My cat, Walter, runs under the bed when he hears footsteps—even if it’s only the mailman.
Being risk-averse to that degree doesn’t make Walter a rational maximizer, so he’d probably make a poor tournament player in bridge or poker. But it does make him a survivor. Natural selection works on the principle of “better,” not necessarily “best.” Walter’s nervous ancestors tended to live on to propagate their genes, so the trait stuck.
Walter isn’t the only one whose brain evolved with such traits. The animalistic side of most human brains is well-suited to localized snap judgments, which can lead to all kinds of mistakes, according to the recent work of Keith E. Stanovich, author of What Intelligence Tests Miss: The Psychology of Rational Thought. For example, we can actually be too overconfident because we’re simply not aware of the broader context and evidence that impacts our immediate decisions.
On the other hand, in looking at the world of probabilities in something like the stock market, we exhibit something researchers call myopic loss aversion. Studies show that investors (yes, even intelligent folks) feel twice as much pain and anguish from losing $100 as they do pleasure from gaining the same amount. They’d be less risk-averse if they looked at their results less frequently, and if they knew the potential gains from solid strategies were greater than initially thought.
Why is that? It’s hard to say. But 1,000,000 years ago, we weren’t staring at spreadsheets or trying to figure out how to sell puts on Nokia with a January expiry while reading rumors that the company is set to increase its dividend. The point is, relative to rational outcomes we tend to shoot ourselves in the foot just by virtue of our natural dispositions.
So the problem for us a lot of the time is that our brains haven’t evolved to do a good job of reacting to situations in the games we’re forced to play in civilized society. We need to hop into modes of analysis that are more likely to produce victories in these games.
Now back to search marketing—specifically paid search.
One of the nice things about paid search is that—unlike certain financial scenarios—it’s difficult to fall victim to a “black swan,” a rare event that can wipe you out in a single day. You can build additional safeguards to guard against catastrophic losses, but “losses” in any case will take a few days to months to fully take effect, even if you aren’t watching that closely. And in search, rarely is there a “contagion effect” from one “investment” to the next, as is the case in various investments related to financial derivatives, banking, etc.
The real challenge in marketing is to build out and expand a world-class campaign that destroys your competition. Any mammal, after all, can stand around with their hand poised over a big red panic button.
So—counter to our myopic loss aversion bias—the biggest risk in 2010-2011 for most marketers may lie in working with outdated assumptions about the size and potential of both their target markets and the paid search channel. In short, could you lose more money under-investing in a hot recovery and allowing your competitors to steal market share than through any localized action or test that looks like a “mistake”.
When economic rebounds come, they come quickly. Some folks, like hedge fund managers, may be able to turn on a dime, but corporate marketing planning tends to be more methodical. If there’s anything you and your organization can do to ready yourself for a rebound, it’s worth doing it sooner rather than later.
Here’s a short list of five kinds of investment or expansion that should be well worth it as pent-up demand returns with a vengeance by the middle of 2010.
Quick disclaimer. The channels below aren’t for everyone, and sometimes experimentation is only suitable for aggressive advertisers. The word “aggressive” should not be a bad word in the right context. In many businesses it makes no sense to try to strike after the iron has cooled, so to speak. In any case, recognize that weighing all the evidence for or against different alternatives should also involve not taking my word for any of the following, but doing it if it makes sense and fits your plans.
Reasonable search marketing strategies to try in 2010:
Content targeting. Many savvier Google AdWords advertisers recognized the decisive shift in performance in the content network about two years ago. But chatting with individual managers and company owners, we often find that the caution bias still applies, and many have content targeting dialed way back. It’s worth taking a second look. You’ll want to optimize that channel heavily and bid it carefully, of course. On a related note, many campaign managers have opted for managed placements, a program that sounds more “laser targeted” than the automatic matching program. That may be true, but by ignoring the deep benefits of automatic matching, you can be missing out on the reach it provides. No one wants to show up in inappropriate channels, but the system allows you to exclude anything you like. Think expansion, while monitoring carefully.h
New ad formats. Depending on your business, you’ll want to keep a close eye on things like Google Local and how that integrates with AdWords. In terms of the new ad formats coming down the pike, product images and other experiments are coming from Google. One interesting one is the potential inclusion of “additional links” from your top-position paid search listing. The effect of this could be to push competitors down the page.
Dayparting. The use of ad scheduling has been often biased in the direction of “loss aversion” by advertisers who fear night-time and weekend clicks—or more sensibly by those who wish to provide proper phone support to their prospects. But the other side of the coin is, some advertisers are ramping up bids a lot during hot times of the day. Your volume could be seriously impacted by this. If you’re in aggressive mode, fight fire with fire by scheduling in some bursts of bidding where you’re up there at 150%-200% of your base bid. You might enjoy the extra business.
Facebook ads. The decision to pursue additional performance-based, targeted inventory shouldn’t be just based on the prospect of a few decent CPA conversions. It should also be based on the likelihood that the time and testing budget invested are going into a channel that should be a source of highly targeted customers, in reasonable volumes, for the long haul. In this regard, looking into performance-based Facebook advertising is a no-brainer.
Bing! RIP Yahoo Search and the paid search platform operated by Yahoo (code-named Panama). But to advertise to both Microsoft’s and Yahoo’s search users, there should be a ton of quirky optimization opportunities as the platforms are consolidated in mid-2010 and as Microsoft expands the offering through 2011. There’s nothing urgent you need to do about this now, but you should be budgeting for it. And so here is where I think some loss aversion does come into play. Clean up outdated advertising programs that haven’t performed for you, whether it’s through a second-tier service that has proved unreliable, or paid inclusion that is about to be wound down. If you need to find the dollars to properly budget for Facebook and Microsoft in 2010-11, expanding the budget is one option, but consolidating your budgets and focusing your human team’s efforts is another way to raise the needed budget room.
Opinions expressed in the article are those of the guest author and not necessarily Search Engine Land.