Holiday Budget Jitters: Gut or Double Your Search Budget?

If you’re a search marketer who relies on the fourth quarter to make your year’s numbers, there’s a good chance management will ask you to slash your search marketing budget unless the economy turns around.

Many advertisers’ spend on advertising, online media, and SEM (define) is based on ROI (define) and return on ad spend (ROAS), particularly retailers, e-commerce players, and catalogers. Furthermore, they often set macro advertising and media budgets based on overall sales, where budgets are adjusted if economic factors or competition results in lower-than-expected sales. If your organization sets budgets in the above manner, you or your senior management may have some holiday budget jitters and be tempted to cut search budgets.

However, PPC (define) search and online media are very often undervalued, particularly by multichannel merchants, due to underestimation of post-search offline purchases. If you’re a retailer, arm yourself with ammunition to request budget increases for this upcoming quarter because the scenarios described could happen to you if senior management or bean counters control your budget.

SEM has been online spending’s growth engine for several years. Expansion in the types of keyword-targeted inventory to include contextual and behavioral inventory has kept this growth humming along, driven in part by an economy that’s been fairly stable. Some early data indicate the economy may be in for a rough ride, particularly if the current economic malaise spreads beyond the mortgage and real-estate markets into retail, travel, and service industries.

August and September economic news is more often negative than positive. Just this week, the Conference Board’s Consumer Confidence Index, which had declined in August, fell further in September. According to the Conference Board, which measures and creates the index on a monthly basis, the Consumer Confidence Index is now at its lowest level in nearly two years. On top of these data, we have a significant slowdown in home sales and the possibility consumers will have to devote increased budget toward debt (both credit card debt and mortgage interest). This will leave less disposable income and room on credit cards to spend over the holidays.

Many publicly traded retailers have adjusted fourth-quarter revenue and sales estimates downward, resulting in their stock prices dropping. The search marketing industry should be more concerned with the impact these cuts will have on search budgets.

Search budgets may be negatively impacted in three primary ways. First, marketing CMOs and VPs may make cuts across the board and include search in these cuts. These budget reductions could also be driven by changes in consumer behavior. Second is a reduction in the quantity of searches consumers make during the holiday season. If consumers know they can’t afford to buy products, they’ll be less likely to search. Third, consumers will still search, but conversion rates will fall as they realize the products they want are no longer within their budget range. Obviously, if conversion rates go down, most marketers will lower bids to reflect the reduced ROI.

This doomsday scenario may not occur. But if it does, be prepared to discuss with your senior management all the reasons the search budget might be the one to keep, or even to increase, during times of economic uncertainty. The certainty in tracking online transactions, combined with the influential nature of the searcher’s interaction with your site and brand (which drives offline sales), creates a strong rationale for search marketing.

Even in the face of economic meltdowns, there’s hope, so long as consumers perceive online shopping as the value channel and you as a value-pricing player. If you have the ability to influence your products’ pricing or to run promotions such as free shipping, discounts, and other programs that increase conversion rates, you may actually find consumers drawn to on- rather than offline purchases.

Most marketers aren’t using sufficiently sophisticated metrics when running search marketing campaigns. They ignore lifetime customer value, offline purchases, the mix of new and returning customers, cookie expiration, and cross-computer shopping behavior. This season, don’t take your foot off the gas: double your budget and invest wisely in search and other online marketing because your customers are increasingly moving online or relying heavily on Internet research before making a purchase decision on- or offline.

If your competitors all contract their budgets and you double yours, you’ll be in a great position, not just this year, but for years to come. Build a case now before senior management hands down the budget cuts.

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