This new world of marketing with its whiz-bang SEM, SEO, and social media gives new product innovators a huge advantage over their historical equivalents. Today, you take your new product (or just the idea) and with a $500 investment you can accomplish a ton; identify if a market exists, get product feedback and gain significant sales. Great books like The Lean Startup by Eric Ries promote these techniques. It does work and is a great win for the innovative entrepreneur. However, many not-so-innovative souls have been fooled into thinking this formula can be applied in the realm of mature markets.
I have a unique situation where I am the co-manager of two different eCommerce sites that exist in the same product category. The market is competitive, mature, and price driven (think commodity-like). Site A is two years old, has established first page SEO, and a long-term Adwords account. Site B is a new website with little SEO traction and a fresh Adwords account. Both have similar keyword density and unique original content. We have a cost advantage over our competitors. Both sites share this advantage. The difference between the two sites shows us an example of how much it costs to break into a traditional market when equipped with a true customer benefit. It’s not $500.
For the same set of keywords, Site A has Adwords quality scores of 5-8 while Site B uniformly has quality scores of 3. Both sites have the same type of landing pages, almost identical ad copy, and click-through-rates. Hence, the QS difference is attributable to the age of the Adwords account and established SEO.
Why would the age of your Adwords account matter? In mature markets, click-through-rates for ads are notoriously low because providers can’t differentiate. Until you statistically prove to Adwords algorithms that you have a superior offering (higher CTRs), your keywords have low quality scores. With low quality scores you pay more per click. Also, not to be a cynic but Google has an incentive to favor their long-term paying customers while extracting as much as they can from new entrants. Site A is paying $2.50 for the same customer click that Site B is paying $6.50 for.
Why would SEO matter? Without it, you directly pay for all customers. With it, you aquire some organically. The second part of the answer is that improved SEO improves you Adwords quality scores and therefore reduces your cost per click on Adwords. SEO is a double whammy!
Based on Site A’s historical spend on Adwords and SEO, roughly $50K split between ad spend and SEO will make Site B competitive with Site A. This $50K will be spent during 4-6 months with little, if any profitability due to high customer acquisition costs. $50K is pennies compared to what it would have cost to open a new sales channel in the industry ten years ago, but it is still real money. It is enough money and enough time that you need to know you have it before you start the process.