Given the end of 2012 and talks of economic uncertainty being averted in early 2013 with the resolution of the fiscal cliff, we thought it would be a good time to review the 2012 retail season from a paid search perspective and predict what 2013 has in store for online marketers and advertisers. As we examined the data for online paid search, three distinct trends emerged.

1. Paid Search spend in retail grew 16% Year over Year

Compared with Q4 2011, online retail spend was up by a healthy 16%. By comparison, paid search retail spend was up 13% in Q4 last year.

In terms of market share, Google increased its share in retail paid search to 86.5% percent, up from 85.9% in Q4 2011.

There were two chief catalysts for this growth – mobile traffic and the transition of Google Shopping from a free model to a paid model with Product Listing Ads (PLAs).

2. Mobile traffic doubles in a year as mobile now accounts for 1 in 5 clicks in retail

In a recent post, I found that mobile traffic was growing faster than many of us had expected. This trend continued in Q4 2012, with smartphone and tablet traffic accounting for 20% of all spend and impressions. Thus, in one year, the percentage of mobile traffic as a percentage of the overall paid search traffic has doubled.

While tablet retail campaigns have historically enjoyed higher conversion rates than desktops, they have had 30% lower Cost per Clicks (CPCs) than desktops. As a result, they enjoyed a 73% higher ROI than comparable desktop campaigns. Advertisers appear to have understood this opportunity as tablet CPCs rose significantly last quarter. Tablet CPCs are now 16% lower than desktops. Still, the lower CPCs on tablets represent an opportunity for savvy retailers.

 

3. Trend in seasonality driven by device unboxing

We noticed an interesting trend in the data this year. As we all know, the volume of iPhones, iPads and Android devices that are gifted each year during the holiday season drive MAJOR advertising shifts and retail dollars. Tablet impressions share has shown consistent year-over-year growth starting immediately after Christmas. This net addition of share then becomes the new “normal” or share baseline. Below is some U.S. data we pulled.

We found similar trends in the UK, too.

Product Listing Ads (PLAs) played a big part in shaping the retail season

Google’s Shopping’s transition from a free to a paid, Product Listing Ad (PLA) model had a major impact on overall retail. While Google increased its market share of retail spend by 0.6% in a year to 86.5%, almost all its growth came from PLAs. In Q4, PLAs accounted for 10.7% of OVERALL spend. It is interesting to note that Google’s PLA program is about the same size as Bing, which is 13.8% of total retail ad spend.

The growth of PLA spend was gradual. As Google transitioned its Google Shopping program to the paid model in early October, PLA spend and impression share increased with the onset of the holiday shopping season. By mid-December, PLA spend accounted for 17% of all advertiser spend on Google. As the holiday season ramped down, PLA spend dropped too. Thus, it remains to be seen at which final level PLA spend stabilizes.

PLA vs. Non-PLA performance

Comparing PLA versus standard text ads provides us with some interesting insights. First, PLAs have a 34% higher Click Through Rate (CTR) than non-PLA ads, which is not surprising given the ads pictorial format (compared to standard Google text ads). Second, the average order value (AOV) for PLAs is 12% lower than standard ads. Again, this is not surprising given that prices are shown on PLAs. We surmise PLAs attract more bargain-conscious shoppers who choose retailers offering the lowest price for a product of interest. Third, ROI and CPCs on PLAs are comparable to standard ads, too. Thus, the market has seamlessly rationalized the price of PLAs so their performance is comparable to the standard ad ROI.

Closing Thoughts

1. It would be beneficial to retailers to note that PLAs played a significant role in the past retail season. As they gear up their campaigns for the coming year, online retailers should consider optimizing their PLA campaigns both from a bid and a feed management perspective.

2. Traffic patterns on mobile devices are different from desktop usage. With the holiday season, we saw a big bump in tablet traffic and expect it to be 1 in 4 paid clicks by the end of 2013. Combining smartphones and tablets, we expect the share to be 30% of all traffic in retail.

3. As advertisers catch up to the rapid increase in tablet usage, savvy marketers are presented with an opportunity as tablet CPCs remain 16% lower than desktop campaigns despite a much higher conversion rate than desktops. Any marketer with a sizeable search campaign and significant mobile traffic would do well to create, manage, and optimize tablet and mobile-specific paid search campaigns.

 

Methodology

This analysis was completed based on aggregate, anonymous data from Adobe Media Optimizer search engine marketing customers. The dataset represents a subset of clients who have spend data for six consecutive quarters or more whose resulting SEM metrics are then normalized to average industry category contributions established by multiple third-party data providers.

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