Bidding On Competitors’ Branded Terms: Moral Dilemma Or Business Decision?

Admit it. You know you’ve thought about it. Yet you hesitate. Chances are, you’re probably conflicted, wondering if it’s morally right, or if you really want to “go there” – even if it is legal. Well, you’re not alone. Many search marketers grapple with this decision at one time or another. The issue? Bidding on competitors’ branded terms.

Your hesitancy is both understandable and prudent as this is an important decision. However, it has far less to do with morals than pure business principals. In fact, it should be based on the same standards you measure everything else with: value, risk, and timing. Gaining an understanding of each may help you decide if bidding on your competitors’ branded terms makes sense for you.

Why Google allows it

But before we delve into each of these considerations, it might be helpful to first understand why Google allows advertisers to bid on competitors’ branded terms. Their reason? They claim it fits with their objective of providing relevant results to searchers. And the courts have ruled in their favor.

And while Google’s goal may seem altruistic enough, it’s hard to overlook their other motivation: revenue. After all, this practice only serves to provide them with a lot more of it as buying competitors’ branded search terms is expensive.

First of all, your ad position in the auction is based on your bid and your relevancy to the search query (what Google calls “quality score”). What you don’t have in relevancy, you must make up for with your bid. Naturally, this can translate into a higher price. On top of that, your high bid will most likely increase the cost per click (CPC) for position one for the competitor who owns the trademarked keyword.

Obviously, this translates into a win-win situation for Google.

The value

But regardless of Google’s reasoning and what they stand to gain, you need to decide if bidding on your competitors’ brand is in your best interest. To that end, the first thing you need to do is gain clarity on the value it holds.

For the most part, bidding on competitors’ branded terms offers one key advantage: higher conversions. How so? When users search on branded terms, they are typically at or near the end of their purchase decision process. Consequently, these branded terms tend to have a significantly higher conversion rate than non-branded terms.

Let’s take a look at an example of this in action with two B2B players.

By Appointment Only (BAO) and Hoover’s are in the same industry: business intelligence. Given that, I wasn’t surprised to see that BAO is in position #2 for the query “Hoover’s.” Even though Google probably doesn’t deem BAO very relevant to the query “Hoover’s” (after all, I couldn’t find any part of BAO’s site that mentions Hoover’s), it is relevant to BAO’s acquisition plan. And BAO is smart not to outbid Hoover’s since most folks searching on branded terms know what they want and who they want it from. Being in position #2 allows BAO to still capture some of the searchers who can still be swayed, but at a lower cost than position #1. If BAO were really smart and wanted to pay less per click on the term “Hoover’s,” they should include it on their landing page (perhaps comparing the two products) in order to increase its Google quality score.

The risk

While bidding on your competitors’ branded terms could provide you with additional acquisitions – which in itself may be enough to cause you to take action – there are other factors to consider, not the least of which is risk.

The first thing you need to realize is that bidding on your competitors’ branded terms is tantamount to declaring war, albeit in paid search. Given that, are you prepared for the battle that may ensue? Once you start, there’s a good chance your target will retaliate and bid on your branded terms. Naturally, this will push up your cost.

At first pass this may not sound like a big deal, but think it through. If you’re managing your paid search (PPC) program well, you have an overall objective to meet, and it’s the low cost branded conversions that fund the more expensive non-branded conversions. Once the CPC for branded terms increases, this will cause the overall program’s cost per acquisition (CPA) to increase (so long as your conversion rate doesn’t increase). Then you’ll be faced with the decision of whether to bid lower on non-branded terms, or increase the amount you’re willing to pay for a new acquisition.

The bottom line is that if you are going to go down this road, you need to have the funds ready to support your efforts should competitors start bidding on your terms.

However, it doesn’t always result in such a retaliatory climate. In fact, there’s a chance that your competitors may try to reach a friendly agreement with you, where both parties agree not to bid on each other’s branded terms.

The timing

Aside from the value and risks of bidding on competitors’ branded terms, there are two other considerations to factor in, and both relate to timing.

The first is your competitor’s brand awareness. Quite simply, if your competitor has far greater brand awareness than you have – which of course, translates into more search volume – then it’s worth the risk to bid on their trademarked terms for the incremental conversions.

Our BAO / Hoovers example cited earlier makes a perfect case for this. It makes sense that BAO bids on Hoover’s terms because Hoover’s has far greater awareness than BAO. In fact, according to Google’s Traffic Estimator, Hoover’s branded terms capture at least three times as much traffic as BAO’s branded terms in paid search.

In addition to capitalizing on your competitors’ brand awareness, you should also bid on their terms when they are bidding on yours. Again, some companies feel that it’s not morally right to do so, but this is a mistake. After all, this is a business decision, not a moral issue. For example, when I last checked, Hoover’s was not bidding on BAO’s branded terms. Obviously, only they can say why they have refrained from doing so, but failing to retaliate against your competition, or at least trying to negotiate a compromise in this situation, is akin to surrendering to an enemy without ever putting up a fight. Who knows, maybe after this article is published, Hoover’s will be in position #2 on BAO’s branded terms.

Overall, making the choice on whether or not to bid on your competitors’ branded terms is not an easy decision to make. But marketers need to remember that it is a business decision based on value, risk, and timing, and not a moral judgment. In the end, making the decision becomes easier when competitors are bidding on your ads, or when the volume you could take from them far exceeds what could be taken from you – assuming you can afford the consequences.

Michelle Stern is a Client Services Director at iProspect, responsible for managing the activities of multiple client-facing teams on organic and paid search engagements. She leads overall campaign strategy including the integration of search efforts and other client marketing initiatives. The Strictly Business column appears Wednesdays at Search Engine Land.