Make your competitors go Belly Up with Overture... Options

[Tom]

Hi all,

I just wanted to share some inside on how to get your competitors to stop stealing the top spot at Overture.

It has become increasingly popular to impose the following strategy at Overture:

Two bids (in cents) are present under one keyword. You are the top bidder (11 cents):

11, 10

Now some smart advertiser comes up with the brilliant idea that he/she want the top spot so they bring on the big dogs to scare their competition with 98 cents:

98, 11, 10

This move is made to intimidate the 11 cent bidder to not mess with the 98 cent bidder. In addition, your competitor is only paying 12 cents for every click, but has cemented him/herself in the top spot. A perfect strategy.

However, if your competitors want to play rough lets play rough.

Increase your bid to 97 cents. Now your competitor is paying 98 cent per click while you are still paying 11 cents. You are making your competitor really pay for having that top spot.

You now have the following Scenario:

98, 97, 10

If your competitor knows what he/she is doing he/she will immediately his/her bid to 96.

97,96,10

Now you are paying the high price. So you answer with 95 cents. This continues until your competitor understands that he/she is better of paying 11 or 12 cent for the top or runner up spot. Finally, we have...

12,11,10

We are still getting the clicks for far less money than we previously paid. We are fighting over one centers instead of dimes. Everybody is better of (not Overture of course).

Let us call this the equilibrium theory. In other words, make sure your keyword bidding is in equilibrium.

tom@netwood.net

[Black_Knight]

Overture love that strategy, as all the time that you and your competitor are duking it out they are getting more per click than the term is even worth to you or your competitor. In your example, they may get weeks of clicks where you are both prepared to pay perhaps ten times what it is worth to you.

The real strategy is to know what each click is worth to you in the first place. If you make 20 dollars profit per sale, and tend to get one sale from every 40 clicks, then paying anything more than $0.50 per click is actually costing you money.

When a competitor comes in with his $0.98 bid, raise your own to $0.49 (the highest level at which you still make any profit at all - and just 40 cents profit per sale at this bid price) and let that competitor pay the $0.50 if he likes, since you know that for you that would be break-even, and no profit. Because you haven't so obviously declared war, the competitor is torn about whether to lower the prices or not, and may continue to pay $0.50 per click for quite some time, making no profit at all unless his business is a lot more efficient than yours. You'll still actually be paying just the 11 cents in your example until the competitor learns that there's no profit in out-bidding you and then tries to undercut you with a $0.48 bid. This still allows you the choice to continue at that level (though your profit margins are minimal, you're still actually making a profit) or to undercut him now, but this time staying profitable throughout the battle.

[projectphp]

Ammon, you should meet my dad!! He plays Poker and lives and breathes this sort of bidding theory, and has about 11 books on the psychology of bidding alone as an indicator of success. He once reckoned that was all you needed to know 2 succeed.... come to think of it, he may actually be good at this PPC rubbish! I might give him a call!!!

[Black_Knight]

If he's a good poker player, he probably would be a good PPC bid analyst too.

Of course, in poker, the value of the pot always rises in line with the bids, while in PPC, the reverse is often true. The more you bid, the smaller the profits you'll get from winning the bidding. 8)

[Tom]

Black Knight,

You are a class act as always, and you are both right and wrong in this case.

You are right in theory, but not in reality. I am managing a few different campaigns (as are you I am sure). Many of these campaigns take place in markets that has gone crazy. Most people on Overture and Adwords have no idea what their ROI so they are destroying the system with bids that is totally out of order.

Other bidders on the same search engines are out to build traffic, or are in many cases engaged in price dumping (which is illegal). In addition, other companies’ collects e-mail addresses or calculate with the fact that customers will open an account which will make them returning customers in the future.

Therefore, in theory your system is the correct approach. My system, however, deals with the fact that Overture does not always really work in the advertiser’s advantage. My system works to get ONE or TWO bidders to realize that they cannot intimidate you from getting the top spot, and at the same time makes them loose money.

Furthermore, my system would not work in a market like the Keyword "Web Hosting" where the top bidders bid around $20.00 per keyword. There you have to be extremely careful to know your ROI or you will lose a lot of money fast (like most of them are doing).

So in conclusion, see my system as a way to get a bully of your back.

[Billy Donovan]

You have to be careful if it is a highly bid keyword all the people that bid less than .10 may think they also need to raise there bid to be more competitive. So if you bid .97 and the next day someone you bid .9 decides to bid .96 it may cause a chain reaction and you may never be able to go back to .11. So it is better to take Ammon's advise and know what your ROI is and play those percentages or you will end up paying a lot of money for keywords you are not making money on.

It is a tough lesson to learn!!

Billy

[Tom]

Billy,

I have to inform you that you are very wrong in your assessment. I have implemented this system on a very large campaign and the result has just been amazing.

The company I am representing has gone from being number 5-6 paying 10 - 15 cents per click to being number 2-3 paying 12-17 cents per click.

This while we are making our competitors really dig deep in the wallet. I am holding up my ROI while they are losing money as we speak.

I also have to hand out a punch at Black Knight. Overture is not the big winner with my system. It is in fact the other way around.

I have noticed that several competitors are paying so much for their clicks that they withdraw. They see that their ROI is not holding up because we are forcing them pay for their attempt to intimidate the rest of the bidders.

Overture has hyped up the fact that the three top bidders are the ones being shown on the major networks. However, as we all know it is not worth paying any price for being top three. This system solves the problem since bidders will lower their bids to stay profitable.

Except these facts it is really nice when you sit on a position such as the one below:

75,74,23

Now your competitor is paying 75 cents per click while you are paying 24. See how long your competitors are holding out.

Black Knight and Billy.....You should both reassess your stand points or at least give the equilibrium system a chance and get back and tell us why it did not work.

[Black_Knight]

I also have to hand out a punch at Black Knight. Overture is not the big winner with my system. It is in fact the other way around.  

[...]

Black Knight and Billy.....You should both reassess your stand points or at least give the equilibrium system a chance and get back and tell us why it did not work.

Very well Tom, allow me to explain why it didn't work, and why I switched.

Let's start by knowing that my clients are often of the larger corporate varieties. They are generally competing with other corporates too. The kind of companies who will happily spend millions on a TV campaign just for branding. When those companies come in and bid $5 per click, they mean it. Also, they are often the companies where the PPC provider itself is managing the account.

Let's put your hypothetical into a real-world situation for a moment.

Okay, there you are, in your extremely uncompetitive environment that has only two bidders:
11, 10

I believe I have that right? Your scenario involves something for which only one other company in the entire world is competing for?

Okay, along comes this new player and bids $0.98

Now you assume that this is to intimidate. I don't. I assume this company is rather naive in informing you how much this thing means to them.

Now, without changing your bid at all, you are still in second place, still shown on all partners, and can rework your Title and Description to gain a higher click-ratio than the listing above you.

But no, you want to spend more money to 'teach the bully a lesson'. So you up your bid.

$0.98, $0.97, $0.10

Now if Overture are indeed managing that account, they won't bother lowering the price at all, and will be glad that you've driven the price up. Even if Overture aren't managing it, some SEO companies charge clients a percentage (often between 10 and 15 percent of their Overture spending) so these too may not have much incentive to play the game you hope for. Alternately, the company itself may be managing the account, and take your price rise as a sign that they were right to value the clicks more highly.

Now in comes another big-gun, following the strategy of the first and bids $0.95

$0.98, $0.97, $0.95, $0.10

If you drop your bid, you fall to third place, and lose coverage on partners that only show the top 2 Overture listings, and are praying that another of the big-guns doesn't come in or you'll drop out of the top 3.

The companies in that Big-gun category are happy to pay a dollar a click because it may still be the cheapest advertising they have ever bought.

Like you said, your strategy doesn't work for competitive stuff like web hosting.

I'm telling you that furthermore it won't work against any big companies who are happy to pay for the branding of being #1.

In fact, it won't work against anyone but other bidders like yourself, people who are playing the intricacies of the system, rather than getting on with marketing. The bigger boys don't play those games. They know their ROI and have figured in not only the ROI of sales, but also anticipated lifetime values. Amazon spent years paying over $30 per customer acquisition, and made it work. Your model doesn't take that into account, and will fail endlessly against all the companies that do.

[Billy Donovan]

Tom I came to my conclusion by experience. I have chosen to try to sell a commodity product that 100's of others are selling which leads to stiff competition.

Here is an example; a manufacture comes out with a new product and only three companies bid on the keyword the first month, .30, .12, and .11.

Now in month two there is one more competitors, .90, .30, .12, and .11.

So you raise you bid to .89.

Now in the third month one more, .90, .89, .88, .12, and .11.

Now you are stuck. This is something that I went through in Overture.

[Tom]

Billy & Black Knight...Do not take this personally because I know that you both are very smart and successful gurus. I have gained much insight from reading your advice and contributions on these pages so I am not attacking you guys in any way. I am just arguing my point that I have tested at Overture for a while now. However, I still think you both are wrong.


Before I continue let me make a few things clear regarding my system.

1. It does NOT work in extremely competitive market such as DSL, Web Hosting, or Web Design.
2. It, of course, do not work against a campaigns managed by Overture.
3. You need to find your ROI, and have a plan for what you are doing. Never talk the talk if you cannot walk the walk. Hence, if your website is poorly constructed you will not benefit from going after a competitor any way you do it.

Let us start with Black Knight...

You are, in fact, telling the readers, " I am working with the big guns -- do not even try to mess with us, and if you do you will fail."

Well excuse me, but I believe otherwise...

I strongly believe that you cannot go after big guns in advertising mediums such as TV. Most website cannot afford to buy $500,000 spots. However, they can buy .50 cents click ads. On search engines like Overture and Google you can actually, for once, go after the big guns and defeat them.

If Verizon wants to pay $25.00 per click on the keyword DSL well let them. They will lose money from such stupidity, and they will soon find out because they measure their advertising often.

Secondly, BK argues that a Big Gun company should have a different ROI then a small company. Well, unless you are buying in bulk I do not see why this should be the case. Price dumping is still illegal in most countries. Small companies have smaller organizations and can actually have a better ROI then larger corporations.

Thirdly, why would a big gun company be so stupid that they refused a 12 cent click and went to a 98 cent click just because they could afford it? No, every time a company comes in on Overture and puts itself on the number one spot with a 98 cent bid it is to intimidate you to not even trying to compete with them. After reading the first post, however, you know better.

Regarding Billy's comments:

You are bringing up a good point. However you should realize that things are not Ceteris Paribus (all things the same) – Hence, we have this situation:

11.10

Now the big gun company comes and tries to intimidate you:

98,11,10

With the equilibrium theory you go after the big gun...we then have this,

98,97,10

You still pay 11 cent while the big gun is stupid enough to pay 98 cent for every click.

Now the third competitor gets in the game:

98, 97, 96

So Billy here is where you used the Ceteris Paribus thinking, so instead of doing nothing you go ahead and switch:

98, 96, 95

You are now paying 10 cents a click while your competitors are paying 97 and 96 cents. You are making them pay a lot for every click. Sure they do get more clicks then you do, but they have to pay for them while you are getting by on peanuts.

If your competitors are intelligent and have a campaign manager that do not believe in paying 98 cents just because they can, they will lower their bids and boom you are back in business.

Do not let big gun bullies bully you around on Overture. However, follow BK's advice.....If the bully's campaign is managed by Overture you need to be careful. Other than that make your competitors go belly up by using Overture and the big guts you have.


Go get them and do not be afraid of scare tactics.

[Black_Knight]

Thanks for your post, Tom. As with yourself, I'm debating the topic (because between our views we are both serving future readers well by debating it and covering all sides) and none of this is in any way a personal attack on yourself.

Secondly, BK argues that a Big Gun company should have a different ROI then a small company. Well, unless you are buying in bulk I do not see why this should be the case. Price dumping is still illegal in most countries. Small companies have smaller organizations and can actually have a better ROI then larger corporations.

Smaller companies tend to have lower overheads than larger companies where this involves services. On hard products though, the larger company has the advantage. Production lines, bulk purchase discounts, etc all give the bigger company the ability to get their merchandise cheaper than the little guy can.

Whether in products or services, people have an expectation to pay more for a brand they know, so the larger company can almost invariably charge more for the same products/services. Nike are not the sports shoes. Rayban are not the cheapest sunglasses. Levi's are not the cheapest jeans. Sony are not the cheapest electrical manufacturer. They don't have to be. People expect to pay more for a brand, and prefer a brand to a no-name wherever quality is a concern.

The larger companies sometimes have higher overheads, but this is very rarely the case in manufacturing or retailing. In manufacturing and retail, the bigger companies generally pay the least on stock, and then get the highest markup for it as well. In such cases, the larger companies often have at least double the profit per sale over smaller companies.

What this means in real terms is that just because you have a $50 profit margin per sale doesn't mean that the 'big-guns' dont have more than $100 profit margin per sale on the same type of product. They can quite happily maintain an expense of $50 to attract each sale and still make at least $50 profits on top.

Thirdly, why would a big gun company be so stupid that they refused a 12 cent click and went to a 98 cent click just because they could afford it? No, every time a company comes in on Overture and puts itself on the number one spot with a 98 cent bid it is to intimidate you to not even trying to compete with them. After reading the first post, however, you know better.

According to an in-depth study last year, less than one-third of all companies involved in ecommerce are actually tracking their ROI at all. Almost all of that third who do are the smaller companies, especially the types we get here at forums. More likely than not, the bigger companies are only comparing various advertising against each other for which does most per buck. In such cases, they will often pay well over the odds for PPC listings because they compare so favourably to other more branding based advertising such as TV, Radio, Print, Direct mailing, etc.

Trust me on this. Most of the 'big-guns' have no idea of their ROI in actual cost-per-click terms. They estimate what they are prepared to pay for a term, and may never even look at that bid amount again unless someone at the top tells them to.

[CoreyCreed]

Hi guys:

I try to find a middle ground between the two of you. Here is what I would propose. Why not try to determine your ROI and use a bidding tool that will always keep you in the number 2 slot one penny below your number 1 compeititor without going over what you know you should spend? The software I use (and recommend) monitors my bid every hour. I generally prefer the number 2 slot anyway.

This tends to keep the "high bidders" always lowering their bid. It also keeps me where I want to be without going over my ROI and becoming unprofitable. Most importantly, it keeps me from having to stare at my campaign several times per day.

I also use this technique very early on in a campaign to try several keyword phrases at the same position (#2) to see which is the most profitable.

Does this make sense?

By the way, I have reviewed the various PPC monitoring tools for Overture on my website. (I know, shameless plug - sorry!)

[cline]

I've had considerable success with this technique. And it works on Adwords, too, just not nearly so clearly. On several occasions I've made competitors so frustrated they just quit advertising.

It is important to note that the effectiveness of the strategy depends on

* how many players there are
* how psychologically they are attached to the #1 position
* whether they are amateurs or professionals
* how deep their pockets are
* how they evaluate ad spending (i.e., as branding or as direct marketing)

[Web Diversity]

Big advertisers that don't employ the services of an expert in performance based marketing tend to use a traditional agency that are crossing over or empower someone in their marketing department who has better things to do than to monitor the success or otherwise of campaigns at the macro level.

I always get concerned when advertisers are so concerned about the competitors that they take their eye off the intention of them advertising themselves.

An analogy - if you want to go sunbathing, do you try to make space for yourself on the crowded beach or make more of an effort to find the idyllic cove round the corner that nobody has found apart from you?

Bidding wars of any description are just plain crazy, and sure you can make your competitor pay more, but in the end you will end up paying more than you will by adopting the common sense approach.

At the moment MSN are experimenting with adwords type listings from 4-7 so position 4 is yielding good results as it appears in the same eyeline as position 1 and in a format that google users have seen a lot of. That's the sort of stuff that will make your competitors struggle, being nimble and on the ball.