Feb
8
2010
media, sales By Roland Eckstein | No comments yet

Advertisers: Go Green and Prosper

How often do we hear that our clients are hesitant to give up their direct mail?

The reason, they tell us, is that it is an effective means of maintaining contact with their current customers. While maintaining repeat business is critical now more than ever, the issue is cost

Assuming 43¢ per piece of direct mail (no, we’re not just counting the postage here … add it all up), the prohibitive cost per thousand is obviously a mere 28 to 40 times more expensive than local broadcast television.

Solution: Advise your clients to go green.

On their next (and final) direct mail piece, add the following lines of copy:

To our valued customers:

We’re going green.

This will be our final correspondence to you by mail. It ís simply not eco-friendly.

If you want to continue to receive our quarterly offers, please forward your email address to us at KeepitComing@EdsCarpets.com

Or just stop in with this card filled out below:

Your email address:_______________________________

Our promise to you is three-fold:

  1. You will continue to receive our private client offers.
  2. We will only email you once per quarter.
  3. You can opt-out of our email list whenever you choose by sending an email to ImDone@EdsCarpets.com.

Thank you for helping us help the environment.

Sincerely,

Ed


Ed’s Carpets

Customers who might have been hesitant to give out an email address will do so for two obvious reasons:

  1. Fear of Loss (of savings)
  2. Assurance of limited email activity to their Inbox

Assuming that smaller businesses mail some 8-10,000 DM pieces quarterly, we can now cost shift these funds, if applicable, to local broadcast television, which not only speaks to current customers but also finds new customers most efficiently.

And that is exactly where “being green” meets “seeing the green”.

Roland Eckstein is the Managing Partner of ESA & Company, an advertising strategy firm that accelerates profit and growth for local businesses.


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Jan
26
2010
internet, media, sales By Dave Eckstein | No comments yet

The Massive Exodus from Print Media

A little over a year ago, the sky fell.  And now for the silver lining.

When advertisers began trimming their ad budgets back in late 2008 and early 2009, an interesting thing happened — especially for those advertisers who had investments in several different media. The long and short of it is this: Many advertisers made the wrong cut.

Inefficient media won. Here’s how …

The timing of the advertiser’s decision to cut didn’t quite coincide with their yellow pages renewal. And since they couldn’t just cancel their current YP advertising, they had to look elsewhere. Not as if you can rip all those pages out of all those yellow books, many of which were already littering our landfills. They had to wait that one out.

The newspaper didn’t offer them any consolation either — in most markets, the daily paper comes with an annual contract and those trademark steep cancellation policies. So they had to find other areas to cut, and waited that one out too.

As for their direct mail campaigns, they may have already printed out those next 2-3 (or more) pieces, paid for and/or managed the “list”, and decided “We may as well do the next few mail drops since we’ve already paid for the printing and the list.”

Electronic media, like television and local internet, were disproportionately cut out of many budgets because of their “flexibility.” Flexibility in terms of media placement, timing, and perceived contractual obligations. Most advertisers wanted to keep more of this in their mix, but weren’t afforded the luxury of doing the right thing.

It’s too bad, because that’s exactly what could’ve helped stop the bleeding. We have plenty of evidence of that over the past three decades, not to mention the past 12-18 months.

So, heading into 2010, there was a disproportionate glut of dying media at the local level. The local media portfolio was weighted down very heavily with the likes of newspaper, yellow pages, and direct mail. Talk about a recipe for disaster. The mass exodus from these media was delayed by — of all things — the worst recession this country has seen during our lifetimes.

Don’t get me wrong. Many advertisers still exited from these media. But given the relative strength of these print media (as compared to today’s electronic and digital media, which are far superior in reaching and converting customers on any budget), it became a cruel double-edged sword. Not only were there fewer customers in the market to be found, the inefficiencies of the overall media mix did nothing of note to even find those customers.

That didn’t help the downward spiral one bit, did it?

Fast forward to today. Local businesses have long since realized their media mix is out of whack, and many have started to correct this. Some may call it “reallocation”, but that’s too gentle a word. It’s more like cleaning house of dying media. And in 2010, we will see an acceleration of the exodus from print media like newspaper, direct mail and yellow pages.

So, where is the money going?

Here’s where there is some urgency in your next move. The growth of online media (e.g. paid search, behavior targeting) is being fueled by the failure of print media. About 2/3 of paid search budgets came directly from the three dying media described in this article. And more will continue.

Advertisers see something like Google Adwords as “cheap and easy.” Their actual experience, however is much different. Something as innocuous and “cheap” as a $2 CPC (cost-per-click) on Google looks like a bargain, right? WRONG!

As “cheap and easy” as a pay-per-click (PPC) campaign may appear on the surface, the reality is that paid search fails on many levels for the local advertiser. Unfortunately, they’re not being informed of this until it’s too late.

Here’s the most important part: Anybody selling electronic or digital media is no longer selling against the inefficiencies of print. That horse has left the barn. These budgets are already leaning heavily toward digital — specifically search marketing.

We have a job to do. Those who are well-versed in some straight forward logic will be able to help those exiting print media to make the right moves. And by “right”, we mean an advertising plan that actually delivers more new customers for less money.

Don’t hesitate. Those renewals are always right around the corner.

Dave Eckstein is a partner in the firm ESA & Company, based in Red Bank, New Jersey. Dave specializes in highly profitable market share growth for local business and gets a kick out of demonstrating a declining cost of customer acquisition for his clients.

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Dec
31
2009
media, retail By Jodi de Riszner | 2 comments

Credit Unions Spending to Save

How Credit Unions Can Use Media to Avoid an NCUA Fine

Media is a means to an end. Smart retail businesses use it to achieve the strategic objectives of their organization. For most, that centers on the acquisition of new customers for the lowest amount per customer or the upsell of existing customers using the most cost efficient tactics. In the case of local credit unions, however, there is a third scenario in which they can use media to achieve a goal. Let me explain.

The beauty of credit unions is that they are not subject to federal income taxes unlike banks and can therefore offer better CD and loan rates to their members. The reality of this benefit is that credit unions are heavily regulated by the National Credit Union Association (NCUA) with frequent visits from NCUA examiners. One regulation I learned about a few months ago has positive implications for local media sales people.

A very engaging credit union president told me a story of how he used media (in this case, the newspaper) to drive cash into the credit union to cover his capital expenditure on a new branch. What he explained is that the NCUA regulates the amount of cash a credit union has on hand when making a large capital expenditure like the building or renovating of a branch. Every credit union must have a set percentage of the capital expenditure available, so if the construction costs of a new branch are estimated at $2 million, the president must ensure that he has this set percentage of that $2 million available. Smart credit unions leaders realize that many construction projects go over budget, so they take measures to ensure that the money they have on hand covers that larger construction expense.

So the story goes that this particular credit union paid out a half point higher on a CD rate than their competitors were offering at the time to drive cash quickly into their credit union. It cost them more money to offer this rate, but that additional cost was smaller than the fine they would have incurred from the NCUA if they hadn’t met their obligation to have the right percentage of the capital expenditure for the new branch on hand. Thus, this smart credit union president spent a little money in paid media to save a lot of money in fines. What he realized after we went through the math of media is that he could have been even smarter if he had used retail television to market that CD rate in lieu of the newspaper because the former speaks to prospective members and existing members at a lower cost per thousand.

Here’s how you can make your own money with this knowledge. As you work with or prospect new credit unions, ask if they are planning a major renovation or new branch addition. If so, share how you can help them speak to more consumers for less about their CD rate because they may have a need to drive cash into their fold to cover the costs of adding on.

If you don’t come across any credit unions investing in the construction of new branches, don’t worry. Overall, credit unions must be 7% capitalized, or have 7% net worth to total assets, compared to banks which need to be 4% capitalized. If you ask a credit union president how capitalized they are and get a response of 10% or higher, they will likely be great pay and are potentially on the hunt to buy smaller credit unions because they have the capital to do it. These well-positioned credit unions may also be able to steal from their own deep pockets to grab market share with very competitive rates. It just depends on how aggressive their membership goals are. For those who are undercapitalized, i.e. under 7%, they need to drive cash in with CD events.

With the state of our financial system right now, credit unions are positioned to expand their market share as they offer an alternative to the banks that consumers increasingly distrust. The smart credit unions will realize that no matter if they are expanding, remodeling or just managing their loan to asset ratios, they can acquire new members for less with retail broadcast television.

Jodi de Riszner is a media and retail strategist in the firm ESA & Company, based in Red Bank, New Jersey. She lives in Buffalo, where images of sunshine dance in her head.

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Dec
16
2009
internet, media, retail By Dave Eckstein | No comments yet

Ten Dirty Secrets of Paid Search, Part 2

Now that we have five reasons to reconsider that investment into Google Adwords, what else should we know about paid search before making a decision?

6. Three quarters of all search leads are organic, not paid: Okay, we know this one already. Do you really want to pay for your customers leads? Do you want to pay for three of them for every one you get? I didn’t think so. (If you do the math, you’re actually paying for 10-12 of your competitors’ organic clicks for every single click your Adwords listing gets. What a deal … NOT!) Keep in mind too that the overall quality of paid search links hasn’t exactly gotten better over time. People are a little wary to click over there on the right side. Most of them aren’t even looking in that direction anyway! (Source: Compete/TNS Media, Advertising Age)

7. I can’t time my advertising with Paid Search: Paid-search programs don’t take into account the fact that specific retail and service categories have extraordinarily higher advertising effectiveness when timed properly … i.e. closer to the weekend, near holidays, around paycheck periods, etc. This is evidenced-based fact, backed up by at least three decades of real-world advertising experience, not “research” or “survey results”.

8. Specific search volume is small: Be sure to check just how many inquiries per month you can expect before you buy those keywords. If you’re okay with talking to dozens – as opposed to hundreds or thousands – of your potential customers, more power to you. Usually, search volume on your chosen keywords will be much smaller than you would’ve guessed (or hoped), and that’s not a good thing. Unless you’re planning on buying a lot of keyword combinations. Wait, that isn’t a good thing either, is it? (Source: Go to Adwords and check for yourself!)

9. Current Paid-Search Users Aren’t Impressed: As noted by SEMPO and reported in Ad Age (SEMPO is a well-respected search marketing group), 13% of advertisers think local paid search “works great”. As for the other 87%? Their opinions range from “okay” to “unimpressed” to “not using it”. Funny how a full 36% of agencies think paid search “works great” (nearly three times the rate of advertisers), but when you ask their clients — the advertisers footing the bill — their response to this same question can’t even be described as “lukewarm”.

10. Help? If, after reading the first nine bullets you still think paid search is a good avenue to find your next customer or grow your business, we wish you the best of luck — and our clients thank you for underwriting their free organic leads. If you should need some help or run into issues, don’t call Google. Don’t email them either. Their customer support for businesses like yours is “over-stressed” at best. Don’t believe me? Why don’t you check for yourself, on a forum hosted by Google. That may explain the general feeling toward paid search mentioned in #9 above.

Okay, so this supposed “cheap and easy” medium doesn’t really convert leads for the local advertiser, has lower than expected volume (audience), bad timing relative to the retail category, an unimpressed client base, and an “understaffed” help desk. Local advertisers would be much better served working on their organic search listing, and using an ad medium that can answer the bell — better yet, a medium that makes the bell ring. Paid search doesn’t sound cheap, or easy, to me.

No more secrets, just smarter decisions ahead.

Dave Eckstein is a partner in the firm ESA & Company, based in Red Bank, New Jersey. Dave specializes in highly profitable market share growth for local business and gets a kick out of demonstrating a declining cost of customer acquisition for his clients.

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Dec
7
2009
internet, media, retail By Dave Eckstein | 2 comments

Ten Dirty Secrets of Paid-Search, Part 1

Let me guess. You own, operate, manage or consult for a local business that is considering paid search as a means to generate leads or new customers. It’s always good to look at different ways to get the job done, weigh your options, and be informed before making a decision like this.

But do yourself a favor and be sure to look past that appealing cost-per-click before plunging into a paid-search program like Google’s Adwords. Local businesses looking for a few reasons why paid search might not work might want to start with these five:

1. Paid lead coversion rates average 2-3%: And yes, averages still lie. This average accounts for the good sites, that have dynamic content, inventory, fulfillment … as well as the bad sites, that are static brochures and can’t convert leads. Since many websites at the local level are more like the latter, the lead-conversion rate is more like 1-2%. If we’re lucky. And that rate actually tells us what percentage of visitors convert to leads (not customers) for local websites. Those leads still need to be closed, typically at a rate of 20-30%. Unless you’ve got a great site that can immediately convert visitors to customers and know your way around Adwords … count on 1 in 200 paid “clicks” becoming a customer. Not so good! (Sources: Compete/TNS Media, and Engine Ready)

2. There’s a 10% immediate bounce rate: Meaning immediately after clicking on your paid link, 1 in 10 visitors leaves your site. Immediately. Most of them aren’t coming back any time soon. (Source: Compete/TNS Media, as reported in Ad Age).

3. Factor in a 13% attempted click-fraud rate: This number is actually down from 16% reported in 2008. Google is taking measures to counter this, so these numbers might be overstated, but there wouldn’t be a discussion about CPA (cost-per-action) if that were the case. You might want to visit a forum of current paid-search advertisers first and ask them about their experience. (Source: Search Engine Watch and Click Forensics)

4. Organic leads stay longer on your site: The person who finds your site through organic search will stay on your site longer, by almost a full minute. (Source: Compete/TNS Media)

5. Organic leads return to your site more often: The person who finds your site through organic search will return 61% of the time within 30 days. The paid-search lead only comes back 49% of the time in that same time period. (Source: Compete/TNS Media)

Five pretty good reasons. But really, what does this tell us? It tells us paid search is among the lowest in converting lead sources. Visitors who are trafficked directly (type in the URL), visit from another content site (e.g. local news site), or are email-marketed are 2-3 times more likely to become customers, according to EngineReady. Paid search’s sub par performance drags down the overall conversion ratio. There are other ways to get the job done!

If after reading these five reasons you’re still not convinced, here are five more reasons why paid search can’t get the job done for local advertisers.

Dave Eckstein is a partner in the firm ESA & Company, based in Red Bank, New Jersey. Dave specializes in highly profitable market share growth for local business and gets a kick out of demonstrating a declining cost of customer acquisition for his clients.

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Nov
30
2009
retail By Dave Eckstein | No comments yet

Retail Lessons From A New and Improved Walmart

GUEST COLUMNIST
Chris Ohlinger | CEO of SIRS
The following article is written by Chris Ohlinger, founder and CEO of SIRS (Shopper Insights & Retail Solutions). His work with SIRS has enabled many retailers to improve their marketing decisions through the use of tested, sales-predictive techniques. In the following paragraphs, Ohlinger extracts a few lessons from Walmart’s model that local retailers should consider.

 
WALMART got its Trust and Price mojo back just in time to take advantage of the biggest economic crisis and the most significant consumer shift in the past 30 years to become even more dominant.  But they aren’t resting on their old strengths. Today they seem to be morphing into an even larger and more different colossus at a time when many retailers continue to struggle.
 
And this time it appears Walmart is not only morphing again like they did in the ’80s with Sams, the ’90s with SuperCenters and the ’00s with International, but they are going for the knockout punch.
 
In addition to actively going after large targeted retail segments like electronics, food, toys, crafts, books and education related categories, financial services and health-and wellness, they are also adding services well beyond their most aggressive model for doing business.  
 
Walmart appears to be expanding on the web attacking both Amazon and Ebay’s realms, beginning to expand their small store concepts and opening hundreds of health care clinics.
 
They are even actively helping consumers make green choices.  Since a huge number of options have some shoppers questioning the green label, Walmart is developinig a sustainability index, and an iPhone application to help guide consumers to best buys in stores with Twittering capabilities and beyond. 

“Dominate, Don’t Dabble” seems to be their individual department mantra. 
 
And why not?  They have worked hard to get back their “Trust” strength, a strength which very few retailers have.  And it is much easier for those few Trusted Retailers to expand into new goods and services than it is for other more typical retailers.
 
Walmart is also one of the very few retailers that has successfully developed major new concepts outside of their original model (the Discount Store) – and even outside of the retailing model (In-store TV, etc.)
 
Oh, and recently they have announced they are lowering prices, again.  It just doesn’t seem fair.  It makes you wonder when the government will take them over.
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Nov
8
2009
media, sales By Jodi de Riszner | No comments yet

Slicing Into Inefficiencies of Direct Mail

In today’s economy, consumers spend less and have greater anxiety about parting with large sums of money.  In the vertical of home contracting, we hear repeatedly that potential customers are seeking more bids for jobs, taking longer to make a buying decision, and considering partial fixes to keep costs down.  As a result of this consumer anxiety, several contractors mentioned that they’ve turned to methods of face to face marketing such as canvassing neighborhoods or manning booths at local fairs and events.

One such contractor recently shared that he had completely withdrawn from local mass media and had replaced it with a mix of neighborhood-focused direct mail, canvassing and manned booths at local fairs.  His average lead cost was now $72, compared to the $240 industry average.  Our challenge?  Given this very low cost per lead, could we improve upon it by implementing response driven retail television? 

The contractor’s strategy was to send out a direct mail piece three times to a neighborhood in which he was doing a job.  One piece dropped the week before the job, one the week of the job and one dropped the week after.  In conjunction with the direct mail, he canvassed the neighborhood in those weeks as well.  His lowest cost per lead came through canvassing, followed by the manned booths at local fairs and then the direct mail.  Again, his average for all three tactics was a $72 cost per lead.

In breaking down this marketing approach into three pieces, it became clear that the direct mail component of his strategy was the least efficient element.  In the acquisition of new customers with whom a business has no prior relationship, direct mail can cost ten to twenty times more than local broadcast television, provided that broadcast television is executed with the proper response driven retail principles.  For those advertisers addicted to direct mail, the liberating “ah-ha” moment occurs when they first realize their actual cost per thousand to use this medium.  A classic direct mail user will say, “it only costs 46 cents per piece…and that includes printing!” and they will often share that information with a zealous ‘gotcha’ tone.   Sadly, 46 cents per piece (or one person costs me 46 cents to reach) is equivalent to a $460 cost per thousand.  Most broadcast affiliate’s CPMs are in the $8-$10 range, perhaps $15 on the high side. 

When you move on to look at the other two marketing tactics, canvassing and manned booths at local events, both combine the acquisition of a new customer, i.e. getting them to call in the first place, and the retention or sale of that customer.  So naturally, they have efficient cost per leads because the marketing dollars spent here combine two steps of this contractor’s normal business process into one.  So these two pieces are a smart use of the budget because of this increased efficiency, although bad weather could negatively impact the cost per lead for local fairs. 

Thus, while canvassing and local fair marketing tactics proved efficient enough that we could leave them in place, the math of media showed that this home contractor could be speaking to more people for less with broadcast television than with the dollars spent in direct mail.  Even if you made the argument that only those people in the neighborhoods in which jobs were taking place were valuable to this business and then recalculated the cost per thousand of the broadcast television schedule to remove non-target zip code areas, those zip codes being targeted as a percentage of the population of the overall market would still deliver a lower cost per thousand than direct mail.  In fact, given this argument, the greater the number of neighborhoods in which a home contractor is working, the more efficient broadcast TV would be.

The lesson for the day here is that when faced with a client who is 100% convinced he does not need paid local mass media, consider the following approach:

  1. Start by breaking everything down into pieces.
  2. Root out and demonstrate the mathematical inefficiencies
  3. Recommend a manner which affords the client the opportunity to speak to more consumers for less

Jodi de Riszner is a media and retail strategist in the firm ESA & Company, based in Red Bank, New Jersey. She lives in Buffalo, where images of sunshine dance in her head.

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Oct
28
2009
media, retail By William "Mac" McDonald | No comments yet

Making Your Sales Pop-Up in Fourth Quarter

The holiday season is rapidly approaching, and the news from the retail front is not creating high expectations. 

The September sales reports, recently released, offered some hope; however, overall retail sales were down.  It’s just that some retail stores performed better than expected.  Internet sales, while better than expected, just managed to stay ahead of the traditional retailer.

The automotive category took a real hit.  Not surprisingly, it seems that the “cash for clunkers” program failed to produce long term momentum.  Rather, this tactic only served to create a buying pattern shift, without generating an increased demand level.

The approaching holiday season appears to favor discount and dollar stores.  Thus, the department and specialty store categories are cutting prices, and reducing inventories.  At  the same time the “luxury” stores are not recovering as expected, and sales forecasts in this area are being reduced.  These factors, along with other considerations resulted in a downward shift for holiday sales, with the National Retail Federation projecting a one percent decline this holiday season.

Another report just released shows a significant increase in the retail space vacancy rate.  Store closings have resulted in lower occupancy in retail centers across the country.  Major shopping centers are at an all time high, but the strip center has an even higher rate of vacancy, with many new developments only partially occupied.

Okay … so where’s the good news?  The answer is the “Pop-Up” shop, the new trend in retail.  It all started about two years ago, when J.C. Penney opened a temporary shop in Times Square.  The results exceeded expectations, and similar tactics were employed in other selective markets.

The basic concept is to lease empty space for a short term, often to feature seasonal merchandise.  These temporary shops are now being used to serve a variety of purposes.  Target uses the “pop-up” to expand coverage for a store opening.  Toys R’ Us will have 80 outside shops as well as almost 200 seasonal shops in their Babies R’ Us stores.  Gap is using the “pop-up” to accent a single merchandise category.  Another approach is the event promotion, with Halloween Express opening in several Circuit City locations.  Many local or regional retailers are now examining the pop-up concept.

The television sales opportunity for the “pop-up” is short term, high impact.  Generate reach and high frequency for immediate sales!  The key is to quickly identify a prospect, and present a tactical plan that is immediate in nature.  It should be recognized that this may not be a one time opportunity.  The “pop-up” can be moved to various locations in a single market.  Then too, the seasonal approach, like Halloween, can be repeated next year.  If the success that has been evidenced thus far is an indicator, the potential for sales must be explored.

PS:  Just as we published this article … thought you’d want to know that Limited now has a Pop-Up shop in Soho, which will be there until the first of the year.  Also, there are 75 Halloween Pop-Up shops in New York city.  This is going to be an even bigger new business opportunity in 2010, but the way it is approached from a TV sales point-of-view is very different.  It’s a fast moving, high impact, immediate action approach.

William “Mac” McDonald is a Senior Retail Marketing Specialist with ESA & Company. For over 40 years, Mac has focused on consumer actions that affect retail tactics and strategies. An advisor to the National Retail Federation (NRF), Mac can be reached at Mac@ESACompany.com.
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Oct
19
2009
media, retail By Craig Reumund | 1 comment

Eight Ways to Waste Your Ad Budget

Here’s the challenge with advertising: All media “work”.

The key point to understand here is this: the rate of return on your advertising investment varies greatly from one medium to the next.

In the retail world, each week brings a new army of shoppers. These are your potential future customers. The size of that army might be 20% greater than last week’s army, or 20% smaller. We have no control over that fact. But we do control the ability to acquire as many people within that army of shoppers as customers, this week. Our job is to acquire those people as customers. That’s what makes good advertising.

Actually, our job is to acquire customers while minimizing the cost of customer acquisition. That’s great advertising. The best advertising maximizes the number of new customers out of any ad budget.

Why is it then, that we continue to see so many advertising budgets being wasted today? Is your advertising plan wasting money for your business? Is there any easy way to determine where the leaks are?

Here are eight places to start looking:

  1. If you’re buying more than one medium, you’re wasting money.
  2. If you’re using a passive reference guide as an advertising medium (think Yellow Pages), you’re wasting money.
  3. If you’re paying more than $15 per thousand against your army of shoppers, you’re wasting money.
  4. If you’re buying multiple television stations on a small or medium budget, you’re wasting money.
  5. If you’re buying a consumer product schedule (scattered reach with little to no emphasis on frequency) to advertise your business, you’re wasting money.
  6. If you’re buying a rotational schedule, letting the price of the medium (rate) dictate your placement, you’re wasting money.
  7. If you’re buying prime time, you’re wasting money.
  8. If you don’t have any selling proposition in your message, you’re wasting money.

Some of these may sound counter-intuitive to you … but all of these things waste the local advertiser’s budget. They all violate the law of acquiring new customers at the lowest price possible. Even if your current ad plan only commits one or two of these sins, there is ample room to improve your advertising.

And when you improve your advertising … you’ll also notice how this improves the bottom-line of your business. Now that is great advertising.

Call us to trim the waste from your ad budget … get more business per dollar starting today.

Craig Reumund is a Senior Consultant with ESA & Company. He meets with hundreds of local business owners each year and has significantly changed the fortune of thousands of local businesses over the past 20 years.

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Oct
1
2009
internet, media, retail By Dave Eckstein | 1 comment

Three Ways Google Adwords Fails The Local Business

Don’t mess with the paid-search budget, right?  It only represents a small portion of what the advertiser is doing today … and it’s market-driven price seems to be so cheap.  Sound familiar?  It also sounds wrong.

In 2008 some $14B went to paid search.  In two years, it’ll be $21B.  Something like Google Adwords, that looks so cheap and easy on the surface is fraught with problems for the local advertiser.

There is simple logic here that tells us paid-search can do more damage than good for local businesses.  In most cases, the paid-search advertiser will be watching cost-per-lead and ad-to-sales ratios (ASR) escalate.  The numbers don’t lie — it has become expensive.  If anything, simple supply-and-demand tells us it’s only going to get more expensive.

If you’re looking for proof, and there’s plenty more than just the three points below, here are a few things to consider:

1. The Left Side is the Right Side: First and foremost, of the total number of search referrals, paid search accounts for 25% or less from the major search engines, while organic search does the heavy lifting (75%).  In other words, the left side is the right (correct) side when it comes to search.  It’s no mystery to anybody today that it’s more important — and cost-effective — to have a high organic listing than to bog down your cost-per-lead with paid-search.  And it’s no longer as difficult as you might think to get good organic positioning.  Those that disagree with this can continue paying for their competitor’s leads (thanks!).

2. The Niche Premium:  Assume you’re okay with point #1 above.  Here’s another question to ponder: What is the actual search volume on the keywords I’m thinking of buying?  What you’ll find out very quickly is that Google isn’t an 800-pound gorilla, it’s more like 25,000 half-ounce baby monkeys!

The search market is highly fragmented, or “niche”, as some might say.  Is that a good thing?  Well it depends on whether or not you think talking to an audience of 200 is better than talking to an audience of 2,000 … or 20,000 … or 200,000.  Advertisers have been paying a  wasteful premium for niche marketing for ages.  But with search marketing, the higher the volume, the more players are in the game, and the higher the bids rise.  How many keyword combinations can you afford?  (The answer is usually very close to zero.)

3. The illogic of it all.  If I have a good website, meaning my content and traffic are strong, then I really don’t need paid-search.  The organic search process will feed my business, and I can continue to acquire low-cost leads.  Now if my site isn’t that good — if the content is stagnant, if it can’t convert or even identify a qualified lead – why would I want to send more people there?  So I can frustrate even more potential customers?  So I can introduce them to more of my competitors, who by the way, are perched just to the left of my sponsored listing?

Conversion rates from paid search are estimated to be in the 2-3% range.  Just like any average, that 2-3% accounts for the higher-end (which tend to be national or regional sites) and the low-end (which tend to be local sites which have challenges converting leads online).  The math falls apart from this point forward.

This article doesn’t concern the national or regional advertiser who has found efficiencies with paid-search.  Their sites are usually satisfactorily capable at converting  clicks into leads into sales.  As long as their CPCs are low enough (i.e. if they’re very low), they can find customers.  In many retail and service markets, they set the pricing and the locals play along. 

Choosing to ”play along” in a market like this, the local advertiser buying paid-search is bringing a knife to a gun-fight.  And they’ll pay more per new customer than at any time in the history of advertising.

SOURCES: Advertising Age Search Marketing Fact Pack 2008. SEMPO, Compete/TNS Media, et al.

Dave Eckstein is a partner in the firm ESA & Company, based in Red Bank, New Jersey. Dave specializes in highly profitable market share growth for local business and gets a kick out of demonstrating a declining cost of customer acquisition for his clients.

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