On July 16 this year, Google published very strong Q2 results, leveraging in particular the continued success of YouTube and its core Search product on mobile. Interestingly, at the same time they reported a significant decrease in average cost-per-click (CPC) (-16 per cent YoY for Google properties). However, this contrasts with the feedback shared by many Tier 1 UK advertisers, who allude to flattening conversion rates and increasing CPCs, especially in generic Paid Search.
In reality, as many industry observers have already highlighted, the average CPCs are being brought down by the emergence of new geographies, particularly in APAC, MEA and Latin America. In mature markets such as the UK, generic CPCs on desktop are actually continuing to rise, with one major UK retailer reporting that its average CPCs have increased by over 30 per cent in the last two years.
In order to understand these reports, it is important to look at some of the major trends that are currently impacting the advertising industry. Whilst the new markets emerging around the world are only just beginning their Paid Search journey, mature markets are approaching saturation point. This is due to several factors including increased competition, changing consumer behaviour and the migration to mobile.
In the first instance there is the impact of the ever increasing competition from brands demanding ad space and bidding for keywords on the desktop inventory – a trend that does not appear to be slowing down. The impact has been further compounded by a seismic shift in consumer behaviours, with a number of desktop users transitioning to mobile devices. Furthermore, we are beginning to see cross device effects emerge, where consumers utilise multiple device platforms to research products and services before making an investment. This has had a significant effect on paid search, primarily due to the reduction in mobile real estate ad positions to accommodate for smaller screens.
Finally, the migration to mobile has indirectly affected the usage rates of prominent search providers, as traders such as Amazon and Booking.com have developed extremely successful search engines and applications of their own, removing Search from the conversion journey on many cases.
But what exactly can be done about this?
In order to continue to succeed the advertising market must evolve and there are two avenues open to providers, which complement one another – Diversification and Optimisation.
Diversification is the act of utilising advanced algorithms and audience targeting technologies to increase reach and performance and we can already observe change in the market. According to EMarketer, Search is set to decline from 55.5 per cent share of the Digital marketing budget as recorded in 2013, to 47.3 per cent in four years’ time. During that same period, current estimates indicate that Display advertising will increase from 29.6 per cent to 43.5 per cent. The IAB has gone as far as to predict that search spend will be outbid by 2020.
Though Search is expected to remain the biggest performance marketing channel for quite some time, advertisers should consider further diversifying their spend, looking for less crowded, growth-generating segments of activity, such as Performance Display. Google themselves acknowledge the importance of embracing a fully user-centric approach, as can be seen with the success of RLSA (Remarketing List for Search Advertising).
Where diversification involves expanding tactics to new areas, optimisation will focus on getting the best results from existing CPC opportunities, including combatting the increased CPC on Google. It is a strategy that focuses on utilising optimisation and automation tools to increase ad rankings on Paid Search. In order to optimise their campaigns, there are several aspects that companies need to consider:
- Highly structured campaigns allow advertisers to quickly identify both high and low performance campaigns and react immediately, improving the overall account quality and reducing the CPC
- Traffic analysis of Organic versus Paid Search, testing different paid ad positions provides verification of the effectiveness of the campaign
- Landing page testing ensures the optimisation of load times and relevance of content on these pages, which will improve the overall Quality Score and further reduce CPC
- Auction insights provide an opportunity to stake out competition and gather valuable optimisation tips for the planned campaign
- Careful consideration of technology partners should always be made to ensure the correct value at both keyword and user level. A company should only invest if its requirements have been tightly defined and closely match the offering and cheaper alternatives should be researched and considered (e.g. basic Adwords scripts)
In addition to methods of optimisation, there is also a considerable amount of interest in automation tools. These advanced intelligence platforms allow companies to deliver highly relevant personalised content to their customers and prospective buyers en masse, as part of an automated process. According to Hanapin’s 2014 The State of Paid Search report, conversion rates are becoming a key focus for a large percentage of market heads (78 per cent), with 56 per cent saying they want to focus more heavily on achieving results through automation tools.
At this point it is clear that the key to both of these strategies is measurement. Advertisers cannot hope to succeed without knowing exactly what brings them value and why their campaigns are succeeding or failing to generate results. In order to accurately measure campaign effectiveness, companies will have no choice but to rely on a user-centric view of the market, as measurement and optimisation at a user level require user identification. Where possible, companies should also look to acquire cross-device data from their partners, to accommodate for the changing consumer behaviours and ensure that maximum impact is achieved from the chosen path.
By Sylvain Piquet, Vice President, Product Expertise & Partnerships, EMEA and Sally Lane, Head of Retail, Tier 1 UK at Criteo.
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