Nerd Alert: How Effective is Paid Search?

Summary

Podcast Summary: The Marketing Architects – "Nerd Alert: How Effective is Paid Search?"

Release Date: January 9, 2025

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Introduction to Nerd Alert

In this episode of The Marketing Architects, titled "Nerd Alert: How Effective is Paid Search?", hosts Alena Jasper and Rob DeMars delve deep into the efficacy of paid search advertising. Designed to translate complex academic research into actionable marketing insights, this episode examines whether paid search truly drives revenue or if it's merely an expendable expense for established brands.

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Overview of the Study

Alena introduces the central study of the episode: "Consumer Heterogeneity and Paid Search, A Large Scale Field Experiment" by Thomas Blake, Chris Nosko, and Steven Taledis. Conducted by eBay, the research aims to measure the tangible impact of paid search ads by strategically turning off a significant portion of these ads across various regions and analyzing the resultant sales data.

Alena Jasper [00:41]: “This study was actually conducted by eBay and it offers us some surprising answers.”

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Hosts' Initial Reactions and Predictions

Before revealing the study's outcomes, Alena poses a thought-provoking question to Rob: “What percentage of eBay customers that clicked on a branded paid search ad to get to their website do you think would have ended up there anyways?” Rob predicts that a substantial majority—90%—of these customers would have found eBay organically, especially given eBay's strong brand presence.

Rob DeMars [03:55]: “I’m going to say, and I’m probably going to be wrong, that 90% of customers would have gotten there anyways.”

Alena concurs, suggesting that well-branded terms naturally attract organic traffic, reducing the necessity for paid ads in such scenarios.

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In-Depth Discussion of Study Findings

Impact on Branded vs. Non-Branded Keywords

The study's findings revealed a stark contrast between branded and non-branded paid search keywords:

1. Branded Keywords (e.g., "eBay shoes"):

   • Result: Turning off paid ads for branded terms did not impact overall sales.
   • Implication: The majority of traffic from branded search already found eBay organically, rendering paid ads for these terms redundant.
   • Rob summarizes: “They were pretty much targeting their loyal customers who didn't need an ad to find their way to eBay.com.”

2. Non-Branded Keywords (e.g., "used guitars"):

   • Result: While paid ads slightly increased traffic from new or infrequent customers, the return on investment (ROI) was still negative.
   • Implication: Even for category-specific searches, the cost of acquiring new customers through paid search outweighed the revenue generated from these ads.
   • Rob highlights: “The ROI of paid search was deeply in the red with the study estimating a return of negative 63%.”

Alena Jasper [07:36]: “For a well-known brand like eBay... much of their paid search spending was just not necessary.”

Return on Investment (ROI) Insights

The most startling revelation from the study was the negative ROI of -63% for eBay’s paid search campaigns. This negative return signifies that the money spent on paid ads resulted in a loss rather than generating additional revenue.

Rob DeMars [06:54]: “So this is where the study gets super interesting. They calculated the return on investment or the ROI for these paid search campaigns and the results are pretty shocking.”

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Implications for Marketers

The study offers critical insights for marketers, especially those managing established brands:

• Reevaluating Paid Search Spend:

  • Established Brands: Might benefit from reducing or reallocating their paid search budgets, particularly for branded keywords that already capture significant organic traffic.
  • Newer Brands: While paid search can still play a role in driving traffic, it's essential to monitor and analyze the ROI meticulously to ensure cost-effectiveness.

• Understanding Audience Behavior:

  • Loyal Customers: Established brands often have a loyal customer base that relies on organic search, diminishing the need for paid interventions.
  • New or Infrequent Customers: While there is some value in attracting new customers through paid search, the costs may not justify the incremental sales.

Alena Jasper [07:38]: “If you're working with a strong established brand, it might be worth reconsidering how much you're spending on paid search.”

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Personal Anecdotes and Further Insights

Both hosts share personal experiences related to interacting with paid search ads:

• Clicking Out of Hate: Rob admits that he occasionally clicks on sponsored ads for brands he dislikes as a form of protest, reflecting a psychological layer in consumer interaction with ads.

  Rob DeMars [01:53]: “I was taught to never click on those ads just out of courtesy to fellow marketers. But if I despised a particular brand... I might click on it.”

• Perception of Sponsored Ads on Different Platforms: Alena discusses her nuanced approach to sponsored ads on platforms like Google’s shopping filter versus Amazon’s retail media networks, suggesting that the context and presentation of ads influence user trust and engagement.

  Alena Jasper [09:33]: “I feel like they're a more legit seller if they're sponsoring it. Which gives you the credibility of why people advertise.”

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Concluding Thoughts

The episode concludes with a consensus between the hosts that the effectiveness of paid search ads varies significantly based on brand recognition and customer behavior. For established brands like eBay, the study underscores the potential for cost savings by reducing reliance on paid search, especially for branded terms. Conversely, newer brands might still find value in paid search but must approach it with a critical eye toward ROI.

Rob DeMars [09:33]: “Chances are you could be reducing a bit across the board. Especially if you work for a well known brand... a lot of money I think could probably be saved by shutting some of those off.”

Alena Jasper [10:12]: “I'll just be like, then I'll go back and organic search it.”

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Key Takeaways

• High Organic Presence Reduces Paid Search Efficacy: Established brands may find that their strong organic search presence diminishes the additional value of paid search ads.

• Negative ROI Signals Reevaluation Needs: A significant negative ROI from paid search campaigns indicates a need for marketers to reassess their advertising strategies and budget allocations.

• Platform-Specific Strategies Matter: The effectiveness of paid search can vary across different platforms (e.g., Google vs. Amazon), influenced by user trust and the presentation of ads.

• Consumer Behavior is Multifaceted: Understanding the motivations behind why consumers click (or avoid) paid ads can inform more effective marketing strategies.

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This episode of The Marketing Architects serves as a crucial reminder for marketers to continuously evaluate the performance and ROI of their advertising efforts, ensuring that every dollar spent contributes meaningfully to their revenue goals.

Transcript

[A]

Nerd alert. Learning is important, right?

[B]

Yes, exactly. But a bunch of nerds.

[A]

Nerd alert.

[B]

Right. Marketing Architects. Hello and welcome to the Marketing Architects, a research first podcast dedicated to answering your toughest marketing questions. I'm Alena Jasper. I run the marketing team here at Marketing Architects, and I'm joined by my co host, Rob demars, the chief product architect of misfits and machines.

[A]

Hello.

[B]

Hello. We are back with your weekly Nerd Alert. Every week, I'll take a deep dive into academic marketing research and translate its complex ideas into simple, understandable language for Rob, and of course, for all of you. Are you ready to nerd out, Rob?

[A]

Elena, I am wearing my Goonies T shirt right now, so clearly I am ready to nerd out.

[B]

I'm ashamed to say I don't know exactly what that is, but I'll take your. I'll take your word for it. All right, let's get into it. As always, we'll link the research we cover in the episode notes. This week, I read a study titled Consumer Heterogeneity and Paid Search, A Large Scale Field Experiment by Thomas Blake, Chris Nosko, and Steven Taledis. But before I get into things, Rob, I have a situation for you. Imagine you just searched something. You're scrolling through Google results. What would make you click on an ad instead of just going straight to the organic results? I mean, do you even notice a difference between the two at this point?

[A]

Okay, so I have a weird answer on this one. Hate would be the reason why I would click on a sponsored link because I learned early on I was. I was with a client and we were doing some tests looking at organic search, and one of their sponsored ads popped up and they're like, don't click on it because you know we have to pay for that. Right. And so, like, I just was taught to never click on those ads just out of a courtesy to fellow marketers. But if I despised a particular brand and I wanted to cost them money knowingly, then I might click on it.

[B]

That's so funny, because I do the same thing. So it must be a marketing thing because I never click on sponsored ad. Yeah. If I'm searching for something intentionally, I know they're gonna have to pay for it. So I won't click on it if it's sponsored. Unless you're right. It's like a brand or a company that I don't really like.

[A]

Yeah.

[B]

Then I'm like, all right, you could pay for my. You could go ahead.

[A]

And obviously. And obviously I'm such a fan of television based on our experience with marketing architects, that I don't want to like, make them think their. Their paid ads are working so well too.

[B]

Wow. Okay. That's like another. I haven't even gotten to that level yet. I'm going to be thinking of that. Although I don't know if I should admit this, but the how do you hear about us? Survey, I typically say tv, always tv, I don't care.

[A]

And there's no way.

[B]

Sure, I've seen them on tv.

[A]

There's no way some of the ones that I filled out, they've ever had a TV spot. But I don't care. I'm going to make them think that it's, oh, it must be that good.

[B]

Oh my gosh. Well, thank goodness marketing architects doesn't have any paid ads for people to go spam right now, because I have a feeling that might be happening. They don't exist. All right, so by now you've probably guessed the theme of the study we're going to cover. It's paid search. It's one of the largest chunks of digital ad spend. But this is the question of the study. How much does it really move the needle? This study was actually conducted by ebay and it offers us some surprising answers. So let's get into it. Ebay conducted a massive experiment to measure the true impact of their paid search ads. So they essentially turned off a significant portion of their ads in certain regions for a set period and then tracked the results. And this wasn't any small test. It was carefully designed to include both branded keywords like ebay shoes, and non branded ones like used guitars. Their goal was to understand if these ads were driving new sales or just acquiring customers who are going to buy from ebay anyway. So, Rob, I want you to take a guess before I reveal the results. What percentage of ebay customers that clicked on a branded paid search ad to get to their website do you think would have ended up there anyways? And then try to answer for branded and also non branded.

[A]

Oh boy. Well, I'm going to say, and I'm probably going to be wrong, that 90% of customers would have gotten there anyways. It's just, especially if you have, and I guess this is branded versus non branded. Like if you have a very strong brand that you just show up so well organically anyways and that maybe there's a trust factor and not feeling like you're gonna get remarketed to so that you'll end up going through the main branded route.

[B]

So what about so you're saying for ebay shoes, you think 90% would have gotten there anyways? What about like used guitars, like a.

[A]

Non branded term, how many people would have found them anyways through ebay?

[B]

I guess that's a bad way of asking the question. The branded question was a better setup for the non branded, I suppose. Do you think there's a difference? So basically in the study they turned off branded keywords and they turned off non branded, like buying ads for them. And then they tracked what was the difference in our results. Do you think that it changed when you turned off branded versus turning off non branded ads?

[A]

So my guess would be that 90% of people would find things organically if it has a strong brand. Right. That people are going to be able to find it anyways because organic rewards larger brands or well branded products. In terms of turning off, like if you were just going to go for generic guitars, like a category. Is that what you mean by that, Elena? So if you were just going to, I would think it's more important there that you're fighting with other people and other brands. So it would be more important to have a sponsored strategy when you're wrestling with a major category versus a specific brand name.

[B]

We are spot on. So when they turned off their branding keywords, this is crazy, it did not impact their overall sales. So almost all the traffic that would have come from these paid ads, which were again branded terms like ebay, shoes, ebay, guitar, that was still captured by organic search. So if anyone searches for ebay, they still found their way there without clicking on a paid ad. But as you said, non branded keywords told a little bit of a different story. So this study, it showed that these ads were slightly more effective at attracting new or infrequent customers. So especially those who didn't visit ebay often or hadn't made a purchase before, which makes some sense. But here's the catch. Frequent buyers, those. And those are the buyers that drive most of ebay's revenue. They were largely unaffected by those ads. So they were still going to ebay regardless of whether an ad was there.

[A]

Oh, is that because they were basic? Like ebay in this case is like the search engine. So if I'm like, hey, I need to buy a guitar, I'm going to go to ebay and then do my search?

[B]

No, this would still be searching in Google. Like frequent buyers of ebay say they just typed in use guitar into Google. They are still more likely to like to go to the organic result and click ebay.

[A]

Okay. Got it.

[B]

Even for non branded. So what the hard part is like how do you know who you're advertising to? But no, it's actually still searching in Google, they were still very likely to just bypass. They didn't, wouldn't need an ad. They'd still end up at either.

[A]

Got it, got it, got it.

[B]

So this is where the study gets super interesting. They calculated the return on investment or the ROI for these paid search campaigns and the results are pretty shocking. So the ROI for brand keywords was essentially negative. So ebay was spending money for no additional sales. And even for non branded keywords, the story wasn't much better. The ads did bring in some new customers, but the cost of acquiring them outweighed the revenue they generated. So overall, this is crazy. The ROI of paid search was deeply in the red with the study estimating a return of negative 63%. And that's with a 95% confidence interval. So they're fairly confident that their paid search ads are fairly. Wow, that crazy.

[A]

That is crazy.

[B]

So just quick to summarize here. For a well known brand like ebay, we'll say this is ebay. You know, they're, they're quite well known by basically everybody in the United States. Much of their paid search spending was just not necessary the ads, they weren't reaching new audiences, they weren't driving meaningful incremental sales. Instead, they were pretty much targeting their loyal customers who didn't need an ad to find their way to eBay.com well, so what does this mean for a marketer in general? If you're working with a strong established brand, it might be worth reconsidering how much you're spending on paid search and where that money could be better used. On the flip side, if you're a newer or lesser known brand, these kinds of ads, they might still play a critical role in driving traffic to your site. But it's also a great reminder that the numbers on the surface like a click through rate, it doesn't always tell the full story. You need to dig deeper to find out if those clicks are really translated into meaningful business results. And that's why I like this study, because they should have. They could have just ended at branded keywords aren't good, non branded are better. But when they actually gave you the full story, it's like, oh, both are not really worth the return that they're driving. So Rob, paid search ads for ebay are like putting up a neon sign outside your house for your friends. They already know where you live and they're coming over anyways. Sure it's flashy, but it doesn't change who's walking through the door. I thought that was a great one.

[A]

That is good chatgpt. Thank you.

[B]

What do you think?

[A]

I think that is super interesting. I'm actually shocked at the the fact that they were actually going into the negative. I mean I knew it wasn't wouldn't be as good but at least that was my hunch. But to actually go negative is crazy.

[B]

I know. I agree. I think that for really any brand like well known or not, you should look at your paid search spending in 2025.

[A]

Right.

[B]

Because chances are you could be reducing a bit across the board. Especially if you work for a well known brand like those branded keywords. A lot of money I think could probably be saved by shutting some of those off.

[A]

So I do have a confession to make and it's funny because I'm not really processing it till now. The one thing I will sometimes use is the shopping filter on Google, which I know is still a sponsored ad, but it feels different to me because it's like I'm being super transparent. Like I want to go to a store and find all from all the different stores of things that are available out there and you know what I'm talking about the shopping tab versus images, news or whatever. So there are times while I will look at that but oftentimes I'm not going to click on it still because I just don't want the stuff to follow me. So I'll just be like, then I'll go back and organic search it.

[B]

Yeah, I bet a lot of people do that. You also just reminded me that this study, it's just for Google search. And I know that ebay wouldn't necessarily have this opportunity, but retail media networks, those are growing a lot. Like they're gonna be one of the biggest marketing channels in a couple years. That would be like sponsored ads on Amazon. I'm much more likely to buy from like a sponsored ad on Amazon. I don't know if it's because of how it looks if Google search, we're all just so trained by now to avoid the sponsored ads. I mean maybe it's just a marketer thing, but I guess the study shows it's not. I'd be really interested in the same study for a retail media network like Amazon, like Walmart. Does it pay to promote your product there? I would think yes. Like the ROI would be better on something like Amazon.

[A]

Okay, so now we're getting really meta Because I've done the same thing. And part of the reason I'll do that on Amazon is I feel like they're a more legit seller if they're sponsoring it. Which gives you the credibility of why people advertise. Right? Like, oh, they must. It must be a better product because they've got the money to do that. That kind of meta.

[B]

That doesn't seem to apply for Google, though.

[A]

Yeah, but I think it's because Google is so obviously trying to sell you stuff. It's like there's just something that's overtly selling you when you're, like, looking at their sponsored ads where you just don't trust it. Where. Where Amazon, you feel like it's at least a good store. And then within the store, this person's probably spent some more money. So they're not a scammer. Where. I think Google has a lot of scammers in their world.

[B]

And there's also more social proof on Amazon even as you scroll through, because the first thing you look at as you're scrolling is reviews, and they have those right on the feed. I wonder if that would make a difference for Google sponsored ads if they had some product reviews or something like that. That's it for this episode of the Marketing Architects. We'd like to thank Taylor De Los Reyes for producing the show. You can connect with us on LinkedIn. And if you like the podcast, please leave us a review. Now go forth and build great marketing.

[A]

I'm confused, Elaine. On this one, I'll be honest with you. That part, that second part of this got me. All right, let me just try. Try this over.

[B]

Marketing Architect.