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The AdWords Halo Effect Works This Way

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google-angelx150One of my clients, Company Y, decided to save money a few months ago by cutting their Google AdWords budget to zero. They saved several thousand dollars in monthly expenses and saw on-line sales drop by ~$25K, or 30%. Ouch!

Even counting the cost of the products sold plus ad costs, the company took a big hit in bottom line profits by cutting their AdWords budget.

What happened and what is the AdWords Halo Effect?

What happened was that I was not successful in convincing them that the Halo Effect was real, until online sales fell off the cliff and the numbers became clear.

 

The Halo Effect is that hard-to-rationalize outsize effect that people apply to first impressions. For instance, when judging strangers by looking at photos, tall people and attractive people are generally viewed as being better and smarter than average people.

hulahoopsx400For Google search ads, people view the company sponsoring the ad as being better and more attractive than the free entries that dominate the results page to the left of the ads and which statistically are more likely to satisfy what they were searching for. They tend to visit the site of businesses with ads instead of clicking on the ad itself.

Let’s look at one product as an example – Product X (FYI - it isn't hula hoops).

Company Y used to spend ~$2,000 per month on ads for Product X to generate 1,300 new visitors and $3,000 in additional sales -- per AdWords' own stats. These new customers were mostly consumers, a market that Company Y was trying to expand sales to beyond their established base of professionals.

The problem was that Product X costs ~50% of its sales price, so the $3,000 in sales cost a total of $3,500 when AdWords + product costs were combined --  a net loss of $500 per month. This made cutting AdWords expenses a seemingly easy decision.

It is unusual to have such a "light-switch" test to see the impact of a change. After turning off the ads, online sales of Product X dropped $5,300, well beyond the incremental sales directly attributable to Adwords. Most of the loss was in consumer sales which dried up leaving the legacy professional client base who weren't searching for the product in Google to begin with. 

The $2,300 extra boost in sales beyond what AdWords showed was the Halo Effect as it affected Product X. Products beyond Product X felt similar large reductions, beyond what AdWords reported equalling the $25K lost in online sales across all online products

The drop in sales was immediate and has been sustained over several months. Where did the extra $2,300 in lost sales come from?

Three sources that I can speculate upon.

1) People see the ad, and don’t click on it to get to the Company Y site. They may type in the Web address listed in the ad or click on an entry in the “free search” part of Google/Yahoo/Bing. I know that I do this and suspect that many others do as well.


2) The buying process can take longer than Adwords will track. People doing comparison shopping come and go from multiple sites before making a buying decision, sometimes over a period of days. Analytics shows that 35% of Company Y’s online customers don’t make a purchase decision on the first visit – 10% visit at least seven times before pushing the Buy Now button.

3) People who were searching for other products in Google visited the Company Y site and also bought Product X while they were there.

 

What other explanations do you have that might explain this?

Scott is co-owner of Wave's End Services, LLC, a Colorado-based provider of Web, IT Consulting, photography, video, and training services.