(Editor’s Note: Covario noted recently in its Global Paid Search Spend Analysis that CPCs (cost-per-clicks) are on the rise again. LuRae Lumpkin, vice president, Global Paid Media for Covario, adds some insight and context to the factors and nuances influencing this recent trend.)
Paid search is a maturing market, and as a result, bid auctions are becoming more crowded and competitive in general, which is contributing to higher CPCs.
However, other factors are influencing the recent increase in CPCs that have been observed across verticals and markets. As publishers offer more targeting options, advertisers become more focused and efficient with their media buys and are willing to pay higher CPCs to reach a more targeted prospective consumer.
New ad formats have become a consistent trend with many publishers over the past several months which typically come with a premium for participation. No history exists for the ad type or the consumer response to the new format, which impacts CPC levels for new emerging paid search ad types. These betas and tests are likely having a marginal effect on overall rising CPCs.
The greater impact and general trend that is likely contributing to the increase in CPCs is the shift in advertisers wanting to appear and their willingness to pay for non-branded search term queries. The awareness and consideration stages of the purchase funnel have become of greater interest across the board with advertisers as many realize that simply buying brand terms is not expanding their consumer base beyond their already biased and loyal consumers.
Recent comScore and GroupM research shows that search is the starting point of the purchase process for over 50 percent of consumer purchases. In addition, studies show that the majority of searchers who start with a general term in the search query box of a search engine are generally brand unbiased. Therefore, if you do not appear in the paid search results as a brand for consideration at that beginning stage of the purchase process with the more generic search queries, you will likely completely miss the opportunity to be considered later down the funnel as the consumer gets closer to purchase. Consumers use search engines to gain information on brands that are worthy of being included in the consideration set of their purchase.
Non-branded or generic search queries carry much higher CPCs generally from branded terms. So as advertisers are shifting dollars further up the funnel to widen their prospective consumer base, average CPCs are reflecting an increase to match this shift. The competition for generic or non-branded terms is fierce among advertisers. The keyword combined with the ad copy and landing page that you send these searchers to all play into the overall CPC a given advertiser pays for a particular key word. The major publishers use an algorithm between these three elements that generates a quality score which correlates to the CPC you pay to appear for a particular keyword. The closer these three align, the higher your quality score, and the lower your average CPC.
As we noticed CPCs beginning to increase earlier this year, we also noted an increase in publishers matching competitor brand ads to our brand terms at greater rates than previously seen. These competitor brands being matched to our clients’ brand terms began driving up our CPCs for auctions that were previously far less competitive. In addition, our own brand ads were being broad matched to the brand phrases of others at greater rates. As a result we countered this effect by adding negative keywords to drive back down the cost of branded CPCs that had slowly crept up over time due to minor publisher changes that had major impacts over time on costs.
The rising trend in CPCs will likely continue until we start to see more of a shift to mobile spending where CPCs are currently generally lower than desktop search queries across the board. CPCs on mobile devices are still low relatively speaking, compared to desktop query costs. However, this will eventually level out over time as more advertisers shift larger budgets onto the mobile platform away from desktop search.