The online channel is the rising star of the retail sector. A Goldman Sachs ‘Dotcommerce’ report (March 2010) projects future online growth to be five times the rate of traditional retailing. UK retailers such as John Lewis, Argos and Sainsbury’s are embracing a ‘multi-channel’ approach to their business to meet a consumer base that’s now strongly multi-channel in both its expectations and behaviour.
Businesses seeking a competitive edge are realising that online provides significant value at a number of levels. Firstly it offers a platform for pre-purchase consumer research and brand engagement. This research typically drives both offline and online sales, with the latter typically offering higher margins. It also delivers a knowledge bank of behavioural insights.
Search marketing drives approximately 30 per cent of online sales. So what’s the best way to go about it?
The right business model
It’s important to ensure your search agency’s objectives are aligned with their own – the pursuit of profitable online sales. Typically search agencies tie clients into long retainer-based contracts with performance bonuses linked to performance targets. Fees are invariably based on a percentage of ad spend plus time spent on the account. But both these measures are ‘cost-based’ and have no direct link to generating profitable online sales. Increasing traffic volumes can be loss-making if customer acquisition costs and profit margins are not aligned, while retainers don’t necessarily drive continual agency innovation.
A viable alternative to this is for clients to work with agencies on a more flexible gain-share model. This requires the agency to share in a client’s financial and strategic risk.
This type of contract typically offers a shorter notice period. Fees are based on increasing profitable online sales and taking a share of that added value as a ‘success fee’. This requires securing more relevant traffic, which should drive down average customer acquisition costs while increasing those all-important sales conversion rates - a combination that will improve bottom line results for a client.
This gain-share model is designed to directly reward agency success. The approach encourages innovation and a constant desire to improve results and find better ways to generate profitable sales. The gain-sharemodel also builds client trust because it requires the agency to adopt this gain share culture across its entire organisation. People within the agency need to share the risk to be suitably motivated, and so a strongly incentivised agency is created.
In adopting a multi-channel strategy, offline trading decisions should influence search marketing tactics. Real time advertising technology enables the achievement of this integration. Physical ‘shop floor strategies’ can be replicated using online campaign technology to execute trading decisions and bids in real-time based on product data, stock positions, physical location, market conditions and required margins.
To achieve the best results businesses need to understand the customer buying process and provide a bespoke product advertising response to different search modes. Generic searches typically signal that consumers are in ‘research mode’. This is an opportunity to promote those relevant products they want to sell based on margins, holding excess stock or other trading decisions. Conversely specific searches indicate the consumer is already in ‘buying mode’ and knows exactly what it is they want, they may even have the product code. This is a chance to sell the specific product being requested, based on price, availability and delivery terms.
The buying process
Understanding the buying process should determine relevant advertising and the message for targeting a specific consumer. Real time advertising needs to engage that customer with an appealing offer at that moment. Success is about timing, relevancy of message and consistently delivering on promises. It is also about agility and being able to respond quickly to emerging opportunities as a result of adverse weather conditions, changing economic or political factors and major events. Those businesses able to respond fastest with a compelling online offer will win these new sales opportunities.
Online campaign technology automates real time ads, which reduces the pressure on human resources. ‘Business rules’ can be established and adjusted quickly to changing business needs for each product or category. Campaign performance is then measured on an evaluation of how each business rule or trading decision has performed, rather than a review of individual keyword performance. Success is about ‘proactive bid management’ – promoting selected products based on relative margins, stock positions or promotional needs.
The client-agency ‘gain share’ approach together with well executed real time advertising should deliver more search marketing success.The model typically drives more innovative use of technology, more effective campaign management and a continual desire to improve, because there is no room for a search marketing agency to be complacent when it is rewarded purely on results.