SEM & Paid Search: Is Competitive Benchmarking Overrated?

10Apr, 2013

In a recent post over at SearchEngineWatch.com, Gregg Hamilton of “Digital Marketing Intelligence” provider AdGooroo elegantly and enthusiastically sang the praises of competitive benchmarking.

“Competitive benchmarking is one of the most fundamental and valuable tools for successfully managing paid search campaigns,” wrote Hamilton. “At its heart, benchmarking is the practice of analyzing the performance of your competitors’ and industry’s paid search efforts in order to monitor, adjust and improve the relative performance of your own campaigns.”

Hamilton wasn’t done there, however.

“Competitive benchmarking puts your efforts in perspective and enables you to understand how you’re doing compared to specific competitors as well as the rest of the industry,” continued Hamilton. “In fact, benchmarking is the starting point in developing a smart paid search strategy, providing insight into what you need to do to achieve your goals and steering you away from costly tangents. Lastly, it enables you to measure your ongoing performance on a regular basis.”

While there are certainly a lot of good reasons to mine, analyze and utilize competitive information and data, the examples Hamilton goes on to provide in this post demonstrate that competitive benchmarking, while valuable, isn’t necessarily the penultimate solution, great equalizer, or even “smart starting point” it’s hailed as here.

Take, for instance, the analysis the post applies to Home Furnishings & Décor category leader Pottery Barn – while contrasting it with “competitor” Bed Bath & Beyond.

Now, while both these stores may sell towels and all manners of kitchen appliances, they aren’t truly direct competitors. In fact, they have two very clearly different audiences who spend very different amounts of money on their products. Pottery Barn is pretty high-end, while Bed Bath & Beyond is a bit more down the middle of the road. So two equate these two brands in an apples-to-apples fashion is a bit like saying a high-end, exclusive steak house is essentially the same thing as, say, Buca di Beppo.

But the real flaw in the analysis here comes with the declaration that Bed Bath & Beyond’s SEM efforts were “much more efficient”…simply because it spent less than Pottery Barn on paid click-throughs ($7.2 M to $8+ M, per the blog). That doesn’t mean you’re “much more efficient.” It just means that you spent less. Period.

Without any data on either brands’ sales and return on investment (ROI) from these paid search campaigns, even knowing their cost-per-click (CPC) doesn’t really help all that much. In reality, Pottery Barn may be quite willing to pay a higher CPC for their traffic, given that the cost of their products is significantly higher than that of Bed Bath & Beyond – and the budget of their typical shopper that much larger.

The cost of a CPC might come in handy if you’re looking at the same keyword between two competitors, but not entirely – because you don’t have any indication of their quality score, their bid, and a ton of other information that will help you determine if you are, in fact, getting a better or worse price for that specific keyword. To flatly and simply say, “our CPCs are better than theirs, so we must be doing better” is providing a ray of false hope that won’t ultimately help your campaigns at all.

Now, where competitive information CAN come in very handy is when it comes to determining how much your direct competitors are spending. That way, you can provide yourself with a starting point for your own budget – or at the very least, understand why your competitor may be kicking your behind in sales.

Competitive information can also be good for inspiration when it comes to adding new keywords to your campaign. However, you should also use caution here and always remember…your competitor might just suck when it comes to PPC.

What are your thoughts on competitive benchmarking and competitive information? How do you feel about this SearchEngineWatch.com/AdGooroo analysis?

We’d love to hear from you in the comments section below. Fire away!

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