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Winning a Search Advertising Bid War

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Your pay-per-click campaign is advancing steadily until suddenly, the ranking officer at some joker's company launches a surprise attack, overruns your position, and pins you down in a bloody bidding war. What do you do? Pull back? Hunker down? Or counter-attack?

A special report from the Search Engine Strategies conference, February 27-March 2, 2006, New York, NY.

A small army marched into the Sutton North Room at the New York Hilton on Day 1 of the conference (D-Day). They came to this session in the advertising track to explore the strategy and tactics for winning a bid war.

The battle plan for this session had been drawn up by "General" Chris Sherman, Executive Editor of SearchEngineWatch.com.

The veterans who spoke on the panel were Kristopher Jones, President and CEO of pepperjamSEARCH.com, Martin Fleischmann, President and CEO of MostChoice.com, Anthony Muller, President of Zensem.com, and Stephen Anderson, Managing Partner and Co-Founder of Rock Coast Media.

These commanding officers could quote Sun Tzu and pass the ammunition at the same time. Here are their war stories:

According to Jones, effective bid strategy is central to a successful SEM campaign. As the paid search marketplace becomes increasingly more competitive and costly, developing an automated approach to defusing bid wars—while staying competitive—is essential to your success.

Jones discussed several proven strategies for addressing bid wars. He offered commentary, along with specific examples on how you can gain an edge on competition, while defusing aggressive tactics being used, right now, against you.

He said, "The most effective way to combat bidding wars is to use automated, ROI-based bid management software. Advanced bid management software enables the advertiser to utilize powerful 'bid war' tactics such as ROI-based bidding, bid jamming, bid surfing, and bid shadowing."

His first bid war tactic was ROI-based bidding.

This strategic approach allows you to systematically update bids and maintain specific bid positions based on a specified ROI objective. Automated bid management software will move bid positions up and down until your specified ROI objective is achieved.

While this approach is not typically used to compete with any particular competitor, it provides a competitive advantage because you'll be able to consistently maintain campaign objectives with a focus on ROI.

His second bid war tactic was bid jamming.

Bid jamming is when you strategically bid one penny below a chosen competitor requiring them to pay the highest possible cost-per-click (CPC) value to maintain a particular position.

Jones asked, "Does this tactic seem too aggressive? Well, your competitors are using bid jamming against you and if you don't have a plan to defuse the situation you are in trouble."

For bid jamming, Jones made three recommendations:

1. Use bid jamming tactics selectively in conjunction with an effective ROI-driven campaign.
2. Use bid jamming for a small group of ultra-competitive keywords.
3. Use bid jamming to defuse the situation when a competitor is using it against you.

His third bid war tactic was bid surfing.

Bid surfing is when you strategically choose bid positions based on specified bid and position "gaps." In general, this automated approach looks for gaps of 20 cents or more within the Top 5 search positions.

For bid surfing, Jones made two recommendations:

1. Bid surfing is an effective way to maintain top search-engine placement at a discount to your competition.
2. Use bid surfing selectively as a tactic for minimizing underperforming and expensive keyword campaigns.

His fourth bid war tactic was bid shadowing.

Bid shadowing is when you choose and maintain a bid position above or below a specified competitor's bid.

This approach allows you to single-out particular competitors by shadowing their bid—your bid will move up or down based on the movement of your competitor. Your competitor moves up, you move up. Your competitor moves down, you move down.

For bid shadowing, Jones made two recommendations:

1. Use bid shadowing to reduce the expensive trial and error that typically is associated with launching new and untested keywords.
2. If you are a small or medium size advertiser, you can shadow larger, more sophisticated competitors.

Jones summarized, "As the SEM climate becomes increasingly more competitive, a search analytics, ROI-driven SEM campaign is becoming industry standard. With your competitor's increasingly using aggressive bid tactics against you, NOW it is your turn to employ bid tactics that will allow you to remain competitive, while placing you on the winning side of costly bid wars."

He concluded, "In this day and age of search engine marketing, the sophisticated and aggressive advertiser will survive and thrive. If you find yourself repeatedly on the losing end of contentious and costly bid wars, my advice is to get more sophisticated and aggressive using the tactics I outlined today."

According to Martin Fleischmann, to win a bid war, you need to "know what winning is worth." And Fleischmann advised, "To thine own self be true."

Whether you are in a war on not, he said, "You can never fly blind."

You control bidding (CPC by term) and creatives (titles, descriptions, and landing pages). There are also cyclical variables, like time of day effects as well as day and seasonal effects.

These combine to drive your rank order and conversion rates. You need to solve for cost per lead and lead volumes based on revenue per yield (yield) by product, as well as the capacity and volumes needed.

While you cannot control competitor tactics and styles, you need to look for fraud trends and spikes.

Fleischmann told the assembled troops, "Know your metrics—real time!" He added, "Tools are great for stable situations."

The promise of tools is they can manage everything, take all information into account, react non-emotionally, and watch bids often. But, the reality is that you must oversee a tool. It doesn't know everything. It's not proactive or intuitive. It doesn't reach fast enough at critical times on big terms. Human judgment can beat it.

He cautioned, "You can't win a dogfight on autopilot!"

Fleischmann recommended prioritizing your attention by spending per term, and warned against abdicating your role in watching high cost or volatile terms.

He asked, "So competition heats up, are you ready?"

You are if you know your basic paid search algebra, which is easy. It also helps if you know how variables affect your metrics, which is harder. And you also need to know competitor profiles and needs, which is the hardest.

He advised, "Control the situation; don't let it control you."

If a competitor jumps way up over everyone and gets aggressive, you have several possible tactics:

1. Go toe to toe; it's my sandbox!
2. Push them up further, dogfight.
3. "Penny them down" alertly.
4. Let someone else go after them.

If your main competitor starts rising, you can use a pre-emptive jump (but be careful), or you can cooperate, then you go up later.

If news competitors pop up, send a message, punish them, or let others chase, it'll burn out.

If people start to drop fast, watch for affiliate fraud!

Fleischmann concluded, "Be a leader in dropping the price also!"

Muller punctuated his WD Music Products war story with quotations from Sun Tzu's The Art of War.

Muller discussed a revenue share partnership deal with WD Music, a 28-year veteran in the guitar parts industry. He did a site redesign, CMS change, and natural optimization campaign. The site launched in July of 2005 with a PPC campaign budget of $2,000.

Then, they prepared for war—for, as Sun Tzu once said, "The general who wins a battle makes many calculations in his temple before the battle is fought."

Muller said it is important to know your foe. When doing competitive research, he recommend find your heavy competitors, identify niche keyword competitors, find their strengths, and make note of their weaknesses.

In sizing up WD Music's competition, the heavy competitors were Musicians Friend, Guitar Parts Resource, and competitors' affiliates. The keyword competitors included shopping engines, smaller niche sites, and eBay. Their strengths were resources, manpower/agencies, and automation. Their weaknesses included huge keyword lists, product knowledge, and automation.

In preparing for war, Muller said it was important to know thyself. Or, as Sun Tzu said, "He who wishes to fight must first count the costs."

Muller decided WD Music's strengths included their flexibility and focused keyword lists. As for their weaknesses, he was "an army of one," they had trouble tracking, and there was no wiggle room.

However, an understanding of the products and margins enabled him to generate results in the initial month of two to one. Then, through intelligence, he started finding chinks in their armor and plugging the holes in his.

Next, Muller said it is important to avoid the ego wars when picking your fights and choosing the battles. As he said, "Sometimes the best way to fight is to let a competitor defeat themselves." As Sun Tzu said, "He will win who knows when to fight and when not to fight."

Muller selected two war strategies: Bid jamming and bid domination. And he focused on three main targets: Low converting terms, large gaps (Silver Bullets), and small gaps (Wear 'em down).

Or, as Sun Tzu also observed, "That general is skillful in attack whose opponent does not know what to defend."

Muller offered a number of battle tips to use during the bid war:

1. Use their automation against them.
2. Use their size against them.
3. Make sure you are getting a return.
4. Think about the long term (winning the war, not just the battle).
5. Protect against getting jammed.

Although, Muller added, "Sometimes it is good to allow a competitor to jam you. In order to jam you, they need to be below you." Or, as Sun Tzu once said, "The clever combatant imposes his will on the enemy, but does not allow the enemy's will to be imposed on him."

Muller said it might be too early to claim victory, but there were indications that the war is being won. Bid prices are creeping down. Competitors' bids on specific keywords are disappearing. Competitors' ads go down mid-day and late in the day.

Plus, there are other ways to see if there's an impact.

For example, a recent article about Musician's Friend in Music Trades said that "stepped up spending on search engine advertising boosted selling, general, and administrative expenses" to 24.3% of net sales for the third quarter of last year, versus 21.1% in the same period the prior year.

Before sharing two war stories—one about Money Management International and the other about Eastern Mountain Sports (EMS)—Anderson asked, "Are you ready?"

To make sure you are, Anderson advised those without battle scars to:

1. Clearly identify your goals (ROAS, CPA, Positioning, etc.).
2. Look in the mirror.
3. Review the competition.
4. Utilize a bid management tool.
5. Plan for manual management.

Anderson provided this strategy tip: Set a schedule for manual reviews, and alternate schedule daily in line with automated tools.

Anderson entitled his first war story about Money Management "Wrestling Gorillas."

Money Management has clear and aggressive CPA and volume objectives. They faced an extremely competitive bid landscape. And 10% of the keywords were driving 90% of the campaign.

His war strategy included customized landing pages for each keyword group. He implemented a bid strategy to reign in gorillas. He used tools to frequently update the bid schedule. And he manually reviewed placements.

Anderson shared this tip: "Be careful of Yahoo budgeting. Spot check advertisers are actually live versus those displayed in their bidding interface."

The "Wrestling Gorillas" results earned him a battle ribbon. The bid market stabilized, with bids dropping to market levels within two weeks. One gorilla left search entirely. Volume increase 20%. And CPA's dropped 15%.

Anderson entitled his second war story about EMS "Ready for the Holidays."

EMS, a leading outdoor equipment retailer, was preparing for the holiday push when it encountered dramatic seasonal forces. There was increasing customer search volume and purchase behavior. There was also rising bid pressure—both from increasing aggressiveness by primary competitors and novices jumping on the search bandwagon. Plus, EMS had an extensive keyword list of more than 8,000 search terms.

Anderson's holiday strategy was focused on adjusting the ROAS goals to meet volume benefits. He updated creative and landing pages. He decided when to bid jam and when not to jam. He bid to position with caps. And he did frequent manual spot checking.

He used bid tools based on ROAS rules, and spot checked for volume opportunities.

The holiday results earned him another battle ribbon. Revenues doubled from week two to week five. By the end of the campaign, only the usual suspects were still facing EMS.

In fact, one competitor called his client and begged for mercy. This prompted the client to call Anderson to adjust his strategy to be "nicer."

Anderson concluded, "When all else fails...go for the heart."

Greg Jarboe is the President and Co-Founder of SEO-PR. When he wasn't being a war correspondent at SESNY2006, he was speaking about "News Search SEO" and "Vertical Creep into Regular Search Results."


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