Brand Discounts at the Major Engines

Google’s hybrid auction gives brands a huge discount on top positions. Starting later this month, MSN’s, Ask Jeeves’, and LookSmart’s PPC (define) keyword auctions will all use a hybrid system that rewards brands and compelling, relevant creative. The brand discount allows marketers to reach a higher position at a lower bid.

Why the discount? Searchers like to click on ads that are familiar, relevant, and compelling. This discount has existed for years within Google’s AdWords system but has become more pronounced, especially now that the new Quality Score system is part of the method of calculating AdRank within AdWords. Quality Score takes into account factors beyond historical CTR (define) when calculating the predicted CTR for a particular ad in a specific situation (e.g., match type, geography, length of search query, etc.). One factor that seems to influence predicted CTR, regardless of position, is a brand term in the ad copy or branded domain.

In Yahoo, branded ads also get a higher CTR, but because Yahoo is currently a standard auction for position and doesn’t take CTR into account when determining position, branded ads don’t get an effective discount. Irrelevant ads with a very low CTR (Click Index in Yahoo) are removed entirely from Yahoo’s results and system.

Rumors are swirling that Yahoo will move to a hybrid auction (similar to Google’s) in the not-too-distant future. On quarterly investor calls, Yahoo executives have hinted at this development, as well as imminent changes to the Yahoo Search PPC system to improve monetization and yield. My guess is the change will occur in the first quarter of 2006. It could be sooner, or later.

MSN’s adCenter, which launches this month, relies on a system that uses its own version of a hybrid auction. The auction factors in predicted CTR when calculating an ad’s optimal rank. In MSN, as in Google, brand advertisers with good ad creative have a built-in discount, assuring a higher average position at a lower cost than average non-branded advertisers.

When purchasing media or writing marketing plans, brand advertisers think of target customers from a demographics perspective. MSN’s adCenter will take this into account by allowing marketers to “bid boost” by age and gender. Brand marketers will love this feature. Over time, direct marketers will too, as they determine if certain age and gender combinations result in higher conversions.

It’s not yet known how MSN will factor in any CTR increases that occur due to affinities by age and gender combinations for a brand. If certain segments’ CTR increases are factored in appropriately, the MSN brand discount could be huge for brands that appropriately target.

Major brands, as well as sellers of their products and services, can take advantage of this brand discount. If you don’t sell brands and aren’t a brand in your own right (a domain people would recognize and associate with your product or service), you can always hope your competition makes some tactical or strategic errors or writes ads that are so boring and generic that even with the brand effect, your ads are more exciting and compelling.

If your competition includes brands and you aren’t a brand, you must find ways to compensate for the brand discount you don’t receive. Tactics include:

• Better ad creative (tuned to the specific keywords searched on). This results in a higher CTR, which may put you on par with the branded competition.
• A domain name that includes the keyword or category. Eye-scanning behavior takes in the keyword or related concepts in the domain.
• More use of the keyword in the ad creative.
• Going further out on the tail of keywords. You’ll capture search traffic your branded competitor may be missing. The keywords tail is less-searched keywords that are still worth buying together.
• Raising your bid and spending the money to brand experientially. Your competition likely spent millions of dollars to build its brand in off- and online media. Perhaps spending a few thousand more in PPC search will build a brand by attracting people to your site.
• Improving your conversion rate. If you can get your conversion rate up a couple percentage points, you can afford a higher bid. A higher bid may be required to compensate for your branded competitor’s high CTR.

Brands have clear advantages in PPC search. If you’re a brand marketer, it’s a reason to rejoice. If you aren’t, you must be smarter and more nimble to outmaneuver the brands you compete with. Of course, if you have a few million, you might consider building a brand of your own using a combination of SEM and traditional media.

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