In sports, being number one is the primary goal, the reason for being. But when it comes to paid search engine marketing (SEM), being number one — bidding the highest amount for a keyword to ensure that your company tops the list of results — may be a path to campaign failure. Recent research by San Francisco-based eye-tracking analysis software firm EyeTools, combined with what we see day in and day out with our clients, leads us to the conclusion that being number one in most cases is a waste of money, while camping out in a lower position often proves to be more productive.

A common occurrence we encounter is a CEO or a vice president communicating downward to the search manager the mantra “we want to be in the number-one position at all cost.” Another scenario is when the search manager or vendor wants to impress superiors or the client and bids for the top spot irrationally. None of the people in this common scenario understand that the number-one position in SEM isn’t all it’s cracked up to be. Let’s take a look at why.

When two or three companies all have the “top position” mentality, they almost always start a bidding war with each other, constantly raising bids until the top two or three bids are way out of tune with what’s economically viable. Budgets are burned. Results are poor. And eventually, these bidders fall back to earth or disappear.

A recent press release from jewelry merchant BlueNile.com stated that the company has pulled back on search because of this exact problem. Expect more of this from major marketers in the space. Unfortunately you cannot control your competition, and in scenarios like the one BlueNile encountered, either these top-position bidders don’t have the ability to measure return on investment for every keyword or they choose to ignore it.

When you can track every keyword/engine combination to a specific ROI measurement and apply proven direct response principles, you quickly find out that your best results usually come when you’re sitting somewhere from position 2 through position 5. The real objective of every bidding strategy should be to find the “point of diminishing marginal return” and stay in that spot. This sweet spot is where you are maximizing volume at an acceptable cost to acquire (CTA) or return on advertising spend (ROAS). We’ve found that the only way to get to this perfect point is through a combination of testing with assistive campaign bid management technology and human decision-making. It simply can’t be done by 100% automated “set it and forget it,” systems because they are driven by quantitative factors, not qualitative factors. Recent research validates these conclusions.

In a recent study, EyeTools observed the eye movement of 50 consumers in its lab, to determine “hot spots” on the Google search results page for both organic and paid listings. Our interest in this study was for the paid, right-hand side, where the study indicated the percentage of people looking at an ad in each of the top eight sponsored-side positions:

Position % of consumers viewing listing
1 50%
2 40%
3 30%
4 20%
5 10%
6 10%
7 10%
8 10%

The study further showed that when advertisements were placed in the very top position above the organic listings on the left side, up to 100% of consumers considered clicking those ads in the top four positions, based on the result page’s layout.

Overall, while the higher listings got more consideration for the click, a very healthy percentage of consumers also viewed ads in lower positions. But most interesting, among the ads positioned on top of the organic listings, the advertiser in position 1 had the same chance at getting the click as the advertiser in position 3, confirming that being in position 1 is not absolutely necessary to be considered for the click.

Since we are paying for qualified clicks and not eyeballs, being in the top position is not an advantage unless you can conclusively demonstrate that the volume produced out of that location and the resulting ROI are better than the volume and ROI from lower positions.

That’s the ballgame in a nutshell. Let the testing begin!

If this study and our data had showed that 90% of the consumers view position 1 and 10% view other positions, then being number one would be much more important. But that’s not the case. In the same way that consumers will scan a newspaper or a magazine and see several ads, so they scan a search results page. Therefore, finding the optimal position, the one yielding maximum volume and acceptable ROI, becomes a number game. To get to this point of search nirvana, we recommend four key steps:

  1. Expanded keyword development

The first step is to dramatically expand your keyword list, aiming to find those two- , three- , and four-word phrases that will reduce the irrelevancy of searches on broad terms, therefore having a much higher chance of converting, and where less bidding is taking place. Most keyword lists in the hundreds can be expanded to the thousands, and most lists of several thousand can be expanded to 5,000-10,000.

  • Enhanced marketing communications
  • Many marketers overlook the actual verbiage of the listings, yet what the listings say is critical to your success. You have three short lines of text to accomplish two things:

    • Attract consumers to your listing by making it stand out from the others.
    • Get only the most qualified consumers to click to your site, so as not to waste the cost of a click on an unqualified consumer.

    There’s a real art to writing paid-search copy that encourages qualified clicks while discouraging unqualified clicks and that differentiates your company from the competition. In short, your listing must let your target audience know that you are the most appropriate destination for their needs. Sounds simple, but it’s more challenging than you may think.

  • Landing pages that produce the ah-ha! effect
  • Once the searcher clicks on your listing, make certain that the destination landing page delivers exactly what he is expecting to see. If the search term is “red dress shoes,” make sure the landing page features red dress shoes prominently. Also ensure that products are shown in dramatic fashion and that copy is enticing and well written. Blah landing pages lead to blah results.

  • Bulletproof tracking, measurement, and reporting
  • You can’t do all of the above without being able to track every single keyword/engine combination to your key metric. The only way to determine what to bid is by having trained direct response analysts review the data and make decisions aimed at finding the point of diminishing marginal return.

    Keep in mind, too, that the bidding environment may constantly be changing in real time. Without a good tool and a good analyst, you could get caught sleeping as the market dynamics change.

    Much of the time you are faced with several opportunities. As an example, assume that you are in position 2 and, based on clicks, conversions, and volume data, have these choices:

    • Move up to position 1 and pay $0.22 more per click.
    • Stay where you are.
    • Move down to position 3 and save $0.08 per click.
    • Move down to position 4 and save $0.28 per click.

    All four of these opportunities may make sense for your campaign, but you need to determine what makes the most sense for your overall success. An automated system that relies on rules and algorithms will often make the wrong decision because it does not take into account the relevant page positioning and marketing communications of your competitors that stand above and below your listing. Trained analysts who understand your goals are more apt to make the best decisions in finding your point of diminishing marginal return.

    The EyeTools study, combined with other statistics, unquestionably shows that the clear path to maximum volume at an acceptable ROI is going to be found in positions 2, 3, and 4 most of the time and that going for position 1 is usually not viable. The long-standing economic theory of diminishing marginal return lives and flourishes in search engine marketing. The time is now for marketers to set aside the “number one at all costs” mentality and start acknowledging the reality that being number one means very little other than that you are most likely losing the battle against your competitors in lower positions.

    To accomplish this, make sure you have the right balance of people and technology, as success in lower positions is driven by better marketing strategy, not a technology that changes a keyword bid 48 times a day.

    Tim Daly is vice president of marketing and strategy at SendTec, a St. Petersburg, FL-based direct marketing services provider.