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Why We Don’t Love Automated Bidding

Summary

Automated Bidding is popular, especially for larger ecommerce firms with extensive products to advertise.  It promises the benefits of reduced labor requirements, and more rapid bid adjustments in response to changes in ad performance.  But at Conversion Path we aren’t bullish on Automated Bid Management (ABM).

  1. ABM only automates one facet of the many that drive success
  2. The byproduct of ABM is that it reduces the amount of evaluation as to the reasons for performance changes that is needed to identify and drive further action to improve sales

Detail

To properly optimize an ad account requires an analyst to look at performance changes, evaluate and understand “why” performance changed, and then execute the next steps to improve profitable sales performance.  Sometimes adjusting bids is THE best next step, sometimes it is ONE of several best next steps, and other times it is unnecessary.  Getting profitable sales through ads is just not as simple as only changing bids. Bidding is not THE answer. It is one of MANY.

With ABM, a machine looks at performance changes, does not care why performance changed, and then has only one step it can take to improve performance:  change the bid.  A significant percentage of the time a simple bid change is inadequate to optimize performance.

Consider the partial list of many factors that determine the success of an ad investment below.

  1. Whether ad is displayed to someone searching for the brand, the product, or if it’s remarketing, or if it’s display advertising to a targeted but non-searching audience
  2. Bid/ad position
  3. Keyword and match type
  4. Unique datafeed optimizations to gain a superior competitive ad position in Google Shopping
  5. Ad copy
  6. Pricing
  7. Uniqueness of products and availability of competitive products that are perceived as similar to yours by an audience that may not already be familiar with your brand
  8. Site design
  9. Inventory depth
  10. Promotions or offers
  11. Overall value proposition associated with brand and product
  12. Cart process
  13. Revenue generated if sale is made
  14. Profit margin
  15. Lifetime value of customer acquired if determinable
  16. Ability to remarket to visitor and later convert

If your ad management uses ABM, what is the likelihood that an analyst is reviewing the rest of the ad success factors above?  It makes little sense to divorce bidding from the evaluation of the bigger picture of sales performance.  If an analyst intends to analyze the bigger picture of what affects sales, they would not need to use a third party ABM tool.

 

Let’s look at some tangible issues with automated bidding:

You have a top selling product on your site that goes out of stock for 3 days.

  • Automated bidding sees that clicks are going to this ad but conversion rate has decreased because visitors get to a page that says out of stock.
  • The bid is lowered sharply and your ad position drops from #1 to #7.  Nobody knows why your top seller stopped producing, or possibly even that it did.
  • Now that your ad is in position #7, you rarely get clicks.
  • You’ve replenished your stock, but it will be months before you accrue enough clicks for the robot to say you have a statistically significant sample size to justify increasing the bid again.
  • You’re going to miss significant sales opportunities.
  • Another real world example is that many automated bidding applications we’ve seen only optimize to revenue or conversions. It is far better to optimize to profit or lifetime value.

It may be possible that some automated bidding platforms can do this, but in practical applications we have rarely seen it actually done.  This is a hugely significant disadvantage.  Yes, the opposition will “claim” they do this – but look at your account.  Do they?

Why This Matters

A good analyst should analyze all significant ad targets regularly, looking at performance differentials. If something tanks or grows, they should research why.  The answer to why holds the key to improvement.  In this case, a top performer going out of stock wouldn’t go unnoticed.  A good analyst should alert you and ask you if you could put it back in stock soon.  If not, they should pause the campaign and resume it in full once back in stock.

The examples above can be replicated with a variety of scenarios such as short-term pricing changes by the advertiser or their competitors, creative or ad copy changes by the advertiser or competitors, changes in keywords, seasonal changes, promotional launches or maturity, and much more.

 

 

Conversion Path’s Approach to Bid Management

To reiterate, bid management is just a subset of activities that determine how successful any ad target will be.  Our approach to online advertising is to run an ad for a given ad target and then review the valuable data that we receive to determine how to improve performance for the ad target.  Automated bidding ignores the “improve performance” steps.

 

As an illustration, we’ve provided a partial list of the steps that we take as an ad management firm to increase profitable sales for clients.

We’ve used italicized & underlined text to identify the steps that automated bid management could complete.

  1. Run an ad for an ad target (an ad target refers to any audience that is searching for a brand or product or product type, or is expected to have an affinity for a particular type of brand or product or product type)
  2. Review the ad’s performance
    1. Ad performance for each ad should technically occur when an ad has enough clicks to provide identification of a statistically different performance result as compared to historical results
  3. Investigate how its current performance compares to historical
  4. Investigate what could improve performance
    • If profitable, determine why – we might be able to learn something that can be leveraged across other ad targets
    • If profitable, consider how to increase click volume to grow sales
      • Raising bids
      • Broadening keywords
      • Broadening ad messaging
      • Consider adding other ad features such as sitelink extensions to increase volume
      • Consider increasing mobile investment for ad, or increasing geographical area in which ad serves
    • If unprofitable, determine why – this could be due to many different reasons
      • Pricing competitiveness changes – pricing changes often happen constantly by competitors
      • Limited inventory availability – only certain sizes in stock
      • Broken page links
      • Poor page or cart process functionality
      • Changes in ad position due to changes in competitive climate
      • Landing page doesn’t speak well to the needs and desires of the target market
  1. Adjust bids based upon recent performance changes for each ad target.
  2. Implement an improvement plan for ad targets based upon what the analyst’s research uncovers about what is limiting performance

Why This Matters

As the example above illustrates, automated bidding ignores a lot of important steps to getting good results from ads.  While proponents of automated bidding would claim that they still perform the other steps in this list, hopefully you can begin to understand how interdependent these activities are.  Because of this, the ad targets need to be reviewed anyway.

So the only way to save time through automated bidding is really to not do these steps that are critical to growing profitable sales through ad management.   Is that ever advantageous for a firm?  It may be for an agency, but not for their client.

 

The Opposing Perspective

Want to read a more “neutral” opinion of automated bid management?

Position #1

People can’t look at an account 24/7, bid management software can. So it’s better.

Our response:

Ad targets (any keyword, product, or product category that you advertise) need to accrue a certain number of clicks before you have a statistically valid sample size to warrant a bid adjustment.  If you have ad targets that accrue enough clicks to warrant a bid change multiple times per day, that is your first sign that your ad manager should be evaluated.  Only excessively broad ad targets generate this type of traffic.  They should be segmented into more targeted ad groups.

That’s the real issue.  Not bid management.  There are a few exceptions – words like “car insurance” for example.  But terms like this have millions of dollars invested in them so frankly they deserve ongoing manager attention.  And we certainly wouldn’t advocate changing bids on these $40 per click terms without understanding why the bid is changing in order to evaluate the potential for a better change to strategy.

 

Position #2

Bid management software reduces labor requirements and frees up time that can be better spent doing other activities to improve performance.

Our response:

This is true on the surface.  With ABM in place, it’s easier to not have to take the time to look at campaigns and ad groups.  Then your ability to learn what’s holding back sales based upon an analysis of the data will be severely limited.

The installation of ABM software seems to be a sign of how the organization intends to manage the account.  Automated, not strategic.  The winner in ABM is your competitor who operates smarter by factoring all things that determine success – not just bidding.  The other winner is the agency who convinces their client to use ABM and then not hold them accountable to performance improvement.

This is true auto-pilot and the agency margins go through the roof at the expense of your sales performance.

These are important topics to cover. Conversion Path deploys different methodologies that have allowed us to drive substantial gains for our clients. If you want to get performance from ads, you have to do things differently than the mass market. If you’re interested, find out more about what we do here.

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