“Online luxury goods sales from 2015 to 2020 will grow at a rate that is four times the luxury goods market as a whole. The European luxury goods market is seeing notably strong online growth in clothing, accessories, and shoes.” Source: Forrester Research
Selling high fashion and other luxury products is fundamentally different from selling low-priced mainstream products to the masses. The exclusivity of the products offered, the price tags attached to them and the limited size of the target audience make the luxury sector a unique industry. This presents a number of specific challenges for digital marketers which differ from the challenges faced in other sectors. This article will detail those challenges and outline some best practices for managing Paid Search and Shopping campaigns in the luxury retail sector.
High product prices and low conversion rates necessitate the need for advanced bidding strategies
From a digital marketing perspective, high product prices translate to low conversion rates and much higher basket values. This means that advertisers face very difficult optimisation decisions. For example, a highly competitive PPC keyword could generate a cost of £1,500 and deliver two new customers, generating £500 revenue each in their initial transaction. On the face of it, this keyword would seem inefficient. However, the retailer does not want to lose the sales, or any of the repeat purchases that the customers might make. So how can the retailer continue to bid on this keyword in an efficient way?
If the retailer knows that on average, their new customers spend an additional £500 on top of their initial transaction value over the following 12 months, they can factor this revenue into the bidding calculation, and the keyword then becomes profitable. Our example retailer now has two new customers who together would spend a total of £2000, versus the initial outlay of £1,500, resulting in profit of £500. This will allow the retailer to continue bidding at a competitive level or perhaps even increase their bid to improve the position of the ad.
This approach is called a customer lifetime value (CLV) model, and is used by many large e-commerce players. It allows them to remain competitive when the competition is high by reinvesting future profits. Key to making this work is data quality. The estimated customer lifetime value must be as accurate as possible, otherwise the campaigns could turn out to be unprofitable.
Leverage data from similar keywords to inform bidding decisions
Even with a CLV model, setting the right keyword bids can be challenging. Luxury retailers have a relatively small target group, due to that fact that they offer exclusive products which are not available from many other retailers, and are out of many people’s price ranges. This can often mean that the PPC keywords that they need to bid on have very low search volumes, particularly the long tail keywords. Bidding on keywords with low search volumes is challenging due to the lack of data available to base the bid decisions on. One way to get around this is to look at keywords with similar semantic information and use their performance to make an informed decision.
The below keyword contains a number of semantic attributes. There’s a buy word (buy), a colour (green), a gender (womens), a brand (gucci) and a product category (shoes).
This keyword has received just two clicks and no sales, meaning there’s no data to base a bid decision on. If the bid is decreased or left as it is, then the advertiser risks not giving the keyword a chance to convert and will miss out on sales. If they increase the bid they could end up spending their budget on an unprofitable keyword. Semantic information can help to solve this problem.
Above we can see our example keyword displayed as semantic attributes. Below the new keyword we have listed four keywords that the advertiser is already bidding on, which all share one or more of the same semantic attributes as the new keyword. Semantic attributes can be used to group similar keywords and aggregate their data. The aggregated data can then be used to inform the bid decision.
In this example we can see that keywords containing similar semantic information performed well, with conversion rates as high as 10%. We also know that the new keyword is very long-tail, so the conversion rate is likely to be as strong, if not stronger than the other keywords in the list. Therefore, a high bid could be set for this keyword with relative confidence that performance will be strong.
Reflect brand image in messaging, but don’t forget relevancy
Once a bidding strategy is in place, it’s important that the ad copy is compelling so that customers choose to click on it. Many keywords in this sector are highly competitive, so any small gains in efficiency can be critical to success.
Luxury retailers have a very strong brand identity and a loyal customer base. Their customers expect the brand to be communicated in a consistent way and the designer brands themselves have very high standards and strict guidelines when it comes to messaging and creatives. Therefore, it’s important to keep all advertising copy ‘on brand’. From a PPC perspective, it’s also important to keep the ad copy relevant to the keyword and landing page, so that Quality Score, and subsequently performance does not suffer. Managing the balance between ‘on brand’ and search relevance can be a key factor in the success of luxury campaigns.
In the above ads, the advertisers have used the space on the description lines to promote sales, new seasons collections, delivery options and free returns. The relevancy of these ads to the search query could be improved by including more of the keyword attributes in the ad. Character limits would prevent the whole keyword appearing in the headline, but the product category (shoes) can be included, as it is for the top and bottom ads. All of the keyword attributes (brand, product category, and colour) could be included in the first description line, which would leave space for additional delivery benefits or sale call-outs in description line two. Including the keyword attributes in the ad would increase the relevancy of the ad to the keyword, which would improve the CTR and Quality Score.
Use geo-targeting to improve conversion rates
Luxury retailers target a more affluent audience than most retailers. Often they will be looking to address the top 5-10% of the population in terms of income, and the top 1% in less developed countries. Therefore, geo-targeting is key to long term success. Luxury retailers can identify the areas where their customers live and use this information to optimise their advertising.
The geo-targeting settings within AdWords (shown above) allow advertisers to target or exclude specific locations from campaigns. In established markets such as UK and US you can be as specific as a postcode.
Luxury advertisers can use the geo-targeting settings in two ways. Firstly, they can segment affluent locations into separate campaigns and bid higher on the keywords within those campaigns. Affluent people have a higher likelyhood to convert for luxury retailers so these campaigns should generate stronger performance. Secondly, they can exclude locations where they don’t want to advertise (i.e. places that they are unable to deliver to).
Use retargeting to re-engage with cart abandoners and site visitors
Since its release in 2013, RLSA has become an extremely useful tool for any retailer advertising via Google products. Earlier this year Google extended its availability to Google Shopping campaigns, which has increased its usefulness even further, especially given the growing importance of Google Shopping in the retail sector. For the luxury sector, RLSA allows retailers to retain a presence on highly competitive keywords where they otherwise could not afford to. Users who have already interacted with the site usually have a much higher conversion rate than those who have not and therefore the retailer can afford to bid much higher for them than they would for other users.
We use RLSA extensively across all of our accounts. In our experience it’s not uncommon for RLSA campaigns to generate 150% higher conversion rates than standard campaigns. For this reason RLSA is an essential tool for all retailers advertising within the AdWords platform, not least those in the luxury sector.
International markets can be highly profitable
The nature of the luxury sector and its customers means than many of the traditional barriers to selling internationally are not such an issue. For example, shipping costs are only a fraction of the sales price and do not have any material impact, and customers are often less concerned about the delivery time as there are less places where they can buy the product. International markets such as the Middle East and South Korea hold huge potential for luxury retailers due to the large affluent sections of the population, and as such these markets can be highly profitable.
Luxury retailers should analyse their current customer database and identify international markets where they are already doing business. If they have existing customers in markets where they have not yet done any advertising, then it’s worth setting up some test campaigns as there is likely to be more potential customers in those markets.
Summary and Conclusion
Research has shown that the luxury goods market is increasingly moving online. This development may have come slightly later than some other retail sectors, for a number of reasons, but now it’s here it’s essential for luxury retailers to capitalise on the opportunity.
The successful management of Search and Shopping campaigns for luxury retailers requires a deep understanding of the luxury market itself. Whether they are being managed in-house, or using an external agency, luxury retailers should ensure that the people managing the campaigns understand the specificities of the market and have a solid strategy in place to ensure success.
Here’s some key take-aways from this article:
- Understand customer lifetime value and use this information to be more competitive in key auctions.
- Set the right bids for low volume keywords by aggregating the data of similar keywords.
- Combine brand messaging and product attributes to build engaging ad copy.
- Use geo-targeting to drive efficiency and target audiences where they are.
- Use retargeting to continue to speak to potential new customers who are engaged but have not yet purchased
- Think global – some international markets can be small but highly profitable.