PPC brand bidding test – CPCs cut by 75%, minimal sales loss

Insights | 29 Nov, 2013

Senior PPC Manager Richard Hartley focuses on how to help improve a campaign by carrying out a brand test, using one of our existing clients as an example.

Hi, there. My name's Rich. I'm Senior PPC Manager here at Jellyfish. So, how much are you paying for your brand terms? I'll be willing to bet it's not very much, especially compared to what you're paying for your generic terms, and you're probably getting really good returns from it, as well, which means there's an opportunity. Any small improvement we can make to our brand campaign have a positive overall effect on our overall campaign as a whole.

What I want to share with you today is a brand test we did for one of our clients that really helped improve that campaign in the face of stiff competition. So, there are going to be occasions where competitors will try to worm their way into your brand space, just trying to aggressively show an ad below you a lot of the time. They might be doing this because they might have an aggressive offer, which gets them a reasonable click-through rate, hence a reasonable quality score. But, most likely, they're going to need to bid quite aggressively to get there.

So, to be able to combat that a little bit, what we need to do is just understand how the actual ad auction works. So, it's what's called your ad rank that dictates your position on the SERPs. That is simply calculated by multiplying your max CPC bid by whatever Google dictates your quality score to be for that particular auction, for that particular search. Then, how your actual CPC is calculated is simply the ad rank of the person in the position below you divided by your quality score. The way the mass of that works out is either they always pay equal to, or slightly below, your max CPC bid for that click.

So, let's plot a scenario now, where we're seeing some high CPCs for one of our client's brand terms. We've got a really high quality score because we have a high click-through rate, because it's our brand, and so we don't need to bid a huge amount to be able to get a really large ad rank. The person in the position below us, though, the aggressive competitor, might get a reasonable quality score, but still nothing like what we're getting. But then, we'd have to bid aggressively to get there, and must be doing, if we're getting high CPC's. The person in position 3, though, they might not have a high quality score or a particularly high bid. They're just getting a high enough ad rank to get into the auction to get shown by Google.

So, let's look at that. Actually, it's the position below us that dictates our CPC, which means that, actually, because the competitor in position 2 has a really high ad rank, we actually end up paying quite a lot. Then, it's not necessarily the case that they're paying a particularly large amount, because the competitor in position 3 hasn't got a particularly high ad rank at all. So, what we've got is a scenario where there's an aggressive competitor in position 2, who's probably getting not a huge amount of clicks, but some, and when they are getting them, not paying very much for them, but then they're inflating our cost per click for all the clicks that we're getting. It all seems to be a little bit unfair.

So, how can we counter this? Well, ask the question, 'Do we really need to be in position 1 even for our brand terms?' Okay. There are brand benefits there of being in position 1, but actually if we can drop our bids, get to a lower position, then we might actually make some really big cost savings, and the drop in click-through rate might be negligible.

So, that's what we did. We got through the scenario, we had some educated guesses based on what we thought the competitor's bids were, and their quality score, and therefore, what their ad ranks might be, and then dropped our bid accordingly to appear consistently in position 2. So, what this means now, if you look at the scenario, is that we've now got a much lower ad rank. We're in position 2, but now the ad rank dictating our CPCs is that much lower one in position 3. Then, the aggressive competitor moved up to position 1, which isn't ideal, but now it's our monster quality score which means a high ad rank is pushing their CPCs up well above what they were paying. And the results we saw were amazing.

Okay. We saw a bit of a drop in click-through rate from 21% percent down to 17 percent. So, that represents about an 8% or so drop in clicks. But, we saw a 75% drop in our cost per click. Also, we didn't even see a huge amount of sales drop because of it, about 4%. We suspect this is because all the people that represented the 4 point drop in the click-through rate just went to the organic link, clicked there, somebody saw a slight rise in number of SEO conversions we had, but then a lot more existing users were put on to the organic link. It was the new users, the ones who were ready to buy, that clicked on the PPC link. So, actually, it served to qualify the ad, our conversion rate actually rose.

So, I'd say we feel a little bit sorry for the competitor who saw their CPC's quadrupled for a term, they were doing quite well before, and they fell off the landscape a week or so later, but I can't say I feel too sorry for them.

So, what can we learn from this? Well, firstly, you don't necessarily need to fall in love with position 1. Make sure you're not just vanity bidding for the sake of it, without any data to back up your decision. Secondly, a better understanding of the ad rank auction can give you more insight and can reveal things to test and make really good improvements to your brand campaign, or your campaign as a whole.

Thanks alot.

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