Gliebers Dresses; Paid Search

Our series on how advertising channels work together continues today.

Glenn Glieber (Owner): "... and after seeing the TV ad, I went to the all-you-can-eat buffet for as many scallops as you can eat for $8.99. Those scallops were so tiny, for crying out loud. Who'd think you'd get bad seafood at an all-you-can-eat buffet?."

Meredith Thompson (Merchandising): "Kevin, is that you?"

Kevin: "Yup, it is me."

Lois Gladstone (Finance): "You were going to talk about multichannel marketing today, correct?"

Kevin: "Today I am going to focus on the role that paid search plays in your business."

Meredith Thompson: "You know, I really don't get paid search. Just last night I'm sitting in the living room with my husband (Chet), thumbing through the stack of catalogs we received in the mail last week. Why in the name of Robert Kestnbaum would I get out of my comfy sofa and get on the internet and search for items I want to buy? Who shops that way?"

Roger Morgan (Operations): "Woodside Research says that paid search will be an $11,000,000,000 industry by 2012, so somebody shops that way."

Meredith Thompson: "Sure, if you're looking for a memory stick or a low-cost flight to Topeka, or you want to find out if Jon & Kate Plus Eight are selling branded merchandise then maybe you shop that way. But if you're buying a fashion dress, you want a brand like ours to present the merchandise to the customer on paper, so that the customer can clearly see that we stand for value, quality, and service."

Pepper Morgan (Creative): "Haven't you ever wanted to see if anybody has a similar item at a similar price, so you Google the merchandise your looking for?"

Meredith Thompson: "Not if I am a brand loyal customer. Why would I ever use Google to shop Gliebers Dresses? I know all about Gliebers Dresses. I have the website bookmarked."

Sarah Wheldon (Marketing): "We have a lot of customers who use Google to type in the phrase 'Gliebers Dresses', they use Google to navigate to our website."

Meredith Thompson: "Some of our customers must be brain dead. And then we pay Google $0.40 to direct that kind of traffic. No wonder we're not profitable."

Kevin: "I dug into your database, and here is what I learned."

• 35% of paid search conversions come from prior customers.
• 65% of paid search conversions are from new customers.
• Among new customer conversions, half received a catalog within the past thirty days.
• All first time buyers have a 30% annual retention rate. After a first purchase happening via paid search, buyers have a 22% annual retention rate.
• Customers acquired via paid search are most likely to purchase via e-mail marketing next, followed by catalog marketing.
• Paid search customers are very unlikely to ever use the telephone to place subsequent orders.
• Paid search customers tend to buy items that are at lower price points than the average price point.
• You mail 16 catalogs a year to paid search customers, compared with 21 catalogs a year to the average twelve-month buyer.
• A new paid search customer generates $10 of profit in the next twelve months, meaning that you can lose money acquiring the customer.
• Branded search is correlated with existing customers. Non-branded keywords are correlated with new customers.
  

Meredith Thompson: "So what does all of that mean? It sounds like paid search is a bad thing."

Pepper Morgan: "I didn't interpret the information that way. It sounds to me like paid search has a place in our marketing mix. If we can acquire a customer at or just below break-even, the customer will pay us back enough money over the course of a year to allow us to have a profitable relationship with the customer. That's a good thing!"

Lois Gladstone: "I don't like the idea of losing money today based on the promise of maybe making money in the future. That doesn't sound like the right thing to do in the middle of The Great Recession."

Sarah Wheldon: "Goodness Lois, losing money on customer acquisition is an established best practice. If we don't lose money in the short term, we never grow as a brand in the long term. We learned that lesson the hard way back in the early 1990s."

Roger Morgan: "Paid search seems to have a strategic place in our marketing strategy. Based on the data, paid search seems to allow us to capture some sales that are created by catalog marketing or maybe even e-mail marketing. It allows us to capture new customers. And even though the customers are less valuable, we can still have a profitable relationship with the customer. I don't see much of a downside."

Meredith Thompson: "But paid search is sooooooo boring. It's like trying to sell something via a text message. No romance. No ability to communicate our value, quality, and customer service. No ability to distinguish ourselves via outstanding creative execution and presentation."

Lois Gladstone: "And given that these customers are worth less, wouldn't it make more sense to invest the money in different advertising channels?"

Meredith Thompson: "Yes! Like catalogs!"

Lois Gladstone: "It just seems like paid search has no ability to play a role in building a customer relationship.

Kevin: "So those are good comments. You've essentially outlined the role of paid search. For your business, paid search seems to serve two roles --- one, to acquire customers that you wouldn't normally acquire --- two, to help convert customers that are in the process of being acquired from other channels, like catalog marketing --- and three, there's enough long-term value that you can market to the customer in the future, but you scale that marketing back a bit because these customers have lower than average long-term value. And think long-term, folks. As catalog marketing becomes more and more expensive, you're going to need paid search, how else are you going to acquire new customers? Finally, paid search is probably not a relationship-building channel, it probably isn't at the top of your CRM program. Paid search is often a link in a chain of customer conversion that includes offline advertising and your website. Given your data, it is a necessary channel."

Glenn: "Good, thanks for the comments, Kevin. Let's move on to the next topic. Our creative team wants to start a new policy, called 'Tennis Shoe Friday', one day a week where any employee can wear tennis shoes to work. This goes against our dress policy, and I don't think this sets a good precedent if we approve it. I think we need to adhere to certain levels of professionalism, and tennis shoes are not part of the professionalism that I'm looking to encourage. So I want to say NO to this policy."

Roger Morgan: "My distribution center employees wear tennis shoes. Are you saying they aren't professional, because we've stated over and over again that they are the best in the industry?"