Is paid-ad rank mostly irrelevant?

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Google kicked off a debate last month when one of its chief economists essentially advised marketers not to worry about the ranking of their pay-per-click search advertisements.

Hal Varian, writing on Google's Inside AdWords blog, acknowledged that the higher up in the rankings a pay-per-click ad appears, the more clicks it tends to receive. But he also said that ad position offers “very little variation in conversion rates.”

Varian and his team used a statistical model to determine that conversion rates of paid ads vary by less than 5% across a sample of 11 “sponsored links” ads appearing down the right-hand column of the typical Google query-results page.

“An ad that had a 1% conversion rate in the best position would have about a 0.95% conversion rate in the worst position, on average,” Varian said. “The bottom line: Conversion rates don't vary much by position.”

What should marketers make of this analysis?

“I think Google really wants to make sure they're not losing players in this marketplace,” said Mark Simon, VP-industry relations with digital advertising agency Didit. “Just because an advertiser is in a lower position, that's all he can invest in right now. Google is reinforcing the fact that he can still get a similar conversion rate and not have to pay ungodly rates.”

Nevertheless, Simon stressed the importance of bidding high enough on essential keywords to gain a high PPC ranking.

“If someone is paying $100,000 to appear in the No. 1 PPC spot, and getting a 4:1 return on investment, he's getting a $400,000 return,” Simon said. “The advertiser at position No. 11 paying just $100 may get the same ROI, but in the process is getting just $400 back. It's the same ROI, but I'm not sure that's keeping his business going.”

Simon said advertisers should pay as much as they can for their important keywords, to elevate them in the search-result rankings and so capture volume that will convert to buying customers. He said this applied to b-to-b marketers, too, whose universe of potential customers typically is smaller than consumer-oriented retailers.

“Also, Google provides a discount for ads that get higher click-through rates,” he said. “They're saying you've done a good job, visitors actually seem to think your ad is relevant to what they're looking for. Thus, you can actually get a lower cost-per-click at the No. 3 position than at No. 6, because Google assumes it's a more relevant ad.”

Trying to parse the logic of both search engines and searchers can become daunting, said Naylor Gray, director of global marketing at Frost & Sullivan.

“Often it's better not to appear as No. 1 or [No.] 2, but rather in the No. 3 or [No.] 4 position, because the huge drop-off in the cost of the ads between these two levels carries with it a negligible downside,” Gray said.

“In addition, you tend to lose empty traffic, the people who are just clicking on the first two ads but aren't serious shoppers,” he said. “Serious shoppers will take a minute, read everything and pick the one that sounds best.”

This phenomenon seems to play out with Yahoo paid search which, in addition to showing relevant PPC ads at the top and along the right-hand side of the results page, also lists a few ads at the very bottom of the page.

According to Mary O'Brien, chairman of the PPC Summit, a series of conferences on search marketing held around the country, the two or three paid ads at the bottom of search pages actually can have a higher click-through and conversion rate than ads along the side.

“It almost directly correlates with the way your eye would track,” O'Brien said. “I've also seen this happen a little bit with the No. 11 ad on Google's right side.”

Regardless of an ad's position within the sponsored-links results, there's no reason why a PPC advertiser need be satisfied with a static conversion rate, O'Brien said.

One way to improve conversion, regardless of ad position, is through a careful selection of keywords, she said.

“For advertisers, long-tail keywords are better-converting keywords,” O'Brien said, referring to extremely specific, multiword phrases that match closely a buyer's query and intended purchase.

“Since the keyword phrase is extremely detailed, once somebody indicates—by typing in the long-tail phrase—that he's at that phase in the buying cycle, he's done all his homework,” O'Brien said. She said conversion rates are naturally high here, regardless of whether the queries (and resultant appearance of the ad) are infrequent.

Landing pages also impact conversion rates, O'Brien said.

“You can plant the seed through keywords and your ad, but you make the sale on your landing page,” O'Brien said.

Simon agreed, saying:“You want to present the right landing page for the keyword you're buying.” “If you can get half-a-percent higher conversion rate this way, that can be huge in actual return to the business. Then, you can push that money back into keyword buys.”

Simon added that, since PPC ads can be made to appear during any particular time of the day, “dayparting” of PPC ads can improve conversion by appearing when the marketer knows his best customers are doing research.

The gist of Google's analysis compared the performance of one PPC ad when it appeared at various positions in the sponsored-link results. But marketers don't advertise that way. With different keywords, ads and landing pages, they can do a great deal to improve the performance of their ads, regardless of ranking.

“Click-through rates determine your cost and budget, and the way you attract a customer,” O'Brien said. “The conversion determines whether your business will be successful or not.”

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