By Meghan McDonnell, Supervisor, Attribution Services
The age old question: am I wasting media dollars advertising via PPC when my listing also appears in natural results? It’s a completely valid question– why would I, as a marketer, waste any media budget on traffic and revenue I would pick up anyway via organic search? This has been a concern for years now and there is a lot of research on the subject. Theories that oppose paid search advertising argue that people value the perceived “editorial integrity” of organic listings, saying they are more trusted and unbiased; therefore, conversion rates should be higher (Hotchkiss et al. 2005). On the flip side, others stress the importance of paid search ads in being able to display controlled advertisements that speak more to the user and what they are specifically in the market for (Jansen 2007).
Both Google and Bing came out with their own case studies to address this hot topic. The Google study looked at the impact of organic listings on click incrementality across paid results. They found that the click-through-rate of paid ads with associated organic search results was higher and that this impacted the position of the organic result on the page (Google, 2012). This research was built on another Google study, which found that 89% of traffic generated by paid search ads isn’t replaced by organic clicks when the paid ads are paused (Google, 2011). The Bing study also investigated whether paid ads provided a source of lift or was cannibalizing organic search results. The result was that the organic click-through-rate increased whenever the paid ads were active, leading to the conclusion that paid ads were not cannibalizing natural results, but were driving more clicks through paid ads, as well as incremental clicks to the natural results (Roth, 2010).
Well that’s great, you say. So, the search engines themselves conclude we shouldn’t hold back from giving them money and buying paid media. As a marketer, we need validation from research that is completely unbiased and stands nothing to lose. On top of that, as marketers, we need to know how much running paid ads affects our overall revenue and net profit, not just traffic, something that neither of these studies addresses.
Marketing Science published an interesting article about a study from two professors at the Center for Digital Economy Research at NYU Stern, which analyzed not only the effect of paid search on incremental clicks, but also on conversion rate, and overall profitability. The study was conducted on a major nationwide retailer store chain over the course of eight weeks and found that whenever paid and organic listings were grouped together, click-through rate was 5.1% higher (Yang, Ghose 2010). This positive interdependence was found to be much stronger for brand terms. The conversion rate was also 11.7% higher during times when paid ads were running alongside natural listings. Interestingly, the study found that the overall profitability of the search programs combined was up between 4.2-6.15% during times when the paid listings were live.
So, is paid search worth it? IgnitionOne has heard this question before and one case study in particular hones in on this very query. IgnitionOne analyzed brand terms across Google & Yahoo, answering whether paid search brand advertising is worth the cost. We found that live paid search ads led to an increase of 17% more natural clicks, and the overall net profit for this particular client was over $24,000 (backing out paid search media spend). The revenue increases came directly from paid search ads, as there was no revenue increase found from organic search when paid ads were on. This indicates that paid search attracts more qualified traffic than natural.
The key takeaway is that all signs point to paid media fueling search traffic overall and that revenue will increase by running on brand terms in both your paid and natural programs. The jury is still out on the impact on the generic terms, so the best thing you can do is isolate a certain portion of your nonbrand terms and TEST, TEST, TEST! The simple reality is that each company’s advertising media has a variety of products, as well as goals, which will certainly impact how well both search programs affect your bottom line.