SEM Costs on the Rise: How to Adapt

By David Metter

I’m not saying I have a Master’s Degree in economics from Harvard, but I do understand the fundamental principles of supply and demand. The price of goods and services is a direct reflection of the market’s available quantity and requirement of said goods and services. As I assume you’ve heard, Google - the guru of digital adaptation - altered the layout of their search engine results pages (SERPs) to better align with the mobile movement. In February of this year, they removed paid ads on the right side of SERPs – leaving less ad real estate and of course, more competition amongst dealerships.

The result of this change? Industry-wide panic followed by increases in cost per click (CPC). Based upon the laws of supply and demand, as well as the history itself of search engine marketing (SEM), these increases will undoubtedly continue to rise. 

What You Need to Know:

Contrary to the market’s alarmed reaction to this change, the fact that paid search ad costs are surging is nothing new to search marketers. A few years ago, AdGooroo performed a study examining the rise in CPCs from 2012 to 2014 across nine different industries. Automotive had an 83% increase in CPC - the second highest out of all nine categories.

Search Engine Land revealed more recent insights regarding Google’s latest adaptation display. “Looking at the median change from February 8 through March 16 (2016) for a sample of advertisers year over year, we find that first-page minimum bids continue to increase steadily since the removal of right rail text ads.”

It’s time to face the fact that the SEM marketplace is becoming more and more saturated with accelerating rivalry. Speed Shift Media reported 92% of dealerships currently use Google AdWords in their digital marketing strategy. Out of the 18,000+ franchised dealerships in the United States, that’s A LOT of competition. And to think, all this madness goes on just to win a single click?

In addition, Google’s change was implemented to amend accumulating mobile usage. Yet, over HALF of clicks on mobile devices occur by accident – 60% according to several sources including MediaPost, who addressed the issue of “fat finger syndrome” as a perennial problem for mobile advertisers. “It’s a combination of the small amount of real estate available to advertisers on any given mobile device as well as fingers slipping, or a hard-to-press close button.”

How To Adapt:

Again, simple economics. The more players that enter the playing field, the more competition transpires all in hopes of claiming the top position. Search experts are advising marketers to adapt by bidding on the third or fourth ad position instead of the first or second to keep costs down. But everyone knows the further down the page consumers have to scroll, the less likely they are to click.

Investopedia’s financial experts recommend avoiding a marketplace saturated with “dog eat dog” competition altogether. In this case, no company can create a competitive advantage in any way other than competing on price. Such intense competition often results in very low profit margins. Investors should generally try to avoid firms which face such intense competition.”

Dealers need to leverage their advertising partners to do something (anything) that their competitors are simply NOT doing. Do not be afraid to take risks, as the most successful people in the world are the ones that are brave enough to fail. A recent Digital Dealer Webinar recommended allocating 5% of your budget solely towards experimentation. New technologies are hitting the market in near real-time. If you wait until a new channel or solution becomes the norm, you will miss out on the opportunity to differentiate your dealership from the 18,000 others out there.  

Consider the Law of Demand. The law states, “As the price of a good or service increases, consumer demand for the good or service will decrease and vice versa.” Simply put, the more paid search costs increase, the fewer dealerships will utilize paid search as part of their marketing mix. Investopedia explains the implications of the Law of Demand. “As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more.”

My advice? Always start with your conversion strategy; focusing on the net you cast for lead conversion once the customer hits your site. If everyone is in the PPC and Digital Advertising game, you need to figure out how to differentiate yourself once that customer clicks onto your site. In most cases, you are wasting your time, money, and effort if you don’t first focus on converting your site traffic. 

Find a method that delivers more value to your dealership that you can quantify, measure and validate. Every ad budget is limited, so spend it on solutions that provide attribution reporting that proves ROI and an actual increase in incremental sales. Avoid wasting time and money doing what everyone else is doing (as in paying for more clicks to your website in which many are accidents that end up bouncing regardless).

To learn more or brush up on your digital marketing adaptation skills, check out the June 2016 eBook, Adapt or Die: The Auto Dealer’s Digital Adaptation Survival Guide.