E-commerce sales can make marketers look good by raising top and bottom lines alike. We’re understandably pleased with ourselves. Yet we’re not satiated—we want more sales and speedier growth.
But you’re mistaken to assume that today’s party-like conditions will last forever. In general, marketers are becoming entirely too dependent on today’s online media for low-cost, high-volume traffic to maintain growth. Meanwhile, they continually miss opportunities to convert more of the traffic they already have by not optimizing their content.
For decades, the marketing battle has been fought over traffic and impressions. For brand marketers, the more people exposed to your marketing, the better. For direct marketers, more and better-targeted traffic was the mantra. So to improve marketing results, marketers buy more traffic.
No wonder marketers investing in search engine marketing (SEM) are adopting the same old-school strategy in the online channel. It’s like a party that nobody wants to end. But do the marketing math, and you’ll see that it’s only a matter of time until the taps run dry, the strobe lights dim and the DJ packs up his gear.
Many marketers simply are not future-minded in their strategic outlook. So take a final sip of that champagne, because online traffic cost inflation is coming to an SEM budget near you.
While Conversion Rates Drop
According to Internet Advertising Trends, a presentation by Mary Meeker and Brian Pitz at Morgan Stanley Research, fewer ad dollars were spent on Internet advertising than any other medium in 2004.
Undoubtedly, today’s costs of Internet traffic and online advertising still are a great value compared to the alternatives. Consider newspapers, a medium that reaches slightly more households (and is declining in reach) than online: Ad spend on newspapers was more than four times that of online in 2004. How much longer will it take for online ad costs and spending to catch up with newspapers? Could your SEM budget absorb a fourfold increase in its advertising budget for the same amount of traffic?
This all is happening faster than many would like to admit. Demand for online advertising will continue to drive prices skyward. Even the most efficient online marketers are feeling the squeeze. For example, here’s what Mark Vadon, CEO of e-commerce merchant Blue Nile, in February told blogger Jeff Matthews about traffic cost inflation:
“To give you perspective, in our top five keywords, our cost per click was up over 80 percent compared to a year ago. … I think if you follow our business, you know that we monetize Internet traffic for jewelry better than anybody in the world, and … there are some people who are deficit spending and perhaps are back to the mentality of 1999. …
So an important matter is how well you can convert. ... You’re going to see more paid-search placements today than a year ago. Furthermore, as more companies advertise on search engines, the value of the incremental customer is dropping. And there’s more people competing for the same traffic ... so what that results in for merchants is downward pressure on the value of those customers.”
—as quoted in the blog Jeff Matthews Is Not Making This Up,
“Google: Thesis Schmesis,” Feb. 10, 2006
Traffic cost inflation is only one factor that will bring down the curtain. Another is how marketers timidly settle for pathetically low conversion rates. According to Shop.org’s study State of Retailing Online, average online conversion rates for 2002 through 2004 were 3.2 percent, 2.4 percent and 2.6 percent, respectively. Yes, sadly enough, those are correct conversion rates. It doesn’t take an accountant to determine the effect of this on the online marketing ROI equation. The mass marketing traffic versus impression model—a model that’s been adopted by online marketers—clearly is driving toward a brick wall. Plus, targeting is a great idea, but it’s easier to optimize your content than for search engines to optimize their algorithms.
Consider also that when compared to 2002, today’s Web sites and landing pages are far better designed and much more usable. Web technology has improved, and more companies use Web analytics and A/B testing technologies. Additionally, customers visit fewer Web sites (yes, less competition for you), and they’re also more confident about buying online now compared to four years ago.
Yet despite the marketer-friendly technologies, better site designs and improved customer confidence in shopping online, conversion rates limp downwards. Too many marketers find the low, single-digit conversion rates acceptable. In offline direct marketing, a 2 percent return certainly is acceptable since the marketing is pushed at customers, but the online channel’s pull marketing is night to direct mail’s day. Of course, the online channel appears better because it doesn’t have to accommodate printing and postage costs, but these cost savings are only temporarily advantageous.
Consider that in the online world, customers are in control. They’re task-oriented, and with every search term they type or hyperlink they click, they reveal more about their intentions. A clickthrough on a search term reveals a certain degree of visitor intent. Assuming your product or service offering is what that prospect needs, you have the recipe for superior conversion rates. This is why most online campaigns should enjoy a conversion rate at least two to three times greater than that of offline direct marketing, based on the nature of the online medium alone.
Why Are We Settling for So Much Less?
Traffic cost inflation will hurt the small to medium-sized online advertisers the most. Today’s deceptively low keyword prices have created a new breed of advertisers. I call them crackvertisers.
Crackvertising (krak-ver-tyzing) n. - The addiction to and/or business dependency on low-cost traffic from Google search and other search advertising. Signs of addiction include needing more and more traffic to convert the same amount of sales and paying more for less traffic. Finally, the advertiser’s life becomes obsessed with the next “fix” of traffic. A lack of, reduction of or fluctuation of paid traffic results in severe withdrawal. The effect usually is a corresponding and parallel fluctuation in top line sales. The potency of the drug (read: traffic) declines in time, and the addict needs greater amounts to satisfy his/her addiction.
Many of today’s crackvertisers will find themselves on the short end of the stick when traffic costs begin to outweigh their returns. And it doesn’t end there. While marketers and media outlets desperately cling to old models and others frantically try to find a new model that works, customers become harder to reach. To make matters worse, prospects proactively ignore marketing. Ouch.
To be sure, media fragmentation is taking its toll. TiVo, iPods, hundreds of cable TV channels, satellite television and radio, podcasting, Web sites, consumer-generated media, even video games cut people’s time and attention into thousands of fragments. Marketers have a harder time reaching large population segments. They continually spend more to reach fewer people. They used to reach the masses with buys on three TV networks; now, they must buy on several stations to approximate the same reach.
Customers’ buying contexts have changed as communication has accelerated and information proliferates. Moving faster than ever: word-of-mouth advertising and “badvertising.” Bad news about your business or your company’s failure to live up to advertising claims cancel out any image-control advertising. Even great advertising can’t serve as a smokescreen for poor merchandise selection and dismal customer service. Slick catalogs and marketing claims can’t detract from failings in customer relationship management or help customer lifetime value, for example. You can fool a lot of people once, but it’s much harder to do it twice.
Customers have more control than ever: more choices, more information. Yet companies still try to spoon-feed the public a flavorless, neutral, old-time ad campaign. The only difference is that they’ve transferred more of those ads online. Then marketers are confused when people ignore it or spit it out.
It’s unsettling how little some companies have changed their marketing outlook in spite of the new media landscape. They mistake using new media for taking a new marketing approach. They misunderstand the nature of new media vehicles like SEM and how customers behave differently because of them.
SEM Tactics to Employ
Old-school marketing can’t be resuscitated. The landscape has changed. Marketing must morph into something different. Traffic alone won’t be enough. We must shift from the advertising/marketing/sales silo strategy to an all-encompassing customer persuasion worldview.
So when sitting at the conference table concocting your SEM strategy, do the following:
• Shift more resources to conversion tactics and less toward traffic generation. Develop online strategies that offer visitors information and options customized to their needs; this will begin to lessen your dependence on traffic.
• Focus on holes in the buying process (i.e., where visitors might be falling through), rather than holes in the traffic-acquisition strategy.
• Commit to making your SEM efforts more relevant. The new marketing world order is about relevance, not traffic, reach or message posturing. It’s not just about getting your message out there. It’s about being real and saying something true and meaningful in the most compelling way possible.
• Devote time and resources to better know your customers and their needs. If you don’t know who your customers are and where they are in the buying process, and you don’t have a conversion plan that goes beyond a watered-down landing page, you might as well flush that SEM budget.
Jeffrey Eisenberg is co-founder and CEO of Future Now Inc., a New York-based consultancy that specializes in online conversion strategies. He can be reached at email@example.com, or via (877) 643-7244.