Retail Paid Search Competition Heats Up with New Entrants

Retailers spent more than $2.3 billion on paid search advertising with Google AdWords and the Yahoo Bing Network in 2012, according to AdGooroo data (disclosure: I work there) making retail the most robust category for paid search in terms of ad spend.

With all that money being spent by retail advertisers on site traffic, it is reasonable to ask who is spending all that money in PPC, and how dynamic is the list of winners and also-rans. And more specifically, how hard is it to climb past one's competition in the ranking?

To address these questions, we recently published a research report ranking the top 50 advertisers in 2012 in 15 of the largest retail sub-categories based on U.S. AdWords first SERP ad impressions, with year-over-year comparisons to 2011, and the results shed some light on the competitiveness of paid search for retailers.

The bar chart below provides an overview of the advertiser dynamics within each retail sub-category by decomposing four aspects of the top PPC advertiser rankings. More thorough explanations and analyses for each ranking measure follow below the chart:

New to the No. 1 Ranking in 2012New to the Top 10 in 2012New to the Top 50 in 2012New to the Sub-Category ranking (i.e., were not ranked in 2011)

Top Advertisers

There is not a lot of movement in the number one ranking position. In fact, the top advertiser (with the most 2012 US AdWords ad impressions) changed in only two of 15 sub-categories versus 2011.

Interestingly, one of the changes in the number one position can be seen as a reflection of the marketplace drama that played out in business headlines over the past year. Specifically, in the Children's Goods sub-category:

The Disney Store was overtaken for the number one paid search impressions spot in 2012 by Toys R Us, which reportedly sought to improve its online presence last year as part of a larger strategy to compete more vigorously. In fact, Toys R Us increased its paid search impressions from 136 million in 2011 to 201 million in 2012, while the Disney Store's paid search impressions dropped from 208 million to 188 million from year-to-year.

The other change in number one position occurred in the Grocery & Food Retailing category, where Publix displaced Safeway in 2012.

The Big 10

Although easier to penetrate than the number one position, competition for a top 10 PPC ranking was fairly stiff as well, with only six sub-categories having three or more new top 10 entrants in 2012.

Taking a closer look, new Top 10 entrants in each category represented a mix of household name brands and smaller Internet-only players, suggesting that some of the big brands are just starting to consider PPC to be a critical advertising medium and that being a smaller brand is not as much of a handicap in PPC as one might think.

In Jewelry, for instance, Kay Jewelers and Jared broke into the Top 10 in 2012 along with lesser known DiamondNexus and Gemvara, while in Beauty and Cosmetics, household names, YourAvon and MacCosmetics, climbed into the top 10 in 2012 with JustNaturalSkinCare.com.

Top 50

Seven of the 15 retail sub-categories saw 10 or more new top 50 PPC entrants in 2012, including Consumer Electronics, Home Improvement, Beauty & Cosmetics, Flowers & Mail Order Gifts, Jewelry, Auctions & Classified, and Grocery & Food.

Twenty percent or more of the 2011 top 50 SEMs were displaced. Their slip from the top 50 could be reflective of robust head-to-head PPC competition, an inability to make paid search pay out or to defend the medium when marketing budget was allocated; or even a shift in their overall business model.

Some well-known brands that slipped out of the top 50 were Troy-Bilt, Homestore.Cisco, Nexxus, Tresemme, Lilian Vernon, Swarovski, and Fred Meyer.

New to the Game

The proportion of new entrants to each shopping sub-category's 2012 advertiser ranking varied from 1 percent to an astonishing 25 percent. Apparel & Fashion was the second largest sub-category (to Consumer Electronics) in terms of the total number of active advertisers in 2012 and it was easily the most dynamic sub-category, with one quarter of the advertisers in 2012 not appearing in 2011's ranking. (Perhaps this is normal in such a taste-driven vertical.)

Home Improvement was the second most dynamic sub-category with 13 percent of the advertisers in 2012 not appearing in 2011's ranking. Ten percent of the advertisers in Consumer Electronics' 2012 ranking and 9 percent of those in Beauty & Cosmetic's ranking were new as well.

On the other end of the spectrum, the least dynamic sub-categories overall were Stationery, Cards & Printing (3 percent new), Flowers & Mail Order Gifts (2 percent), Healthy & Pharmacy (1 percent) and Shoes (1 percent).

What's It All Mean?

There are many barriers to entry in retailing, including the cost of inventory and the need to deliver real innovation compared to other sources of supply in order to win and retain customers. Perhaps just as important is the need to build awareness and preference among those consumers so as to benefit from shopping consideration and loyalty.

Paid search queries and the resulting first SERP ad impressions are demonstrable evidence of both consumer awareness and loyalty because SEMs must achieve click-throughs to continue to be rewarded by AdWords with first SERP placement.

Putting aside the number one ranking, the dynamics within retail sub-categories showed fairly high levels of volatility in the top 10 ranking (average of 23 percent new entrants in 2012) and top 50 ranking (average of 20 percent new entrants in 2012), as well as a wide range of overall volatility across the sub-categories, with Fashion & Apparel far out in front (25 percent new entrants).

Although paid search has always been a difficult and highly competitive medium, these patterns demonstrate the volatility of the impression rankings. Advertisers that focus their PPC efforts can gain in the rankings relative to other competitors, as was demonstrated in 2012 by new, smaller and lesser-known brands as well as by many larger household name brands.

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