The Bricks-and-Mortar Edge in SEM

Which businesses will prevail in search engine marketing (SEM) marketing? What will they look like?

Will they be Internet pure plays, major brands, smaller and low-overhead businesses, or something we haven’t considered? This isn’t an easy question to answer, but one thing’s certain: Overall marketing efficiency combined with internal business factors empower an SEM campaign.

In the long run, the big SEM winners will be marketers who can afford to run campaigns that deliver reasonable volumes of highly targeted, profitable traffic. To obtain volume from SEM campaigns, at least some keywords must be in premium positions. To evaluate what the future SEM landscape will look like, let’s look back, understand the present, then predict the future. One industry for which SEM is an important marketing component is the business-to-consumer (B2C) e-commerce sector, online shopping.

Remember 1994? The Internet was going to be the great business equalizer. Anyone could build a Web site and compete with the “big guys.” Well, there have been plenty of Internet pure-play business successes, including Amazon.com, Buy.com, Overstock.com, SmartBargains.com, and, of course, eBay. Traditional brick-and-mortar, multi-channel, and catalog businesses have also embraced the Internet, some more than others.

In SEM, particularly paid placement, both pure-play and multi-channel marketers face a unique auction marketplace where each marketer bids up to a maximum per-click price, as long as they still have an optimal profit maximization profile.

Savvy search marketers seek the perfect balance between volume and return on investment (ROI). Total profit equals net profit per order times the number of orders. The highest overall immediate profit occurs when these factors combine. Your ability to convert a stream of clicks from a search listing determines the efficiency of your campaign. Marketers who win in SEM bid on a broad number of keywords in such a way they can drive click and order volume profitably. Volume and profit must coexist.

Do traditional businesses that use SEM in all the right ways have an edge over pure-play Internet businesses? A brick-and-mortar merchant very possibly has a killer advantage if we consider buyer behavior. Paid-placement SEM may be tailor-made for multi-channel retailers and businesses with both on- and offline presences.

For almost every e-commerce business you can think of, each customer has a preferred way to interact with that business, even if the merchant has several options available. Multi-channel marketers didn’t evolve to become leaders in their industries by accident; they listened to their customers’ needs and reacted with flexible ways of doing business. By providing catalog, phone, Web, and store access, for example, JC Penney came back from nowhere to become a major online retailing force. Some Internet pure plays now mail catalogs to their best customers. They’ve evolved into multi-channel marketers.

Customer purchase behavior works as follows:

• Customer researches products online and buys online (at the same retailer that provided the original information or a different retailer).
• Customer researches products online and buys offline at a brick-and-mortar store (at the same retailer that provided the original information or a different retailer).
• Customer researches products online and buys from a catalog (from the same retailer that provided the original information or a different retailer).
• Customer researches products offline and buys offline (at the same retailer that provided the original information or a different retailer). Obviously, this is the old-school way people buy.
• Customer researches products offline and buys online (at the same retailer that provided the original information or a different retailer).

When a full multi-channel marketer with stores and a catalog invests in SEM, it has a huge advantage. Not only does it have a recognizable brand, it has the ability to capture consumers who shop using all the above methods.

Large marketers with broad geographic footprints and strong catalog offerings get three bites from the conversion apple, while pure-play marketers only get one (the online shopper who buys online). Some multi-channel marketers admittedly are behind the pure-play online merchants when it comes to best practices in conversion marketing. Their sites may not convert as well, but they’re all learning quickly.

Once a multi-channel marketer improves its site’s ability to convert online buyers, as well as route offline buyers to stores or toll-free numbers, it has a killer advantage. If online conversion is 3 or 4 percent of visitors, an additional 2 percent go to the store, and another 2 percent call the toll-free number, that multi-channel marketer can afford to bid very aggressively on keywords: double the CPC at the same ROI.

No matter how hard a pure-play Internet marketer tries to improve conversion, the brick-and-mortar store or catalog conversions are a huge advantage. Several groups, including The Kelsey Group, Overture, and SuperPages.com, have released data that suggest a reasonably high level of search behavior has local commercial intent. Conversions start at 10 percent and range well over 20 percent, depending on how the study was structured. The conversion examples used above may even be conservative.

Already, some pure plays are opening stores and mailing catalogs. They want the killer advantage of online conversion optimization combined with the ability to drive customers to brick-and-mortar stores. Overture and Google understand the local intent embodied in many searches. Both now have local targeting options. I’ll cover those soon, along with the hidden giants of local search: the Internet Yellow Pages.

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