SEARCH ENGINE KEYWORD AD COSTS STABILIZE

Study Finds Improvement in Big Marketers' Tactics

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NEW YORK (AdAge.com) -- Despite the continuing rise in the price of search engine keywords, a number of big marketers have developed strategies to reduce their overall cost of search engine advertising.
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That's the conclusion of a study by Performics, DoubleClick's search marketing services and technology division, which studied keyword volume and pricing from June 2004 to June 2005. The study is an index reflecting the activity of 50 campaigns in the entertainment, financial services, telecom, travel and retail sectors that occurred over at least four months on Google and Yahoo. Millions of keywords were tracked. Performics will study the performance of the index over time.

Grow click volume
In the study's major finding, marketers were able to expand keyword portfolios and grow "click volume," while keeping their costs per keyword constant, said Chris Henger, vice president of marketing and product development at Performics.

Performics discovered that marketers within the index are bidding on more and more keywords. The number of keywords in active use more than doubled from June to June. And click volume has risen too, meaning marketers are successfully driving more consumers to their Web sites through sponsored links.

But the costs were relatively flat, with the exception of a spike during last year's holiday season. Keyword costs ranged from $25 for cost per keyword in June 2004 to below $20 until the fourth quarter, when prices climbed sharply. In January, prices fell substantially, leveling off to between $19 and $22 over the last six months.

Holiday spike
That fourth-quarter spike -- when the cost-per-click grew 40% during the quarter -- has become routine as more consumers flock online to do their holiday shopping. "During the [fourth-quarter] season, consumer activity rises and marketers respond by bidding more aggressively and by putting more keywords in play," Mr. Henger explained. "With consumer activity up, there is greater click volume, so the cost-per-keyword rises." Marketers pay the price they bid for each time someone clicks on their sponsored links.

To keep prices stable the rest of the year, he said marketers are determining and buying more effective keywords, those that resonate better with consumers and get the click. Another important way marketers keep keyword costs in check is by buying terms in a lower -- but still well-placed position -- instead of bidding to get the No. 1 position in sponsored search results.

For instance, a marketer might be willing to pay $1 for a keyword for the first position, but that marketer may be a no-name brand and consumers ignore the link. Meanwhile, the brand name pays only 40 cents and is in the third position, but people recognize the brand and more click on that marketer's link. "The foolish marketer would say, 'The competitor is paying $1, I better pay $1,'" Mr. Henger explained. "Then his volume will increase, but so will his cost."

Improved ad copy
Another way to attract clicks in a lower position is by writing more alluring copy. "Free shipping" might drive more traffic than anything in the first position, Mr. Henger added.

And a more effective way of measuring the success of a campaign is to use the cost-per-keyword metric instead of the cost-per-click metric. Cost per click is the price the marketer pays for a sponsored link each time the user clicks on that link. Cost per keyword is the cost per click multiplied by the number of clicks that keyword generates in a month. To figure cost per keyword for the entire campaign, multiply the cost per click by the number of clicks for each keyword and add the totals for all the keywords together. Then divide that sum by the number of keywords in the campaign to get the average price per keyword.

For instance, imagine a single paid search campaign with exactly two active keywords in a given month. The first keyword receives 100 clicks at an average CPC (cost per click) of 35 cents. The second keyword receives 50 clicks at an average CPC of $1. The total expenditure is (100 x 0.35) + (50 x 1) = $85. Divide that $85 by the total number of keywords -- in this case, two -- and your average CPK (cost per keyword) is $42.50.

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