By Tom Polanski, EVP, eBrand Media and eBrand Interactive

Even though online consumers are spending less per transaction than a year ago, retailers have spent 33% more on search marketing through the first half of the fourth quarter reports a new study.  

The study notes that visitors to retail e-commerce sites through the first half of Q4 converted to buyers at a slightly higher rate than during the same period last year, up 0.25%. At the same time, however, average order values have declined by 6.2%, according to the study, “Mid Q4 2008 U.S. Search Market Report.” The study tracked more than 30 million clicks on ads on the Google, Yahoo and MSN search engines during the first half of the fourth quarters in 2007 and 2008. 

The increase in spending on search marketing despite the decline in average order value indicates that retailers are relaxing their goals for return on investment from search marketing. At the same time, retailers are aggressively using paid search to capture more of consumers’ online purchasing, the firm adds.

Shar Van Boskirk, a marketing analyst at Forrester Research Inc., says she has found that the struggling economy has prompted marketers to spend more on paid-search and other direct-response marketing tools. “My research with interactive marketers indicates that they are happily increasing spend on search marketing (as well as other interactive, direct response marketing tools like e-mail) in a recession,” she says. “Not only is online search a measurable tool, but it also tends to work because it finds shoppers when they are in-market and actively researching or shopping.”

One online retailer contacted by Internet Retailer, J.C. Whitney & Co., says it has been challenged to increase or at least maintain the same ROI on paid search from a year ago. “Because conversion and average order values are soft across all channels, we are attempting to maintain or increase our search ROI vs. last year,” says Pete LaBore, director of Internet marketing. “However, we have been challenged to do so. Currently, we are spending similar money to last year, but seeing less sales for that same spend. This is a result of both lower conversions and average order value as well as slightly higher cost per clicks year over year.”

The state of search marketing can have different effects on overall advertising spending plans. “With the current economic climate leading up to the holidays, retailers are looking for ways to capture consumer spend and drive revenue in efficient ways,” says a search insider. “We’re seeing multi-channel retailers moving more dollars into search from other areas of their marketing mix.”

J.C. Whitney, however, says it has decided not to move marketing funds from other areas into paid search. “Because of the declining ROI, we`ve chosen not to shift dollars to paid search from other channels,” LaBore says.

“In general, we’ve seen soft conversion and sales across our other advertising channels as well,” he adds. “We’ve also seen stronger utilization of promotions by consumers, thus driving down contribution per order.”

Results can also be surprising, however. Golfballs.com is budgeting paid search in Q4 flat with a year ago, but it is seeing an increase in number of orders, says Steven Broussard, vice president of marketing. And even though average order volumes are down because customers are buying more value-based items, many of those value items have a relatively high profit margin. “So the transition to lower tickets is actually working out better for me on the ROI front,” Broussard says.

Many keyword costs are up because of increased competition for them, which can hurt search ROI even if year-over-year sales volume stays the same, Van Boskirk says, adding: “This doesn’t mean every marketer has seen a decline in ROI, as many retailers have gotten quite savvy using long-tail terms. Many marketers are creating larger programs, where they spend more overall, but are spending on more profitable terms.”

This above is a reprint from Internet Retailer. The article states that e-com marketers are speinding more on paid search while simultaneously relaxing return on ad spend goals. Our clients have not had to do that because of the unique way we manage bids and expand PPC keyword list with low volume, low cost, but high yield, multi-word keyphrases. Please feel free to contact me if you’d like to learn more about our one of a kind SEM solution.