The spectacular growth of Product Listing Ads (PLAs) over the past 2-1/2 years has been a boon for Google and advertisers as well as for consumers.

This growth was spurred by the visual appeal of the ads themselves, by Google’s increasing sophistication in serving the right PLAs for the right queries and by Google’s decision to eliminate the visual competition on the SERP produced by the once-free Google shopping listings.

The question has been raised, though: is some of this growth also artificially produced by cannibalization?

For Enterprise AdWords advertisers, might some of the traffic generated by PLAs have reached us anyway through our text ad programs, or even our organic listings? I dove into that question at SMX Advanced in Seattle earlier this month and want to share RKG’s findings more broadly here.

Stunning Growth & Increasing Competition

As the graph below shows, PLAs have grown to represent over 30% of the paid search game for the average e-commerce firm. Note that PLAs are a larger share for some verticals than others: durable goods with SKU numbers tend to sell well through PLAs; apparel somewhat less well. Your mileage will vary.

PLA CPC and Spend vs Text Ads

PLAs have also been a relative bargain when well managed, with higher sales dollars per click values than text ads but lower CPCs. As more competitors have entered the space, competition is driving the CPCs up, however.

Reason dictates that there must be cannibalization. Unless we’re prepared to believe that none of the people who click on PLAs would have clicked on either a text ad or an organic link, we have to conclude that some cannibalization must exist. But we also have to show that a least some of those people would have clicked on a text ad or organic link from the same company as the PLA they clicked. That type of cannibalism seems likely, but less certain.

An Example Of One

RKG manages search for more Internet Retailer 500 clients than any other company. We also have more PLA spend under management than any company in the world. However, for the purposes of keeping the analysis simple, let’s take a look at a case study for a single enterprise retail advertiser.

The advertiser chosen has a particularly robust PLA program owing to its large catalog of durable goods skus. Its paid search program is large and tail heavy with low to mid-traffic keywords, historically driving more than 75% of its spend and revenue. {Note: throughout this analysis we look exclusively at data from non-brand search}

For this advertiser, PLAs have come to represent almost 60% of its search advertising spend.

PLA Click Share

In our search for evidence of cannibalism, we started with the premise that Click Through Rates (CTR) might be revealing. CTRs for PLAs have grown like wild:

PLA CTR Growth

At the same time, the CTR for text ads is falling off.

PLA CTR vs Text Ads

This trend becomes clearer when we highlight the YOY trends to normalize for seasonality.

PLA v Text Ad YOY CTR

We expected to see a more prominent decline in click through rates for text ads in position 4 and below so teasing those out left us here:

CTR of Text Ads by Position

Surprisingly, it doesn’t appear that the CTR of ads below position 3 have fallen by any more than the CTR of ads in the top 3 positions.

Indeed, looking at the YOY trends it even appears that the CTR decline has hit the top positions slightly more than the bottom.

YOY Declines in Text Ad CTR

However, there is another factor to consider, and the evidence lies here:

Fraction of Text Ad Traffic going to low positions

For this client, over the years, ads in position 4 and below have accounted for 18 – 20% of the total text ad traffic. However, as this graph shows that fraction began to decline as PLAs grew. Lower position ads now only account for 7% of the text ad search traffic.

We need to do more research to prove this out, but the feeling here is that the issue is the number of text ads receiving any impressions have declined. When PLAs show, the number of text ads available drops from 10 or 12 to 6 or 8. The lowest position ads aren’t available to be clicked on, so the CTR isn’t so much worse as there aren’t impressions on those ads when there used to be.

Cannibalism Isn’t All Bad

However, the fact that there is cannibalism doesn’t imply that there is no incremental value driven by PLAs.

People often think of cannibalism as implying 100% cannibalism, with Channel 2 below simply eating what used to be tracked to Channel 1.

Cannibalism Perceived

It doesn’t, all it implies is this:

Cannibalism Actual

There is some overlap, and that overlap creates some interesting issues, as we will see later.

If we examine the combination of text ads and PLAs, you’ll see that the CTR on ads as a group is increasing, and the traffic and revenue have grown as well.

This is a happy advertiser. Google is happy. Consumers are getting what they want. It’s all good. Well, maybe not all good. The increased CTR on ads implies a decreased CTR on organic listings. Again, it isn’t a zero sum game. Some of that paid ad cannibalism is taking organic traffic away from competitors as well as from the advertiser’s own organic listings. We’d argue it looks like this:

PLAs and the SERP Ecosystem

Anecdotally, a number of our e-commerce clients are seeing softening growth rates, and in some cases, outright declines in organic search traffic corresponding to the rise in PLAs.

Conclusion & A Few Warnings

There seems little question that PLAs have cannibalized some traffic from AdWords text ads as well as natural search traffic. However, the fact that some traffic is cannibalized does not in any way suggest that all of it is cannibalized. We see the problems presented by PLAs as fourfold:

  1. Fear of cannibalism leads to irrational decisions. Because people will end up paying for some traffic they might have gotten for free, they don’t participate in PLAs at all and cede the field for their competitors to cannibalize that traffic instead.
  2. The fact of cannibalism can lead to bad decisions, as well. Particularly if PLAs and text ads are managed by different groups internally or externally, the appearance of declines in text ads or organic search can lead advertisers to the wrong conclusion about performance.
  3. If text ads and PLAs are managed by different platforms, another challenge arises: double counting of orders and overpaying commissions. We see a significant number of very rapid bouncing between PLAs and text ads.PLA and Text Ad InteractionAs the chart above indicates, this bouncing isn’t part of the generally mythical consideration funnel: it happens rapidly and contrary to the prediction that the funnel fans more often than not; the PLA click happens first, not last. We believe this is a product of people wanting to see a wider selection than the PLA offers, thus going back to the SERP to find an ad that takes them to a higher-level landing page.
  4. The last danger of PLA management is in assuming that it is simple. Proper feed optimization, creation of granular targeting, and smart bid algorithms make a tremendous difference in PLA performance. This is the performance delta of PLAs for an IR 50 retailer whose PLA program had been left in “set it and forget it” mode by another agency.PLAs Sophistication Matters

PLAs are an important part of the paid search ecosystem. As always: those who study the data and execute what the data suggests have a material advantage over those who don’t.

Opinions expressed in the article are those of the guest author and not necessarily Search Engine Land.

Related Topics: Channel: SEM | Enterprise SEM | Google: Google Shopping | Search Ads: Product Ads

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About The Author: is Co-Founder and Chief Marketing Scientist of RKG, a technology and service leader in paid search, SEO, performance display, social media, and the science of online marketing. He also writes for the RKG Blog. Follow him on Twitter at @georgemichie1.

Connect with the author via: Email | Twitter | Google+



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