Yesterday I spoke to a CEO who sells SEM (though a partner) to the local, small business market. We had a very interesting conversation about pricing, revenue sharing and churn.
Here’s the basic situation. There are multiple entities selling Google and Yahoo traffic to local businesses. The local businesses themselves are generally confused about this market, although they broadly know and understand they need in. There’s very little transparency despite all the metrics.
What do I mean by that? The SMBs have no ability to compare services and competing sales claims except by trying the services and then, if they’re dissatisfied, moving on to the next one. It’s a bit of a crap shoot in that way.
The CEO and I discussed how these products have high rates of churn for several reasons. Among them, the sales channel promises are often at odds with what is delivered in terms of traffic and leads (or calls). Very often several parties take a cut of the advertiser spend, which may not leave enough to generate real value for the advertiser when the spend is made at Google or Yahoo. Accordingly the diminished monthly spends are not enough to drive real traffic and value. Hence churn.
There’s also the paradox that the available metrics may be creating problems. When there were no metrics local advertisers could assume that their advertising was working. But now that they can see clicks and calls, the very fact of those metrics may create confusion or dissatisfaction: “Why am I only getting 27 clicks and three calls?” Most SMB advertisers simply aren’t interested in all the data. Some are but most want to “set it and forget it.”
Unlike the old days, you can’t “go home again.” A local advertiser who tries Local SEM Product A and has a bad experience, or who doesn’t believe she’s received good value for her spend, can’t simply go back exclusively to the print newspaper or yellow pages as once might have been possible. While there’s still value there, the ads turn out to be more expensive on an ROI basis because of diminished usage.
Here’s what needs to happen in my view:
- The SMB audience needs to be segmented by spend
- The ad products need to be segmented. Someone with a budget under a certain threshold shouldn’t be sold SEM. That SMB should receive a rich profile, inclusion in all the sites that matter (including other directories, verticals) and so on.
- Only above a certain spend (maybe $500 per month) should local advertisers be sold SEM
It’s a disservice to sell traffic at pricing levels that are too low to deliver volume or to create unrealistic expectations with inflated claims about results. Both drive churn, which is inefficient for everyone.
I’d be interested in hearing others’ opinions.
Screenwerk 
September 16, 2008 at 2:07 pm
Challenges:
Offline businesses receive less value from online marketing than Internet retailers. Mostly b/c they don’t have a website set up that can sell anything (Gift Certificates or products, etc.).
Online branding is less effective too, which is something offline local businesses care about more than SEM. That is probably why you believe the “rich profile” is important. I agree.
SEM for truly small businesses is still a hoax unless they have a destination site that can sell stuff online.
September 16, 2008 at 3:02 pm
[…] Greg Sterling has an interesting post on his Screenwerk blog on the challenges of selling SEM to small local businesses. […]
September 16, 2008 at 4:41 pm
Greg,
You are right – this is definitely a challenge in the local SEM reseller channel. As you have written previously, there is a lot of “noise” and confusion at the SMB level when it comes to local search. Through the media (and about a billion calls from sales people), they know that local search can provide value to their business. However, they most likely have unrealistic expectations that don’t take into account the reality of market conditions, website design (huge problem), length of contract, branding value, etc., etc. Local search can be successful at most monthly spend levels, as long as we partner with the SMB to define success according to the category & current market conditions, not how much money we want to get from them by the end of the month.
September 16, 2008 at 5:27 pm
Do you have recommendations?
September 16, 2008 at 6:32 pm
I don’t think price segmentation is a central issue.
True, at some point there is a budget that is too low to drive discernible results, and SEM sellers/resellers should set minimums accordingly. I would even suggest ignoring businesses who aren’t willing to buy a minimum SEM package.
Proof that price segmentation is not the problem is found in the fact that we are seeing this tremendous churn among customers who are buying the standard SEM packages. Resellers are setting SEM package prices based on their traffic data (i.e., they ARE doing product/price segmentation) but customers are still churning.
The real issue is that these resellers are selling SEM as a directory/listings product, when it is really a marketing channel.
There are lots of implications there, and it is a significant distinction that I don’t think gets the recognition it deserves. You can tease out many of these distinctions just by comparing how a consumer uses a print yellowpages book versus how a consumer uses a search engine. If you think there’s little difference, then selling SEM via a directory sales model is just fine.
So the real problem is that the SEM products being sold aren’t supported by a real marketing framework. The blame there falls on both sides (advertiser and SEM reseller); the advertiser generally doesn’t have a fully baked marketing program, and the SEM reseller isn’t really willing (or capable) of discovering or creating a marketing framework to incorporate into the SEM campaign.
The reason customers churn is because the SEM campaign and the metrics are not really tailored towards a clear marketing plan.
September 16, 2008 at 6:38 pm
Thanks Mike. Very thoughtful and interesting comments. I’ll need to chew on them for awhile.
September 16, 2008 at 7:10 pm
I think something that needs to be taken into account in your above churnings, Greg, is that, whereas traditional advertising leads (generally) directly to a brick and mortar business where the store owner has total control of the experience a customer then has when they walk in, web advertising generally leads to a website, and SMBs are frequently not in real command of their websites.
Even if a company runs great ads, if they lead to a crummy site, the advertising plan really isn’t a closed circle.
I have a real-life example to share from just this week. Was approached by a small business who has been spending their total monthly budget on AdWords, hoping this would bring them new leads. But their site is in shambles. Because their budget is so low, my recommendation to this business was to cut all advertising for several months and invest everything they’ve got in improving their website. The result of this plan would be to begin enjoying organic traffic and then supplementing this, if needed, with advertising once there is an appropriate website ready to receive people.
Thus, my belief is that any web advertising package that doesn’t put the quality of the website first is an incomplete service.
Miriam
September 16, 2008 at 7:18 pm
Miriam: good point. It’s also true (less frequently) with larger organizations that they blame search when the landing page or site fails to convert.
September 16, 2008 at 8:13 pm
I agree with both Miriam and Mike. Advertisers see local search, and resellers are selling it as a panacea – do this and your world will change. Just like anything in the real world, success is rarely one sided. It’s a combination of all factors/programs working together to provide the consumer with a great experience.
September 17, 2008 at 12:29 am
Miriam — that’s true, but only part of the explanation. Lots of SMB websites are bad and don’t convert. But many of these SEM packages include landing pages built and hosted by the reseller.
So then the explanation can go to: well those landing pages stink as well and don’t really convert (supported by my theory that resellers think they are selling a directory/listing product – most of these landing pages are really just enhanced listings with the feel of a ported yp display ad).
But assuming that these landing pages do perform better than the churn rates would indicate, I think it comes down to the metrics that the advertiser is using to measure the value.
Simply put: they aren’t provided with a metric that clearly says to them “this is directly leading to more sales.” The resellers’ instinct is to pile on as many metrics as they can do demonstrate value, yet few of these metrics are of any real meaning to the advertiser.
September 17, 2008 at 12:33 am
and then there’s the dirty little secret in the industry that there’s precious little true “campaign optimization” going on…
September 18, 2008 at 6:20 pm
just curious – who are the top resellers selling directly into the local SMB market? Also, where would I find a list of the top private label firms?
September 19, 2008 at 3:17 am
Based on recent experience there’s a disconnect between the transactional nature of the commodity SEM — PPC VARs if you will — and the consultative nature of a good search marketing engagement.
The challenge is maintaining margins when so much of what you do is defending the value of your existence and counseling customers who know just enough to be dangerous.
To Miriam’s point, we’ve demonstrated some really simple stuff which drives a ton of conversions. And, our clients are mainly converting offline.
Example: a little 4 field contact form in the margin has quadrupled email contacts in less than 2 weeks from implementation.
It’s pretty standard stuff. It doesn’t cost much and if done well (and communicated well) can make you the hero.
September 19, 2008 at 3:20 am
And Greg, the other phenomenon is the ones who don’t churn, turn on 3 services and then drive their own costs up.
Again an issue which is solved in a more consultative relationship.
September 19, 2008 at 11:09 am
Will:
Interesting. I assume the email form helps show “conversions” in addition to being a consumer contact method?
September 19, 2008 at 12:23 pm
Greg,
Yes, definitely. It does help show conversions. But in the “Don’t Make Me Think” vein it also acts as a clear call to action… helping the user avoid the lure of the back button.
So by giving that call to action you help people overcome the inertia and social anxiety which would have them put off a phone call for another day.
If they put it off, you might not be the one they find on next search.
September 20, 2008 at 2:15 pm
[…] the local SEM product have high rates of churn and there’s considerable frustration for many on that side too. The way these products are positioned and sold is often problematic for publishers and SMBs. So […]
September 22, 2008 at 7:55 pm
It’s so true these companies are using the YP approach to something much more complex. I know several of the resellers offer a “one page site” with address, hours of operation, phone number and basic services/products listed. It’s no wonder they are experiencing so much churn when no consideration is given to conversion tactics or at least a few simple calls to action. Then of course there is the quality score that is at least partially based on content so that goes right out the window. I always recommend my clients back up and start with their website whenever PPC or SEO are the objective.
June 12, 2009 at 4:16 pm
[…] the Local SEM products in some cases have high rates of churn and there’s considerable frustration for many there too. The way these products are positioned and sold is often problematic for publishers and SMBs. There […]
January 3, 2012 at 4:07 am
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