed superior, it is common practice to request that the agency "sharpen its pencil" and adjust prices downward.

Agencies are in a service business. Search accounts need work - some more than others, depending on the lifecycle of the advertiser in PPC search, seasonality, promotional requirements, velocity of product changes, or whether or not additional media sources are being utilized (i.e., Facebook PPC/CPM, LinkedIn, or exchange-based display). By requesting a lower fee, only two things can happen: the profit margin of the agency goes down or the service level provided goes down, or both. If the agency has excessive profits, sure, a marketer can expect some concessions. However, in all service industries, even when you are a marquee client name (one the agency or service provider wants recognized in its marketing materials and case studies), eventually the agency management needs to see a reasonable profit margin because other clients with normal profit margins will require the service level they are paying for and an under-paying client will no longer get more service than they are paying for.

In summary, search and many other forms of media require both the right technology and a good agency. Failure to recognize this fact can result in failure of both the marketing campaign and eventually perhaps even the company as a whole.

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Kevin Lee

Kevin Lee, Didit cofounder and executive chairman, has been an acknowledged search engine marketing expert since 1995. His years of SEM expertise provide the foundation for Didit's proprietary Maestro search campaign technology. The company's unparalleled results, custom strategies, and client growth have earned it recognition not only among marketers but also as part of the 2007 Inc 500 (No. 137) as well as three-time Deloitte's Fast 500 placement. Kevin's latest book, "Search Engine Advertising" has been widely praised.

Industry leadership includes being a founding board member of SEMPO and its first elected chairman. "The Wall St. Journal," "BusinessWeek," "The New York Times," Bloomberg, CNET, "USA Today," "San Jose Mercury News," and other press quote Kevin regularly. Kevin lectures at leading industry conferences, plus New York, Columbia, Fordham, and Pace universities. Kevin earned his MBA from the Yale School of Management in 1992 and lives in Manhattan with his wife, a New York psychologist and children.

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