Recovery. Confidence. Spending. These are terms that will that will be welcomed by retailers across the world as the global economy inches away from recession. They will now be looking to capitalise on the more optimistic outlook and report more positive results.

We are clearly not out of the woods yet, so all such supporting marketing activities, such as search, need to be justified with accurate measurement. However, to date there has been a fundamental flaw in the way that it is measured and could prove to be a major stumbling block.

The main problem is the primitiveness of measurement capability. All revenue optimised against search is simply picked up by the conversion tag and pushed into the optimisation technology as “Revenue”. While this is undoubtedly an important category, there are many significant factors it doesn’t take into account, such as whether that order was actually dispatched, if the details changed later and what the actual margin was for that order in real terms.

So, how have retailers got around this obstacle? This information is critical to measuring e-commerce campaigns. Alarmingly, this has been executed through guesswork and averaging out – hardly the best tool for any form of measurement. ROI expectations can currently be increased or decreased for protection against cancellations and delivery charges. Different ROI targets can also be implemented for sets of keywords that tend to sell certain products.

Take Mother’s Day, for example. Higher margins could be placed on keywords related to flowers than those related to chocolates to allow for the variation in margin between the two product lines. Seems logical enough. However, what happens if the user comes to the site and buys both flowers and chocolates - hardly the most unbelievable situation to happen around Mother’s Day.

The retailer then faces a dilemma. Which margin do you use? The high margin target you allow for the flowers or the low margin target for the chocolate? The truth is either way is wrong. In fact, it has traditionally been impossible to solve as you can’t tell in advance the mix of products that keywords will sell and what true revenue and margin will be by picking this information up at the point of transaction.

This leaves retailers with a vast data problem. Millions of pounds could be going through their site, yet the numbers being reported and optimised against simply do not match the actual revenue numbers that the CFO will see at the end of the month.

The knock-on effect of this problem is huge. Firstly, there are the restrictions this brings. Retailers cannot push online as hard as they could because they need to leave buffer zones of ROI to allow for the unknown. Secondly, there is the time (and therefore money) drain. A huge amount of time and resource is spent trying to reverse engineer the actual revenue numbers to what happened a month earlier.

Every sinew of a retail organisation should be spent trying to bounce back from the difficulties of the last two years and increase sales and efficiency, not meeting barriers and backtracking on what happened 30 days ago. For many retailers, their online store may now be their biggest store. Yet due to these hurdles, it is the store they actually know the least about. It is hardly an exemplary business model.

But if this issue has been impossible to solve, then surely all companies are in the same boat and there is no competitive edge to be had? Maybe previously, but that is certainly not the case now.

Search marketers therefore need to go through a fundamental shift in the way they are capturing revenue. Rather than relying on capturing revenue at the point of transaction through a tag on the conversion page, they should be looking to actually integrate with the very numbers the client is using internally, whether through ERP or an order management system from the likes of Oracle and SAP.

This way, search marketers can understand revenue based on what was actually shipped out of the door. With visibility of delivery costs and varying margin based on the mix of products actually bought, also comes visibility of their true ROI.

This flexibility enables marketers to set varying targets for many different aspects such as new versus repeat business, lifetime value, upload offline revenue that was converted via call centres etc… However, the killer advantage on top of this is that these numbers are the same that the CFO will look at the end of each month.

As recent research has revealed that two thirds of organisations believe search is going to be the most important marketing channel in 2010, the ability to demonstrate measurability will allow clients to push search even harder and see greater rewards through being confident with aggressive margin expectations.

Would you be happy to push harder if you knew for a fact that revenue generated at a keyword level will actually hit the bank account? Search marketers who are deploying integration techniques are seeing instant results. There’s no reason why you shouldn’t experience the same.

Ed Stevenson

Published 22 July, 2010 by Ed Stevenson

Ed Stevenson is Managing Director (Europe) of Marin Software, a paid search technology firm, and a contributor to Econsultancy. He also writes the Big Search blog. 

20 more posts from this author

You might be interested in

Comments (0)

Save or Cancel

Enjoying this article?

Get more just like this, delivered to your inbox.

Keep up to date with the latest analysis, inspiration and learning from the Econsultancy blog with our free Digital Pulse newsletter. You will receive a hand-picked digest of the latest and greatest articles, as well as snippets of new market data, best practice guides and trends research.