PPC Marketing - Pay through the nose or do the hard yards

Friday 5 October 2007, 4:25PM

Research by project management specialists ProActive Software Ltd, developers of suggest that Pay Per Click (PPC), the most common form of online advertising, is losing ground to other forms of advertising.

Used by the likes of Yahoo and Google, PPC lets advertisers bid for the amount they are willing to pay for each person who clicks on their advert and is enticing to advertisers as no payments are made unless the ad delivers a click through to the advertiser's website.

However there are some pitfalls of the PPC model to be aware of.

Without an in-depth knowledge of how PPC advertising works advertisers can miss the mark totally, and although most sites offering PPC advertising have resources to help target the ads to pages with relevant content, even when done right the conversion rates can still be very low.

ProActive Software Ltd have been using the PPC model for the past five years and have been gathering data on their results (download PDF from this blog post) and on the ensuing bidding wars which have erupted in the fiercely competitive business management software market in which they operate.

Proactive found two main problems:

Bid Price - In the past 12 months, the average ‘Bid Price’ for keywords we've tracked, to retain the same position, has increased an average of 230%.

This seems due to people continually outbidding each other for position, driving the price up.

Conversion Rate – The quality of the leads coming from the PPC campaigns has been decreasing. The Average Conversion Rate dropped from 5.8% to 4.5%.

During this time the conversion rates for ProActive's other (non-PPC) methods such as natural search results, blogs, image ads, referrals and newsletter campaigns have either remained constant or increased.

ProActive's conclusion was that PPC advertising appeared to be spiraling up in cost, lowing in conversion and shrinking their profit margins as they couldn't lift prices as fast as the cost of advertising was increasing.

Proactive Software CEO Julian Stone says, “On one hand you can spend big money on PPC campaigns, an increasing expense, and on the other hand you can put in the hard yards, like all good successes, and invest in other free forms of online marketing.”

Other advertising research released this month also suggests the best forms of advertising arise from having the best products and services available which in turn create 'word of mouth referrals'.

Global managing director for Nielsen’s Customized Research Services, David McCallum pointed out in a recent article that “advertisers around the world are able to reach consumers across an increasingly diverse range of media platforms.”

“Even so, the recommendation of someone else remains the most trusted sources of information when consumers decide which products and services to buy. And even though new media technologies are playing a role in ‘globalizing’ society, many purchasing decisions are still based on firmly held national and cultural attitudes ... the importance of responsive, high quality customer service is yet again highlighted.”