Case Study: How an Electronics Retailer Altered Its Holiday Paid-Search Campaign Strategy and Cut Cost per Acquisition in Half

Company: The Source By Circuit City
Location: Ontario, Canada
Industry: B2C, Retail
Annual revenue: $700,000,000
Number of employees: 4000

Quick Read:

When an online electronics retailer runs a holiday-season Google paid search campaign, and the resulting cost per acquisition is far higher than the average cost per order, something is not right. Yet that's what happened with the 2005 holiday campaign of The Source By Circuit City.

The following year, Source flipped its keyword strategy, changing the focus from paid-search result position to achieving lower customer acquisition cost per order. The change resulted in a 58% reduction in per-order cost during the 2006 holidays.

The Challenge:

In 2005, The Source By Circuit City, the Canadian Internet arm of the popular electronics retailer, ventured into the paid search space for its holiday campaign. It was an expensive undertaking.

"The cost of acquisition was extremely high," says Joanne Dunford, online marketing manager for The Source.ca, who joined the company in the middle of 2006. "The (Google search campaign) purchase was made without a huge understanding of the medium."

Because the results of the first campaign were so poor, it seemed likely that the company could improve results the following year. However, consumer electronics is a very competitive market. "I went on the assumption that my competitors would spend more than I would want to spend," she says.

Dunford realized she needed a strategy that would allow her to be competitive with a smaller budget than her rivals'. Earlier in her career, she had run Internet banking at a large Canadian bank, so she knew that paid search involved much more than an advertising campaign. "We had to put a strategy around our purpose," she explains.

The Campaign:

The Source.ca decided to hire dthree, an online marketing management company in Mississauga, Ontario, for help with a new campaign aimed at increasing site traffic and decreasing acquisition costs. Dunford, together with Harmit Kamboe, director of search and online media for dthree, decided their strategy would be to forget about rank in search campaigns and focus on the sales goals instead.

To do that, they came up with a four-pronged strategy:

Strategy #1: Reduce average cost per click

Dunford dramatically reduced the price that the company paid per click, gambling that the resulting lower ad position would be outweighed by the cost savings. That gamble ultimately paid off.

Strategy #2: Increase the number of keyword "negatives"

In the 2005 campaign, most of The Source.ca's keywords were set to a broad match. That meant that if a consumer was looking for "webcam," but used different search phrases, such as "a webcam," "webcam reviews," "webcams" or "free webcams," The Source's results would still be displayed.

Kamboe suggested that Dunford increase the number of negative keywords so that The Source's keywords wouldn't be displayed with searches that included words such as "free," "chat," "Yahoo," or "porn." Customers searching for those phrases likely weren't in the market to purchase a webcam.

Ultimately, Dunford tripled the number of negative keywords being used, helping to reduce the number of ads appearing alongside irrelevant consumer searches.

Strategy #3: Give key product lines a "long tail"

Dunford and her team pinpointed the key products that the rest of the company's advertising focused on. Then, they purchased many keyword phrases that included those products, essentially giving those products "a long tail" so consumers could find it dozens of ways.

They purchased phrases such as "webcam review" or "webcam consumer review," plus possible misspellings and abbreviations. (dthree uses a service that evaluates what misspellings are being used the most often).

"Everyone wants the word 'webcam' but it's cost-inefficient, so we went with the misspellings and the longer phrases," Kamboe explains. "When you have a small army and a small budget, instead of trying to go head-on against a competitor—which can steamroll you—you go around the sides, you outflank them. There's no way we could compete with Best Buy, which has vast amounts of reserves."

Strategy #4: Shift budget away from AdSense publisher sites

Most companies put a percentage of their budget into ads that appear on Google properties as sponsored links, and a percentage into contextual ads that appear on Google AdSense publisher sites, alongside content.

Dunford decreased the percentage of spending going to such content sites. The remaining went into Google sites.

To Kamboe, this was an obvious change to make: "Frankly, most advertisers should do it." For example, he points out, if USA Today ran an article on social networking that included content about Internet webcams, Google might place an ad from The Source next to that article. Though the article mentions webcams, the people reading the article are likely more interested in its content than in shopping. They are passive consumers rather than the active consumers who are conducting searches, and hence their spending is less targeted.

Results:

"We were extremely pleased with the results," says Dunford. Despite keyword inflation from 2005 to 2006, the campaign achieved its goal, reducing the cost per acquisition by an impressive 58%.

Furthermore:

The campaign resulted in double average order value from paid search compared with the previous year
Cost per click was reduced 42%
Conversions increased between 200% and 300%
Traffic increased

Lessons Learned:

Dunford realized that the expense of being number one or two on a sponsored-link results page was probably not worth it. She needed The Source By Circuit City to be on the first page, but it didn't matter too much where on that page it landed.

"While our average ad position was lower by one rank, our average cost per click was reduced by 42%," she says. "(We got) much more bang for the buck."

Related Links:

Note: The Source's annual revenues are between $600 and $800 million a year; the number of employees is approximately 4,000.

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