Google Pricing System Plagues Players Like P&G

Big Players Want Volume Discounts; Web Giant's System Won't Allow Them

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BATAVIA, Ohio (AdAge.com) -- For years, consumer-package-goods marketers saw search advertising as mainly for direct response, not branding. But now that more are heeding data showing search's potential as a branding vehicle, they're running into a new problem: The pricing model wasn't really set up to serve them, and in some respects it thwarts them.
Kevin Kells, a Revlon veteran who's now CPG industry leader for Google
Kevin Kells, a Revlon veteran who's now CPG industry leader for Google

Scale buying is a big part of the raison d'être for big CPG players such as Procter & Gamble Co. -- providing the economies that, according to theory, overcome the downsides of big multibrand companies, such as bureaucracy.

Trouble is, Google's pricing system, and the rest of the search industry that largely mimics its model, doesn't permit volume discounts. In fact, to the extent CPG players start buying more search ads, and that encourages competitors and retailers to do likewise, bidding could make prices for industry keywords skyrocket.

So when Google beat some gloomy Wall Street predictions about its revenue growth last week, a lot of folks may have been happy, but it may not have been the best news for big, traditional marketers. The unanswered question hovering over search advertising is whether Google, its newfound ally Yahoo and their joint nemesis, Microsoft, will look to modify the pricing model to make it more CPG-friendly once the torrid pace of search spending slows and the appeal of giant branding budgets beckons.

Working together
After ComScore, Yahoo and P&G released a study last fall showing the surprising power of search to reach consumers as a branding vehicle in seemingly pedestrian package-goods categories, the chief marketing officer of a national retailer called Advertising Age to pose an interesting conundrum. If all the brand marketers start bidding on the same keywords their retailers are bidding on, everyone will pay more, he said. He was looking for brand partners to bid jointly on keywords in co-marketing deals.

An executive at one CPG marketer recently noted how perverse the search-pricing model has become for the industry.

"It used to be that impressions weren't in the pricing model," he said. But Google eventually incorporated them in a roundabout way, he said.

"If you get too many impressions without getting clicks, the price goes up, or they kick you off completely," he said. "So they thwarted with their pricing model the window we had to actually deliver impressions ... because of course it makes their revenue go up. But that makes our value go down -- for everybody in package goods."

He said the company has purposely tried to maximize impressions while minimizing clicks in search ads, though he termed that "smart buying," not "gaming the system."

Reluctance to change
"Sure, we prefer a model with lower prices," Randy Peterson, search-marketing-innovation manager for P&G, said in an e-mail. But he doesn't think Google is about to change its ways.

For one thing, he said, Google "is doing what's right for the consumer" by making sure ads are more relevant, adding that its quality-score system can in some cases mean marketers pay less even if their click rates rise.

But, he said, Google's quality-score system also means ads written to get an impression (for branding) "will be disadvantaged -- since 'quality' does not refer to the quality of the information in the ad but the extent to which the copy results in clicks [and therefore revenue] to Google."

Despite the lack of scale-buying opportunities, about half of search spending still comes from big brands as opposed to direct-response advertisers, said David Kidder, CEO of Clickable, an online service that aims to help smaller marketers maximize return on investment in search buys.

But while he said the economy may slow growth of paid search and that the huge offline media budgets of CPG companies are a tempting target for everyone, he said he's unsure that's enough to make Google change.

Upfront deals online
That fact caused one package-goods media executive to wonder two years ago why former Wal-Mart Stores executive Julie Roehm ever pushed for a similar system for TV in lieu of the upfront.

The sorts of opaque, off-rate-card, cost-per-thousand deals common in the upfront may not run afoul of Google's "Don't be evil" credo but could alienate much of the AdWords client base.

"It's not worth rattling the meritocracy" for Google to start doing volume discounts, Mr. Kidder said. But Kevin Kells, a Revlon veteran who's now CPG industry leader for Google, isn't exactly drawing a line in the silicon.

"We would never rule out anything," he said when asked if Google would ever consider scale-based deals as part of its search pricing model. "We're not so rigid in that. But what we like to do is make things so they're accountable and measurable and have the right outcome for advertisers and consumers."

He prefers, however, to point to Google's other CPM-based nonsearch offerings, largely opened up by such acquisitions as YouTube and DoubleClick in recent years, which may offer more CPG-friendly deal structures.

Leeway
Like Mr. Kidder, he said he believes enough permutations remain in keyword buys around dayparts and geo-targeting to accommodate considerably more brand investment without rates skyrocketing.
Randy Peterson, search-marketing-innovation manager for P&G
Randy Peterson, search-marketing-innovation manager for P&G

But it's more than a CPG-friendly pricing model that search lacks, said another package-goods veteran who's now with a media agency and who recently confronted the issue in a client meeting with a large brand advertiser. He said big branding players also are frustrated by the inability to combine demographic with behavioral data in search buys.

But Mr. Kells said CPG advertisers may be missing the point -- and a lot of consumers.

A study Google did last year with ComScore for Dove deodorant, tracking a behaviorally driven search and online display buy, produced a $530,000 sales lift, 96% of it from new buyers who apparently weren't swayed by the brand's offline, demographic-targeted buys.

"It's not that demographics don't matter," Mr. Kells said. "But the reality for most of the big, mass brands is that there's not a type of person. There are types of groups, types of communities within them that drive their volume, and they aren't homogenous."

Behavioral buys can help fill in gaps left by brand advertisers' demographic targeting, he believes. Maybe that will be enough to get more of them bidding.
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