The Subtle Science Of Bidding Part 2: Brand Keyword Management

In my previous Analyze This column, I discussed various nuances of bid management that can have significant impact on the performance of your paid search campaigns. I had also mentioned that these subtleties have special implications for brand keyword management. In this post, I shall tell you about some special considerations that come up when managing branded keywords that are often bid at or close to average position 1.

A lot of SEM managers believe that brand keyword bid management is easy. Because the ROI on these keywords is so high and because of company brand considerations, many people think that all they need to do is bid these keywords to a very high level and then leave the bids alone. The trouble with the strategy is that this method of bid management can be very inefficient.

A client of ours wanted to test this hypothesis and wanted to bid their exact match brand keyword from 1.05 to exactly 1.0 at the end of April 2010. The data I am about to present has been normalized but the trends are exactly what we saw. Here is what happened:

When we raised the bid by 20%, the impressions increased. However, looking historically, the impression volume was not abnormally high. On the CPC and conversion side, however, we saw some dramatic trends. On the third day of the bid change, we saw CPCs shoot up three times with a simultaneous conversion rate drop. Net result: ROI tanked.

So what happened? Most people don’t realize that there is a big difference between position 1.0 and any other position. For instance, consider average position 1.05. At this position, you are still not seeing position one 5% of the time. The search engines are experimenting with other advertisers at this position. If you want position 1 all day, the search engines will charge you a huge premium for denying them the chance to experiment with other advertisers. Moreover, as I mentioned in my last article, when you bid very high, you will participate in more auctions, many of which will not be very relevant. As a result, the quality of traffic that clicks on your ad will be lower and your conversion rates will drop. While in theory this is only supposed to happen for broad match keywords, the above example shows that this is not always the case.

At this point you might be wondering, “Why do the search engines want to experiment with position 1?” One big reason is they need to constantly refine the quality score estimates for all advertisers. You might recall that in my last article that I had mentioned that the quality score is based of the estimate of CTR at position 1. If an advertiser has not seen position 1, the search engines will base quality score on an estimate that could be quite wrong. Let us take another example, this time from Bing. The branded keyword was bid to $1 every day. The bid was brought down to $0.26 for a day, and impression volume dropped. When the bid was raised again the impression volumes recovered but we got a much lower position at a higher CPC. Why?

When the bid was lowered, the impression volumes fell and Bing’s CTR estimate at position 1 was very inaccurate. As a result, Bing estimated a much lower CTR than it had before so they began to charge a much higher CPC at the same position.

What is the advertiser to make of all this?

Bid management for brand keywords is complicated. Due to the subtleties involved one needs a very sophisticated approach to managing brand keywords.

An off-hand approach to brand keyword bid management will not work. The traditional brand bid management strategy of biding all brand keywords very high can be very detrimental. As I have shown, this can lead to higher CPCs and lower conversion rates. Moreover, by using this strategy, an advertiser is exposing their campaigns to the whims of the search engines. Smart brand keyword management requires a highly accurate and precise bidding strategy—just as with non-branded keywords. As I mentioned in my last article, when done using sophisticated mathematics, one can build keyword bid, CPC, clicks and performance tradeoff models to 90-95% accuracy.

Position 1.0 is usually very expensive. The commonly held notion is that average position 1.0 and 1.2 are very similar. This is simply wrong. The search engines will charge you a much higher CPC if you want to be seen at position 1 all day. Almost always, its better to be at position 1.05—or somewhere lower than position 1.0. While the point is subtle, its effect on your brand keyword campaign performance is huge. This also means that you need to model keyword performance at the high positions with a lot of granularity.

The complexities of managing hundreds of brand keywords become even more involved. I will be covering this point in the next post in this series.