Search Marketers Look to Efficiency in 2006

Most advertisers in a recent industry survey said their common keywords got more expensive in 2005, but improvements in ROI could still justify larger marketing spends in 2006, experts say.

“Higher costs don’t necessarily have to translate into lower return on investment. We counsel many of our clients to pursue the same levels of ROI, and accept slightly less in terms of volume of return,” Ben Perry, director of paid search programs at iProspect, told ClickZ News. “Rethinking the true worth of search traffic, most notably by reconsidering potential branding value over and above more measurable ROI, will allow search marketers to reset their expectations of search traffic costs.”

The survey, the Search Engine Marketing Professional Organization’s (SEMPO) “The State of Search Engine Marketing 2005,” found that most advertisers felt prices for their common keywords rose in 2005, with the most common estimate of how much they rose being “20 percent or more.” That was the response of 32 percent of agencies and 20 percent of advertisers in the survey, followed by “10 percent more” and “30 percent more,” both garnering 25 percent of agency votes and 15 percent of advertisers’.

Most advertisers said they plan to use to cope with rising keyword prices by improving a site’s efficiency at converting, as well as boosting the efficiency of bid management programs. Only 21 percent of respondents said they could not justify any more spending based on their current ROI, while 19 percent said they could add 10 percent to their budget. Eighteen percent of respondents said they could add 20 percent more, and 17 percent said they could up their budget 30 percent more.

“There’s going to be a lot of talk this year about caps on bid prices. But as people are better able to measure the return from search, they’re finding room to go higher,” said Gord Hotchkiss, president and CEO of Enquiro and SEMPO Research Committee co-chair. “Compared to other channels, the per-click prices may seem high at first, but when you get down to it, they’re still a bargain.”

Advertisers may get a brief respite from price increases, if current trends persist. Fathom Online’s most recent Keyword Price Index (KPI) showed that keyword prices stayed flat overall, ending December at $1.43, which was $0.03 lower than in November, and just $0.01 lower than September’s KPI of $1.44.

Keyword prices continued to rise in highly competitive categories like automotive, up 10 percent month-to-month; consumer retail, up 13 percent in December, and telecom wireless, up 15 percent month-to-month. Those increases were offset by 10 percent drops in finance and mortgage keywords.

The stability can be attributed both to smarter advertisers, who are beginning to manage keyword buys better, and to an increasing inventory of search and contextual advertising, according to Chris Churchill, founder and vice chairman of Fathom Online.

“Advertisers are beginning to understand their clients and customers better. They’re applying database acumen to look at ROI over 30-, 60-, and 90-day periods instead of just the immediate sale,” Churchill told ClickZ News. “With that kind of efficiency, along with all the new inventory, prices are going to stay flat for the next six months or so. Right now, there are more buying opportunities than advertisers know what to do with.”

However, an influx of advertising money entering the search arena from offline advertisers could still drive up overall keyword prices, Perry said.

“An ever-increasing pool of advertisers translates into more competition, and this is the main cause for price increases,” Perry said. “We would expect the prices for top positions to continue to increase, perhaps by five or ten percent on average, and as much as twenty or thirty percent within the most aggressive verticals.”

But as advertisers become sophisticated and more able to assess the true value of the traffic they receive — through better conversion tracking and more complete understanding of sales cycles — many find they are able to pay more for well-targeted traffic than they might have originally thought, he added.

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