Hello! My name is Alan Rimm-Kaufman. I’m honored to be contributing a monthly column on paid search for Search Engine Land. The column will appear the third Tuesday of each month. My focus will be strategy, economics, and multi-channel.
About me: I run a paid search agency based in Charlottesville, Virginia. We serve about 100 clients, mostly B2C retailers. 25 employees. We manage bids using proprietary software based on portfolio optimization and statistical clustering theory. Prior, I was Marketing VP at Crutchfield, a $250 million direct retailer of consumer electronics. I did a PhD in operations research and stats at MIT.
Today’s topic: the role of the advertiser’s brand in paid search. Let me share assertions we’ve found to be true over the last four years:
1. Sales from brand phrases are not incremental
For many search advertisers, paid search ads on the retailer’s brand name (“Brandname”, Brand Name”, BrandName.com”) generate 20% to 50% of their search-driven tracked sales. Most of these sales aren’t incremental. Brand-name searches are navigational searches, analogous to a customer finding the retailer’s phone number in the White Pages. These searches are driven by brand awareness, store advertising, catalog mailings, TV, radio, word of mouth, and so on. Even though the click came through Google (and Google charged a few cents for it), Google had nothing to do with generating the demand. Ditto your SEM agency, or your in-house search team.
2. Sales from non-brand phrases are incremental
Well, not 100% incremental, but close. Searches on product categories and SKUs are analogous to consumers going to the Yellow Pages—they know they need a product or service, but don’t yet know where to buy it. These are competitive searches. Even for loyal buyers (or in the case of catalogers, for active buyers on your 12-month house-file), a non-brand search means the searcher is surveying the field. The order is “in play”—if you win the click and the order, you’ve taken share from a competitor.
3. Success means growing sales and profits from non-brand phrases
Management should task the SEM agency or the in-house PPC team with growing revenues and earnings from the non-brand portfolio. Sales from brand phrases are non-incremental, and don’t reflect the effort of the search team. A corollary is that it makes much more economic sense to compensate SEMs as a percentage of ad spend, vs. percentage of revenue.
4. Click-stream analysis doesn’t change these conclusions
Some experts claim that a meaningful proportion of brand-phrase clicks which generate sales were actually preceded by non-branded searches, and thus are incremental. Wrong. In both ’05 and again in ’06, we studied this issue in some depth over a random sample of 5 million click-streams. We find the likelihood that an order-generating brand search click was preceded by a non-brand click (from the same machine, using a persistent first party cookie) is typically around 6%. That’s a low number. For a few advertisers with tremendous brand equity, we’ve seen this rate climb as high as 11%. Either way: looking at click-streams holistically doesn’t change the basic non-incrementally of brand searches.
Manufacturers: Ignore all this
If you’re a manufacturer who also sells direct—Sony, Lego, Bose, Danskin—you can ignore this whole article. In these cases, as you’re competing with your channels, your brand name is a competitive term, and so branded searches are incremental.
The bottom line
What’s the take-away? Search marketers should clearly break out their results along the brand and non-brand dimension, showing sales, costs, clicks, and earnings for each side of the portfolio. Managers should charge their search markers to grow non-brand sales, and do so efficiently. And SEMs should base fees on ad spend, not revenue.
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