Geo-Targeting Trade-offs

Marketers love targeting. In search advertising, there are several different ways to reach specific audience segments with tailored messaging - one of them is geo-targeting.  A geo-targeted campaign allows search marketers show ads to users only from a specific region as small or big as the advertiser wishes. This approach is most useful for businesses that cater to a limited geographic area. There are other advantages as well including:

1.Ad copy can be customized to incorporate location-specific promotions or user behavior;
2.Keyword/ad group bids tailored to the region’s ROI;
3.SEM spend adjusted based on availability of local inventory.

As such, the average search advertiser loves the idea of geo-targeting as much of the keyword inventory as possible. However, this tactic requires careful analysis as there are trade-offs involved in the process.

ROI Trade-off

Advertisers could end up paying a CPC premium on geo-targeted keywords. I have a few examples below that corroborate this in a big way.

In the New York area, Keyword 1 paid 89% higher CPC and got 21% fewer clicks in the geo campaign when compared to the national campaign. Data across other regions for both keywords shows a similar trend.

 
On one hand, geo-targeting enables one to bid separately on different regions based on performance. This strategy, along with customized ad copy, can drive aggregate ROI gains as illustrated below.

ACCOUNT XYZ
NATIONAL TARGETING ONLY	NATIONAL + GEO
ROI:   4.15	ROI:   4.31

On the other hand, CPC increases that can wipe out these gains; sometimes even leading to performance losses as this example shows.

ACCOUNT ABC
NATIONAL TARGETING ONLY	NATIONAL + GEO
ROI:   1.80	ROI:   1.64

One needs to carefully evaluate this trade-off, perhaps carrying out geo tests in phases in order to minimize any potential downside. Also, when the primary goal is to bid differently by geo, it is a good idea to focus on those regions in which revenue /click is well above or below the national average, so as to realize the maximum gains from ROI-based bidding.

Campaign Manageability

Geo targeting quickly multiplies the number of keywords in the account. Creating a campaign for every U.S state alone grows the account a 50-fold; going down to smaller regions multiplies the size even further. Campaign management in this scenario can be painful, especially for those SEM marketers that have poorly scalable bidding systems. Additionally, the incremental gains realized (discussed in more detail below) are not always worth the extra human effort.

Low Volume

Another critical dimension to consider is geo search volume. At a few clicks per day, a low traffic keyword behaves almost like a speculative bet, with volatility being commonplace. In the chart below, revenue/click (RPC) has been plotted for a group of regions under campaign X—within a period of 2 weeks, average RPC goes down by 50% with other factors staying constant, suggesting greater volatility when the campaign is split further.

More importantly, low volume campaigns don’t move the needle much on performance. For instance, in Account BCD, newly-created geo campaigns received a mere 0.75% of additional spend under performance-based bidding—the campaigns just did not have the incremental volume to be able to spend more.  

In summary, geo-targeting needs to be evaluated on a case by case basis as it does not always lead to ROI gains. There are trade-offs involved, and the smart marketer will consider both the upside and downside before making implementation decisions.

 

Sameera Inapakutika
Business Analyst