Thinking Beyond PPC Bidding Wars

    March 28, 2006

While bidding war tactics are intriguing to learn about, the costs of engaging in bidding wars are high, and these costs extend beyond the extra money marketers must pay to the search engines to engage in them.

The topic of PPC bidding wars has been buzzing through the Search blogosphere recently, thanks to a high-profile session at Search Engine Strategies 2006 and a colorful follow-up article by Greg Jarboe of SEOPR (best known as the firm that handles SEMPO’s PR).

Bidding wars aren’t exactly new in the world of Search, but because so many new marketers are entering the field and seem to be finding themselves embroiled in them, it’s important to know what they are, how they’re fought, and most importantly, how to avoid them.

What is a PPC Bidding War?

Bidding wars happen when competitors competing for high-trafficked top spots on SERPS set a process of irrational keyword price escalation in motion. These wars, whose only real beneficiary is the search engine, are easier to conduct on pure-auction engines such as Yahoo (formerly Overture) where SERP positions are determined on the basis of bid price alone, than on Google, where factors such as a given ad’s predicted CTR (Click-Through Rate) are used to determine a given ad’s position. The fact that Yahoo discloses keyword prices publicly via its “View Bids” tool actually encourages bidding wars, because it makes it so easy for competitors to spy on each others’ bids.

Bidding War Tactics

A range of offensive and defensive tactics is available to the bidding warrior. Advertisers frustrated by the fact that they’ve been shut out of top positions by a competitor using a high maximum bid to maintain this position often use “bid jamming,” a punishing tactic of bidding one cent below the competitor’s maximum bid for the coveted keyword. When a searcher clicks on the “jammed” ad, the unwitting competitor is forced to pay the maximum bid price, which, given enough clicks, can quickly drain his budget and perhaps drive him out off the SERP should these clicks cause him to exceed his maximum daily spend.

Offensive bid-jamming can backfire, however, if the competitor, upon realizing that he’s being bid-jammed, retaliates by lowering his bid a penny below the bid-jammer’s price. Now it’s the bid-jammer’s turn to suffer pain, drained budgets and possible disappearance from SERPs. This tit-for-tat cycle can continue indefinitely, ratcheting maximum keyword bids up, then down, in a pattern resembling a sawtooth wave.

Other popular bidding war tactics include “bid shadowing” (tracking a competitor’s bid and bidding a cent above or below it to maintain relative position) and “gap surfing” (finding and exploiting significant keyword price differentials to maintain high SERP positions without paying a premium).

The Costs of War

While bidding war tactics are intriguing to learn about, the costs of engaging in bidding wars are high, and these costs extend beyond the extra money marketers must pay to the search engines to engage in them. Because the bid-jammer can so easily become the bid-jammed, bidding wars require constant monitoring by human supervisors, resulting in labor costs that must be factored into the total cost of running a Search campaign.

Beyond these direct costs, bidding wars have an insidiously hidden opportunity cost insofar as they distract marketers from focusing attention on goals that really matters in a search campaign: ROI, conversions, and increased market share. For these reasons, it’s better to avoid bidding wars entirely. So how do you do this? Well, it means sidestepping competitors and outmaneuvering competitors rather than confronting them head on.

Here are some tactics that you can use to “choose your battles” rather than having them choose you.

  • Use Geo-Targeting to Run Campaigns “Under the Radar”Running a campaign “under the radar” means bidding strategically on search terms in geographical areas without your competitors even knowing you’re there. Both Google and MSN offer very precise geo-targeting capabilities that let you run campaigns down to the city level. Unless your competitor is very wily, he won’t even know you’re dominating SERPS in specific markets.
  • Fight Back With Better CTR
    In Google’s hybrid auction, keyword performance is a vital determinant both of the price you’ll pay and the position your ad occupies on the SERP. The higher your ad’s CTR, the lower the bid required to maintain a given position, which gives you an advantage over your competitors. What gets great CTR? Well-written creative that’s targeted to the keyword typed in by the searcher and landing pages that are effective in promoting conversions.
  • Expand Your Keyword List
    Are there keywords similar to those your competitors are battling over that are being overlooked? Use your engine’s keyword suggestion tool to find them. Investigate “Long Tail” (seldom searched-upon) keywords and keyword combinations. Searchers using these keywords are often more predisposed to convert than more general keywords likely to be the focus of a bidding war.

    Tip: when introducing any new keyword into an Adwords campaign, bid high at the onset, and then gradually back off after establishing a favorable CTR. This will allow you to maintain a higher position even if competitors discover that you’ve dominated the keywords they’ve overlooked.

  • Exploit Demographic Segmenting
    MSN’s demographic targeting is a powerful new feature that is likely to find its way into the other engines soon. Think hard about who your customers are, in terms of gender, age, household spending, as well as where they live, and use demographic targeting to bid higher on segments more likely to convert. Using dayparting (turning ads on and off during periods when your targeted audience is most predisposed to convert) can give you an advantage over any competitors who haven’t carefully analyzed the periods of the day when your target audience is most likely to convert.
  • Employ ROI-based Bid-Management Software
    ROI-based bid management software lets you dynamically update bids and SERP positions by linking them to your campaign’s all-important ROI objectives. When your campaign is running “in the black,” you can use your earnings surplus to bid more aggressively to dominate the top spots. Should conversions drop, you can drop your bid and take a lower position. Be advised that such software is powerful, and will yield maximum results only when it is operated with the input of a skilled group of analysts. If you are interested in such a solution, your best course is to contact a SEM (Search Engine Marketing) agency. Some of the more sophisticated SEM campaign management platforms such as Maestro, the Did-it system go beyond simple ROI bidding through segmentation modeling, creative testing and elasticity testing.

A World Beyond War?

These are just a few of the techniques which can help you outmaneuver your competitors in Search’s shifting battle grounds. Using them requires more thought, and more work than running a head-to-head bidding war, but learning about them is a better investment of your time than obsessing about bidding wars, which, as the engines and SEMs develop more powerful segmenting technologies, will soon become a thing of the past.

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Mr. Frog is a leading Search industry visionary. Mr. Frog is a member of the Did-it Search Marketing team which accompanies him to most major
marketing conferences.