Taking a look at the first month and a half of Q1, it looks like the pain in the retail sector is spreading and deepening. We ran an analysis to show the year over year performance trends over the last 7 months or so. We took data from our 40 largest retail clients, and tracked the median of the year over year performance differentials in several different areas. For comparative purposes, we simply divided this years' numbers by last year's. 100% represents the previous year’s performance level that week. As the graph shows, the numbers are discouraging. While a number of our clients asked us to sacrifice efficiency for top line sales in the early part of the downturn, most have chosen to pull back at this point and protect the bottom line. We hit a wall around Week 37 of 2008 at about a 20% Year over Year drop-off in sales and costs, and those numbers have gotten slightly worse since Christmas. Let's peel the onion to figure out exactly how the economic downturn has impacted paid search. Pretty clearly there are three possible mechanisms that contribute to a decline:
- Decline in Sales per Click: if a smaller fraction of visitors through PPC ads make a purchase or the revenue per sale drops, or both then a retailer will generate fewer sales.
- Competitive Pressures: if declining sales per click force an advertiser to lower its bids more than its competitors, the advertiser will drop down the page and get fewer clicks per search.
- Fewer searches: tightening wallets may affect user behavior in another way. In addition to potentially lower Conversion Rates and AOV, one may well see fewer searches in general.
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