March 12, 2007

Paid Search: New Or Existing Customers?

Catalogers enjoyed a blissful business model. They targeted the customer they wanted to acquire, or they sent catalogs to best customers, in an effort to increase customer loyalty.

Online marketing ends that wonderful fairy tale. Take paid search. You pay for a keyword. Customers click on your link, and hopefully purchase merchandise.

Who clicked on that link? Existing, loyal customers? Inactive customers? First time purchasers?

Multichannel retailers with good customer databases know the percentage of paid search respondents who are existing customers. The greater the percentage, the less effective paid search might be over time, as you simply pay Google to steer your existing customers back to you.

More important, however, is the loss of control over the growth of your online channel. With catalogs, you set aside a portion of your circulation for prospecting purposes. You strategically determine the long-term growth rate of your business. With search (especially with natural search), you don't control the long-term growth rate of your business. Google determines the long-term growth rate of your business.


Multichannel CEOs and CMOs: Your task for Tuesday morning is to sit down with your analytical folks, and learn if Google drives existing customers to your site, or new customers to your site. If Google is used by your existing customer base, you have the potential for long-term growth problems, as you may not have a healthy source of new customers to prospect to. If this is the case, today is a good time to start considering how you will find new customers.

3 comments:

  1. Hey Kevin, I'm happy to report that our firm does monitor the new / non new split with paid search, and we see a healthy new percentage. In fact the new percentage is higher than general orders in the same time frame outside of search.

    Two follow-ups for everyone:

    1.) Chicken or the egg? Does paid search DRIVE new customers, or do new customers (who've decided to buy b/c of mass advertising, catalogue passalong, etc) simply use paid search? Does it ultimately matter?

    2.) What if the new customers acquired due to paid search also were mailed a 'Prospecting' catalogue prior to ordering online? Would you count this as a positive attribute of paid search, or categorize that order as 'psuedo existing' since that customer was mailed?

    I agree - we are going to have to get smarter about analyzing paid search as it grows in the marketing budget --at the expense of other initiatives.

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  2. Hi Ray --- in regard to your first question, I don't think it matters. That being said, I do think paid search drives new customers. If you didn't do paid search, and your company did not appear in the natural search results, you probably wouldn't get the customer's business. Ultimately, paid search drives new customers in cases where a company does a less-than-optimal job of managing natural search.

    Question #2 --- to me, this customer is in the catalog/paid-search segment, and therefore, is counted as being driven by both types of media (in this example).

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  3. Anonymous6:30 AM

    We find that a large portion of customers who search for our brand terms are existing customers. We have decided to take the brand terms out of the program analysis, and treat those costs as basic "costs of doing business" (similar to 800 number expenses).

    Also, we do track the overlap between brand keywords and prospecting catalogs, and find that it is meaningful. The "big question" we are wrestling with is how to move away from the "who gets credit" mentality to a better way of evaluating the effectiveness of all of our media.

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