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Why Competitive Benchmarking is Integral to Paid Search Success

gregg-hamilton
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blind-folded-business-manCompetitive benchmarking is one of the most fundamental and valuable tools for successfully managing paid search campaigns.

At its heart, benchmarking is the practice of analyzing the performance of your competitors’ and industry’s paid search efforts in order to monitor, adjust and improve the relative performance of your own campaigns.

Key metrics to compare include spend per period, share of voice/impressions, ad coverage (the frequency with which your ad appears when a keyword is searched), and average ad position. And it can get as granular as examining your ads’ visibility by keyword and as broad as monitoring share of traffic by business unit and overall category or industry.

Competitive benchmarking puts your efforts in perspective and enables you to understand how you’re doing compared to specific competitors as well as the rest of the industry. In fact, benchmarking is the starting point in developing a smart paid search strategy, providing insight into you what you need to do to achieve your goals and steering you away from costly tangents. Lastly, it enables you to measure your ongoing performance on a regular basis.

Yet most paid search marketers are either not using an effective method to benchmark, or, worse yet, not doing it at all.

Conducting search marketing campaigns without the benefit of competitive benchmarking is like running a race while wearing blinders – you know that you’re making progress, but you don’t know if you’re ahead or behind and thus whether you should work harder.

The search marketer with blinders on won’t notice the competitor who is starting to poach traffic and won’t understand why campaign performance is diminishing over time. As a result, competitors can displace the advertiser’s hard-won first SERP position and/or drive up clickthrough costs without warning.

Managing advertising campaigns independently of the competition may work in other advertising media, but paid search is a fundamentally different channel from all others. In paid search, advertisers compete with each other for ad placement in response to each and every search occurrence; so ignorance of the competition is not bliss, but rather a real and serious disadvantage.

The search engines provide some limited competitive intelligence in the form of estimated CPCs, but these estimates are far from precise. Moreover, the search marketer should be wary of intelligence provided by the engines since that data is unaudited and the engines have a vested interest in the application of that data.

Many search marketers rely on competitive intelligence supplied by firms that rely on panel-based data gathering. While panel data can be quite valuable given a large enough sample size, in practice panels are very expensive to maintain, which limits the depth and breadth of data that these firms can afford to provide and often renders panel data prone to inaccuracy. Further, only a fraction of any panel actually shops in a given category, so panel data becomes even less reliable as you drill down to specific keywords and competitors.

Benchmarking in Practice – An Example

To illustrate the practice of competitive benchmarking, let’s look at an example from the perspective of one of the leaders in the Home Furnishings & Décor category, Pottery Barn.

While Pottery Barn was the top spender in its category in 2012 according to data from AdGooroo (disclosure: my employer), with an estimated $8+ million of paid click-throughs during the year, competitive benchmarking reveals that Bed Bath & Beyond achieved very similar results while spending an estimated $7.2 million in 2012. That is, Bed Bath & Beyond’s SEM efforts were much more efficient than Pottery Barn’s.

The table below summarizes the performance of six keyword sets that triggered first SERP ads for Pottery Barn and Bed Bath & Beyond on U.S. AdWords in 2012:

  • Total keyword sets.
  • Those that triggered an ad for one advertiser but not the other.
  • Those that triggered ads by both advertisers at some point during the year (a.k.a., the “overlap keywords”).

pottery-barn-bed-bath-beyond-keyword-comparison

Bed, Bath & Beyond enjoyed a substantially higher overall clickthrough rate than Pottery Barn on US AdWords (6.22 percent vs. 4.68 percent) as well as a lower cost per click ($0.40 vs. $0.46). In net, Pottery Barn spent 17 percent more during the year than Bed Bath & Beyond but only experienced 3 percent more clickthroughs.

In addition, Bed Bath & Beyond had first SERP ads on 29,316 keyword terms compared to Pottery Barn’s first SERP placement on 35,711 keyword terms, suggesting that Pottery Barn’s SEM team is working harder (managing more keywords) but with less relative success (lower CTR and higher CPC).

Further, Bed Bath & Beyond is gaining better position for their ads (indicated by overall average page rank of 3.1 vs. 3.4), implying that AdWords is rewarding Bed Bath & Beyond with better first SERP position because it deems their ads more relevant and compelling to shoppers.

Meanwhile, Bed Bath & Beyond is performing better than Pottery Barn on the 10,246 head-to-head keyword terms for which their campaigns overlap (higher average CTR and lower average CPC). Bed Bath & Beyond is also experiencing better results on their non-overlapping keyword set, driving a 2.67 percent CTR at a $0.53 average CTR for 18,890 keywords compared to Pottery Barn’s 2.27 percent CTR and $0.56 average CTR for 25,278 keywords.

To top it off, Bed Bath & Beyond’s branded terms account for 19 percent of their impressions versus only 7 percent of Pottery Barn’s impressions, meaning that many more people are searching the brand name and navigating their way to Bed Bath & Beyond’s website using paid search than are searching on Pottery Barn’s brand name in order to navigate to their website. This suggests that Bed Bath & Beyond has stronger brand recognition, which is causing its ‘owned terms’ to be searched more often.

So what can Pottery Barn learn from this benchmarking exercise and specifically from comparing their paid search performance to that of Bed Bath & Beyond?

For starters, this data suggests that Pottery Barn may be sponsoring too many keyword terms, that is, more than the retailer can credibly deliver against.

Since AdWords “punishes” ads that have lower click-through rates by giving them lower quality scores and less favorable page position, Pottery Barn could begin by identifying the keywords in its campaigns with extremely low CTRs, which are likely harming its quality score. For instance, in analyzing the retailer’s 2012 keywords, we found examples with very low CTRs such as “file folder storage” and “wooden bird house.” Pottery Barn may carry such items, but consumers are probably more likely to look to Staples or Office Depot for the former and to Brookstone or Hayneedle for the latter.

As a corrective action, Pottery Barn could then either stop bidding on such keywords or revise their ad copy and associated offers to better compel searchers to click through on their ads. For the rest of their sponsored keywords, Pottery Barn could explore ad copy and landing page testing to improve their CTRs on keyword terms that consumers associate with their store, and strengthen their overall branding efforts to expand consumer awareness of and interest in their inventory.

Is Your Competitive Benchmarking Working?

So how do you know if your competitive benchmarking is up to snuff? Here are a few basic questions any search marketer should be able to answer:

  • Who are my biggest competitors on each of the search engines?
  • What are their top keywords and how much are they paying for them (CPCs)?
  • What is their total PPC spend per month?
  • What are they saying in their ad copy?
  • How is my campaign doing in comparison?

If you don’t know the answers to these questions, then it’s time to stop what you’re doing and get some help in the form of a robust competitive intelligence solution.

In the simplest terms, paid search marketers need to know what’s working and what’s not — how or why your share of voice increases or decreases, why your costs go up or down, why you’re losing traffic, etc. — and what your competitors are doing that is impacting the performance of your campaigns.

Otherwise, you’re likely going to fall short of your marketing goals. Or perhaps just as bad, you will hit your goals but waste money doing it.


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