• by Laurie Sullivan  @lauriesullivan, January 11, 2011

Can paid-search ad budgets and campaigns for online marketing provide insight into the state of the U.S. economy and provide benchmarks for marketers to improve performance in 2011? Kenshoo believes it could, since it supports five of the top 10 U.S. retailers as gauged by the National Retail Federation (NRF). In aggregate, Kenshoo directs more than $15 billion in online sales for all clients through its search platform.

This week, Kenshoo launched the U.S. Retail Index, providing insights into 2010 holiday spend and what the industry can expect throughout the year. The report suggests that retailers ramped up online advertising efforts in the weeks before Thanksgiving, and continue to heavily support the paid-search marketing channel through Christmas.

In fact, paid-search ad budgets on engines like Google, Yahoo, and Bing rose 52% during the 2010 holiday season, compared with the same time a year ago. The increase drove up online sales for etailers by 87% and 69% in total online sales revenue. In total, during the holiday shopping season, retailers supported by Kenshoo saw a $10.60 return on ad spend -- up 25% compared with 2009.

Search provides the pulse of consumer demand, according to Aaron Goldman, Kenshoo CMO. Search marketing and how much advertisers are willing to spend to tap that demand give us another indication of the health of the economy. When businesses spend more, that drives the economy, he says.

Stats in the Kenshoo U.S. Retail Index reveal that online shoppers showed more of a willingness to interact with paid-search advertising. The number of clicks on search ads increased by 54% in 2010 compared with 2009, while the number of search ad impressions -- the times these ads appeared -- rose only 1%.

"While this tells me advertisers had the same pool of impressions to work with, but they created more compelling offers and ads, it also shows this year consumers did more buying than browsing," Goldman says. "This could mean that as the economy improves the next holiday season will become even more competitive."

Although impressions do not completely correlate with consumer demand or search queries, it's the best indicator outside of queries, according to Goldman. Consumers will rely more on social networks for shopping recommendations. Rather than always turn to search engines, more will rely on asking friends and family in social networks. That could explain, in part, the 1% rise in ad impressions.

Meanwhile, marketers are rapidly becoming more sophisticated with campaigns, creating better ads and landing pages, and they have found advancements in tools to improve profitability.

This year, marketers will pay more attention to integrating inventory systems with paid-search ads. More search marketing campaigns will be updated based on actual inventory. For example, Kenshoo takes a retailer's inventory feed in real-time and ties it into their paid-search ad platform, so as items in inventory are sold and replenished, search campaigns are also updated.

Retailers began tying inventory replenishment systems into financial and enterprise resource planning platforms long ago. Now it appears that automating the process between paid search and inventory will become the next step. Kenshoo's platform not only deactivates the ad in real-time when inventory runs out, but changes prices and descriptions as copy is entered and updated in the system. The company launched the feature mid-2010, but began showing it to search marketers around October.

Although it's only January, agencies suggest that search marketers must plan ahead for the holidays in 2011. Technology will move at an incredible pace this year, and marketers will need to keep up with transitions. Kenshoo's report suggests building in flexibility, experimenting with merchandising, leveraging advanced bid algorithms, and a focus on relevancy to reduce ad impressions and increase return on investments (ROI).

"Buyers need to know the fields that impact search campaigns, and that takes time and training," he says. "That way when the holidays come around, you're giving yourself a fight in what's becoming a bloodier ocean each year."