The Search Marketing Advisor Newsletter Article:
February 2005, Volume 4, Issue 2

Being in the Right Place at the Right Time: The Effect of Time on Pay Per Click Auctions - Part 2

by Brendan Kitts, Sr. Scientist, iProspect

In Part 1 of this article in last month’s issue of the Search Marketing Advisor, we discussed the variations in online retail traffic during the holiday season. We also described how it is possible for certain hours or days of the week to command higher conversion rates than others.

This is all very interesting. But what do you do if you know that conversion rates are higher on Wednesdays? Ask your call center staff to be extra nice that day?

That’s not a bad start. But since we’re focusing on bidding strategies, how about decreasing your prices during unprofitable times on Monday and Tuesday to save your PPC budget for Wednesday? This is like putting your thumb over the end of the garden hose which results in the building of pressure. Take your thumb off the hose and spend your money on Wednesday. For the week, you’ll be spending the same amount of money, but now you’ll be spending the bulk of it on higher-converting visitors. In other words, your money is better targeted. You may end up spending many times your daily budget on a given day, but you’ll be reaping the benefits in terms of higher ROI.

This manner of bidding means that, on the days that count, you’ll have a bazooka instead of a pea shooter. But this perhaps isn’t so novel. Traditional advertisers have been aware of this for a long time. It is common for TV advertisements to run with a reduced rotation, or not at all, during certain hours or days of the week (Gerard J. Tellis, and Pattana Thaivanich, 2003.) It makes sense that PPC advertising would exploit these consumer patterns as well.

What about during the holidays? Let’s say we’re using ROAS (Return On Advertising Spend) as our program effectiveness metric. We would have:

ROAS (normal) = revenue / cost
During the Holiday period this equality becomes:
ROAS (holidays) = 6 * revenue / cost

In other words, because of the frenzied buying conditions between December 15th and 21st, you could have increased your click prices on these days by a factor of 6 and still delivered an ROAS the same as, or better than, the typical program ROAS. If this is true, savvy paid media managers should have raised their bid prices in December.

How many paid media managers do you know that increased their bid prices during the holidays?

Our conclusion isn’t that you simply raise all of your keyword prices next December. Every keyword needs to be analyzed to understand when and how it should be purchased. Our conclusion is, rather, if conversion rate goes up, so should prices. In other words, “bid prices should follow where consumers tread.”

The shifts in conversion rate based on time can be significant. Figure 3 from last month’s article showed that in the space of 12 hours, conversion rate could increase by three fold. One would accordingly expect to observe an increase in price during these hours.

You may be surprised to learn, then, the reality of how most marketers manage their PPC auctions. The fact is that 93% of active, paying bidders don’t change their bids from one day to the next.

We tracked 111,959 active bidders on Overture between January 9th and 10th of 2005. Only 3% changed their bid three times or more, which is the minimum necessary to capture morning, day and evening patterns. Therefore, 97% of bidders are not exploiting the time effects we have described in this article.

Number of Bid Changes Observed in 24 hour period	Percent of Bidders
0	93%
1	4%
2	1%
3	0%
4	0%
5	0%
6	0%
7	0%
8 or more	0%

Figure 1: It’s quiet out there. Most competitors on keyword auctions do not change their bid during the day, and so must not be exploiting the time effects we have described in this article.

If you’re not exploiting the effects that time has on conversions and profitability within your PPC auctions, my advice is to analyze your conversion rates. Find out if there are particular days or hours during which your audience changes. During periods of high shopper conversion propensity, you may be able to go far above your usual maximum bid, and yet still acquire customers profitably.

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The Search Marketing Advisor Newsletter Article: February 2005, Volume 4, Issue 2

Being in the Right Place at the Right Time: The Effect of Time on Pay Per Click Auctions - Part 2

The Search Marketing Advisor Newsletter Article:
February 2005, Volume 4, Issue 2