Paid search during recession times

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The global financial crisis and deepening recession in the UK, with falling house prices, sharply rising unemployment and weak foreign demand, will contribute towards the contraction of GDP in 2009-10. According to different financial sources, a negative GDP growth in the UK is anticipated in 2009, with a forecast of 0.9% in 2010.

In addition, public borrowing and debt is rising sharply from 36% in 2006-2007 to 48% at the end in 2008 as a percentage of GDP, to dangerously high levels, as economic activity drops and the government is forced to take additional steps to support the economy.

On the other hand, Britons are spending more time online, and increased use of the Internet through ever-quicker broadband services means that the number of page views is also rising sharply. According to recent data published in the UK by TNS, a breakdown by occupation shows striking differences of internet use; students for example spend 39% of their leisure time online, while unemployed (32%) but still far less than housewives who spend 47%

The UK market for paid search reached £2.75 billion in 2008 after a 23% increase on the previous year according to E-consultancy figures.  Despite the rise of social media, review and price comparison sites, search engines still remain the consumer’s favourite starting part to make an online purchase. In general, search engine marketing is gaining maturity. For instance, Internet sales in the UK accounted for 15 % of the £6.1bn retailing AV market in 2008.

More market data confirms that there are growing online opportunities and search marketing is the largest online ad format in the UK – accounting for 60% of total online spend. Paid search according to Forrester Research not only accounted for nearly 49% of the global online ad spend in 2008, but it is also one of the fastest growing online ad formats.

But in this economic downturn, different aspects need to be taken into consideration as consumer behaviour changes rapidly. Messaging will become more important as consumers will look for more trustful information and clear messages regarding the product benefits. Although consumers will look for good online deals, they will also search for reliable information or products with distinct brand awareness and identity instead of just searching for simple discounts.

Another fact to be considered is that in this current situation people are spending more time at home, often surfing the internet.  This indicates increasing time for home entertainment: watching DVD’s, playing music or reading – resulting in an increasing number of online sales for consumer electronic devices.

One of the top verticals in terms of paid search revenue that needs to be watched this year and that could be potentially affected by the credit crunch, will be travel and tourism. Traffic for travel websites experienced 175% increase at the end of 2008 compared with 2007, while travel-related pay per click ad clicks rose by 88%, according to travel analyst at Microsoft adCenter, as a result of fewer people travelling abroad. Conversely, we can expect domestic travel to increase. Another factor impacting this vertical will be that consumers will plan their holidays in advance, and therefore will have time to spend more hours comparing the prices of different holiday deals.

We also anticipate an increase of traffic for jobsites, or niche markets such as dating and bookstores.

Another interesting fact is that less people in the UK changing home will impact negatively high-value household purchases such as domestic appliances or home furniture.

Nevertheless, we can expect other verticals to be only partially affected, such as insurance, which, regardless of some people rationalizing and dispensing with several services, will still be considered a basic need for the household.

With these three main ingredients: economic turbulence, consumer behavioural changes, and growing online budgets – paid search will continue to excite more interest due to the tangible accountability and efficiency of its campaigns compared with more traditional marketing tools.  And considering the increasing pressure to deliver results, paid search presents both visible and immediate results in the short and medium term, whereas other marketing activities are more focused upon long-term planning.

Besides this and taking into consideration that 81% of internet users enter to websites through different search engines according to Forrester research, paid search listings also offer significant branding impact that can help to leverage company or brand awareness in difficult times when the competition is fierce and product differentiation is a challenge  Marketing and particularly paid search should be seen as a problem during recession times, should be a solution for marketers as online activity can shift perceptions at a lower cost than other traditional marketing channels.

It is generally agreed in the industry that paid search is expected to increase. Firstly, merchants are switching budgets from off-line to online media and more companies are increasing their knowledge and becoming more aware of the large benefits of paid search as a powerful marketing tool.  Secondly, more companies are seeking to integrate their online and offline marketing strategy. Lastly, the channelling of budgets to a more quantifiable practice based on performance providing ROI thus increases the complexity of search.

Paid search also faces few challenges during recession. It must also be remembered that Google will continue to dominate the market. With a search engine share that accounted for 67% of total searches in UK in 2008, and with Microsoft reporting negative results and Yahoo immersed in a management change; Google is expected to continue to dominate, which will increase reliance upon its ads policy. As mobile search is projected to eventually be bigger than desktop search, we can expect some search engine suppliers to move towards emerging search platforms such as mobile, video and local where Google has not yet achieved full dominance.

More competitive bidding can be also expected as competition for keywords increases and prices, in turn, go up. More companies understanding the benefit of paid search means that campaigns will become more sophisticated, leading to more bidding competition as the number of players in the market grows. This trend confirms how paid search is becoming more and more a complex process, and sometimes very difficult to manage by merchants themselves.

Furthermore, areas such as landing page optimization with complex segmentation techniques, targeting specific audiences indicates the importance for consumers to be directed straight to a specific product page. The data shows how paid search is turning into a very specialist marketing disciplineandwhere a paid search strategy is key.

In conclusion, with tight budgets and company short-term plans and the increasing complexity of bid management , unless a good paid search strategy is established, the risk of a company paying too much or actually losing money can be quite real indeed.

Paid search is not about overbidding to keep number one listing, or burning through budgets quickly and inadequately. Fundamentally, it is how to predict with appropriate technology, business tools and market intelligence what is occurring in the current economic climate.

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