By Martin Kelly
Paid Search Engine Marketing costs in the travel sector have blown out dramatically over the past 12 months with sales conversion rates for Australian accommodation sites in particular reaching unsustainable levels.
Industry experts such as Frank Grasso from e-Channel say sales conversion rates have rocketed to almost US$90 per customer for some new players in competitive categories, while a study by researcher Frost & Sullivan confirmed it is a major concern for the industry.
“The increasing pricing problem is worse for new entrants into the market because they get hit twice: they have to pay a higher cost per click and due to their lack of brand presence they have a lower conversion rate,” says Grasso.
This is clearly making the first sale per customer uneconomic and forcing a strategic reassessment with websites justifying the high SEM cost by attempting to generate repeat business.
Grasso says the average cost per click for top position with popular terms such as ‘Sydney Hotels’, ‘Singapore Hotels’ and ‘Bangkok Hotels’ for an established company range between US$2 and US$2.95 on Google.
“A year or so ago we would have been able to get the top position for much less,” he says.
Managing Director of Amplify, Richard Noon, says: “What we are seeing is people moving more to a lifetime acquisition mode because they can’t justify paid search on a single sale basis.
“However, the jury is still out on whether this is the right approach, but clearly some players are prepared to play that game.”
Meanwhile, a report from Frost & Sullivan has revealed that rising prices and increasing competition for top ranking keywords are the top two concerns for Australian travel search engine marketers.
But Research Director, Technology, Foad Fadaghi, predicts paid search in the travel and accommodation category will still grow by at least 30% over the next 12 months.
He says the strongest growth will come from companies marketing destination activities.
Fadaghi estimates that travel is the dominant force within the Australian search engine marketing industry with 17% of total spend, closely followed by financial services on 14%.
Grasso says the rising costs are forcing many travel and accommodation companies to reassess their search marketing spend.
“The answer to this dilemma is to get smarter when devising a search engine marketing strategy,” says Grasso.
“Companies should allocate some of their budget towards PR and Branding, while using search as an acquisition tool.
“Advertisers also need to become more aware of what the lifetime value their customers is and work out how much they are willing to pay to acquire a new customer.
“The most successful search engine campaigns are the ones that follow a strict Cost Per Acquisition benchmark.”
Noon says the cost blowout throws the spotlight back on the importance of organic search and other marketing tools.
Both Frank Grasso and Foad Fadaghi will be speaking at TRAVELtech in Sydney on August 30.