Most bidding in AdWords involves looking retrospectively at performance data and making bid changes to optimise towards a certain target.

But this approach seems a little backwards when you consider that it completely ignores changes in trading conditions that affect demand for products and services that are happening in real time.

Take weather conditions: when it’s cold in the UK, conversion rates for travel brands go up, which makes it a great time to generate cheap bookings. However, if you're only looking at data in AdWords and making changes based on that, you will completely miss this opportunity.

This is why I believe advertisers should be adopting a technique known as “demand-based bidding” (a term coined by the company I work with, Clicteq), in which advertisers make programmatic bidding decisions based on external factors that affect trading conditions like weather, inventory, crime rate, foreign exchange rates and many more. 

In this article, I will explain the principles of demand-based bidding and to apply it to your AdWords campaigns, and give some potential scenarios in which you can put this technique into practice.

How demand-based bidding works

As there is no option in AdWords to change bids based on factors like weather data, making changes to your bids has to be done programmatically via AdWords Scripts or the API.

Here the program will request data hourly from a data source. In the case of weather based bidding, for example, it would request the temperature in London. It will then make bid changes based on a set of rules. For instance, if the temperature is higher than 20°C, bids might increase by 5%.

If you don’t know how to code, don’t panic: there are already a large number of AdWords Scripts that have been written that allow you to make changes based on external data like the weather. For starters, here is a fairly comprehensive list of 120 AdWords Scripts that you can drag and drop into Google Ads.

However, if there isn't already a AdWords Script to do what you want to do, then you can have a JavaScript developer create a custom one for you in an afternoon.

Examples of how companies should use demand-based bidding

Here are several examples of how you can utilise demand-based bidding. It is by no means an exhaustive list, but will hopefully give you some ideas of how you can build your own solutions to change bids based on demand.

Changing bids based on weather conditions

On days with continuous rain, Thomas Cook's online bookings rise by 7%. In comparison, during warm and sunny, weather, online bookings drop by 8%.

If you're a retailer or service provider whose business is affected by changes in weather, it's key for you to react to these in real-time to maximise your return on ad spend, increasing your bids in high performance times and decreasing them in low performance times. 

When Butlins implemented weather-based bidding using AdWords Scripts, according to Think With Google, they saw conversion rate increase by 7% and cost per conversion drop by 14%.

Changing bids based on crime levels

When a burglary is committed, searchers and conversion rates in that area for security products like alarms and CCTV increase. 

To capitalise on this, you can segment your campaigns by location and when crime levels increase, you can set a rule to increase bids by 25%. 

Changing bids based on real-time inventory

Changing bids based on inventory is a great way to improve profitability for any business that has a fixed inventor. This can be a simple as an ecommerce store, or more complex, such as an MBA course at a university with a fixed number of places, a hotel with a fixed number of rooms, or a call center that has a fixed number of operatives who can answer phones.

If you have a hotel that breaks even when you fill 50 rooms and you have 20 spare, it makes sense to bid up to fill the additional extra 20 rooms. Provided that you fill them for less than the cost of the room, everything else will be profit.

On the flip side, if the hotel is full, the conversion rate will decrease significantly and cost per acquisition increase. So here you would want to decrease bids in real time to reduce wasted spend.

Changing bids based on foreign exchange rates

As the pound gets stronger against the euro and dollar, the cost of holidays to those locations will decrease, and demand and conversion rates will go up.

Advertisers selling travel products here should look to change bids in real time based on the exchange rate. So as the pound gets stronger against the currency on your travel destination(s), look to increase bids; when the pound gets weaker, look to decrease bids, as the cost of travel will increase.

Flight delay-based bidding

When flights are delayed or cancelled, there is always a sudden spike in demand for hotel rooms near the airport. Advertisers can pull real-time flight delay data and use this to trigger their ads and show them more frequently when flights in nearby airports are delayed.

When Hilton implemented this type of bidding and ad triggering combined, it saw substantial revenue growth that was directly attributable to the campaign, with an 88% growth in revenue in New York City, 220% growth in Washington D.C., and 500% revenue growth in Philadelphia.

Conclusions

Trading conditions that affect whether or not a purchase will happen change from hour to hour, and to be competitive in 2018, advertisers need to be reacting to these changes in real time with a demand-based bidding strategy.

Using AdWords Script, advertisers can build their own demand-based bidding platforms with little expense, allowing them to react to changes hourly, significantly improving performance.

For more strategies and tactics that will allow you to maximise the ROI of paid search campaigns, download Econsultancy's Paid Search Best Practice Guide.

Wesley Parker

Published 12 July, 2018 by Wesley Parker

Wesley is the Managing Director of Clicteq and a contributor to Econsultancy. You can connect with him via LinkedIn.

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Charlie Guthrie, Marketing Manager at AIS

If I'm honest, it's not often I read something on E-Consultancy that is directly relevant to our business and the idea around capacity based bidding is right up our street. Thanks Wesley, really appreciate this, it solves a PPC headache I've had for a while.

5 days ago

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