I recently met the marketing director for a really smart online retailer. This guy has talent.
He drives all the sales for an online store selling very high-end “considered purchase” goods. He does it without any PR support; print, radio, or TV advertising; a branding campaign — and here’s the killer: without anything we would consider a “marketing mix” in the traditional sense.
Jeremy Dalnes is the director of online marketing for HomeClick.com. He’s not my client. (Of course, this admission will ensure every SEM in the world will contact him later today.) He contacted me after reading my column on contextual advertising to say he tried it and it didn’t work for him.
Believe it or not, HomeClick is using only one online marketing tactic: paid search engine marketing (SEM).
Even more interesting is its marketing execs often choose to exceed rational bid prices (that can support their online conversion rates and return on investment, or ROI) for certain keywords. Why? Because they’ve been able to figure out a way to tie offline sales back to their pay-per-click (PPC) campaign.
Intuitively, we know our SEM campaigns drive sales beyond those that convert on our sites. Most of us realize we need some way to credit those offline sales to these campaigns in a way that allows us to increase our bids or make further investments in SEM.
It’s time for all marketers to acknowledge and measure the offline sales impact of their SEM spends and adjust their budgets accordingly. It doesn’t have to be complicated. It can be done without perfect information, as this case study reveals.
One Tactic. One Kind of Traffic.
The proof is in the results. Here’s what HomeClick has achieved to date using only SEM:
- Marketing as less than 10 percent of revenue
- Revenue growth of 10 percent quarter over quarter
- Revenue of $30 million for 2003
- A profitable, cash-flow positive company
HomeClick has been selling online since October 2000. According to Jeremy:
HomeClick is the leading Internet retailer of high-end luxury brands for “considered purchases” for the home. We sell mostly luxury brands, including kitchen and bath fixtures, tableware, lighting fixtures, outdoor furniture, and the like. We sell the best brands for your home at the best prices — not always the lowest price, but definitely a low price. We’re one of the [few] online retailers that are authorized to sell most of the brands we carry. We have a dedicated customer service and sales staff, the widest selection of product you will find anywhere, and stock a large percentage of our products.
For any of you thinking of buying a Jacuzzi or Lenox china, or maybe a Quoizel West End Tiffany table lamp, HomeClick is shopping nirvana.
These items are all “considered purchases,” something relatively expensive shoppers research and purchase after careful consideration. These are premium brands that are hard to get.
Some items won’t be purchased online because the buyer will need to speak to an expert first or check a measurement of an item, such as a sink or fixture. This means not all sales can be tied to a particular search keyword.
Here’s how HomeClick currently spends its online marketing budget:
- 65 percent pure PPC: Overture, Google, and so on
- 30 percent paid inclusion: Inktomi and AltaVista
- 5 percent: other
According to Jeremy, “Paid inclusion can be a powerful [tactic], but as a contributor to revenue you really need a lot of [paid inclusion programs] to help. In comparison, Google and Overture produce a [more] significant share [of revenue]. The rest all combined make up less than 40 percent.”
Assigning Offline Sales to Online PPC Campaigns
Currently, HomeClick drives 60 percent of its revenue from online transactions and 40 percent from telephone sales from Web site visitors. I asked Jeremy how he assigns his offline revenue to his online marketing campaigns. Here’s what he said:
At the end of the month we have Web revenue and what I call “extrapolated revenue,” or offline revenue that we must assign to an online promotion. Web revenue, obviously, is traceable through our third-party tracking software, KowaBunga.
It’s sort of an inexact science and there’s a fudge factor to it. Given that only 40 percent of our revenue is coming in over the phone, I feel confident that the Web revenue breakdown is translating more or less similarly from each of our programs to phone sales. So in other words, we are assigning telephone sales to each of our PPC spends in the same proportion that that spend drives the online conversion. It’s inexact, but a good enough indicator for us….
If our bath and kitchen campaign on Overture brought in $100,000 [online], I would say that it is highly likely that because 60 percent in Web sales equates to an additional 40 percent in telephone sales, we can safely assume that $166,666 can be attributed to that campaign.
Bidding More Than Online Conversion Justifies
For many keywords, HomeClick will bid far above other bidders because it has at least anecdotal data proving these keywords are driving telephone inquiries that convert offline.
Jeremy meets weekly with category managers who know how the offline sales are doing to validate his bidding strategy on certain keywords:
The real art of it is to have constant communication with my category managers, the bath and kitchen category, etc. I meet with them once a week, and I go over the previous month’s campaign. I show them what I’m paying for keywords and point out the things that would make some marketing managers nervous, [such as] by saying, “Look, we’re spending way more dollars than is allowable here on this particular keyword.”
We may not be selling enough of this product on the site to justify that spend — like “Jaccuzzi.” Jacuzzis can be anywhere from $3,000 to $30,000 — we do own the word “Jacuzzi” [in Overture and Google].
But based on the Web revenue, it would look to most people like we should not own the word “Jacuzzi.” By being in constant communication with my category manager, I ask him if we are selling enough Jacuzzis to justify the cost, and he can continually give me feedback, which allows me to adjust our position accordingly.
Jeremy points to another example — Lenox crystal and china. “Lenox” is a very competitive, and therefore expensive, keyword. Jeremy checks in with his category manager frequently to justify his bids. He has learned that offline, tableware purchases can balloon.
“For some patterns, I’ve seen some purchases that would blow your mind — $17,000 tableware purchase, $1,700 per place setting,” said Jeremy. “Many large tableware orders often come in over the phone. I have to really justify and check in with my category manager to make sure that things are kosher.”
What About Branding?
How important is “branding” to an online store selling high-end goods, I wondered.
“The way that HomeClick looks at branding is this: We cannot afford extra marketing dollars on branding — instead, we’re building our brand by ensuring that each customer has a positive transaction with HomeClick. If they do, they spread our good name by word of mouth,” he said. “Branding happens organically if you have a good company.”
Where Do You Grow From Here?
“The key to growing is to constantly buy more keywords,” he said. “That is really the answer. The answer is not spending big bucks on a handful of large traffic generating words, but spending the time to identify new keywords that convert — day after day finding new cost-effective ways to drive [qualified] traffic to your site.
“By adding more keywords, we are not necessarily getting much more traffic,” Jeremy continued. “There’s obvious value in driving low-volume, highly qualified traffic where if someone does a search for ‘St. Thomas sink,’ which is not a very [frequently] searched nor expensive term. But it’s something we are authorized to sell, and we have great prices on it. Though we won’t make many sales by bidding on that word, we don’t pay much, and the conversion rate can be very high.”
PPC-based SEM is the core element of HomeClick’s growth strategy and essential to the company’s remaining profitable, according to Jeremy.
I believe HomeClick is missing opportunities by not engaging in a natural search optimization campaign as well, but in time execs may consider that strategy. That aside, this online retailer has mastered paid SEM and is building a growing company with a loyal following.
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