• by Laurie Sullivan  @lauriesullivan, November 25, 2008

Despite the economy's troubles, U.S. retailers are continuing to direct marketing dollars to search campaigns, according to a recent report from SearchIgnite.

In fact, investments in search marketing by retailers rose 33% year-over-year during the first half of the fourth quarter. Investments were made across major search engines--Google, MSN and Yahoo.

Although retailers typically spend more on search marketing in the fourth quarter of the calendar year, 2008 showed a marked uptick compared with the year-ago quarter. Between October and mid-November, spending rose 58% among retailers, compared with 40% in the same period of 2007.

The trend indicates that marketers are deciding to invest more money later in the campaign process. Search marketing gives them this option. Adjusting budgets on the fly based on performance has become the top advantage to search marketing campaigns. "Advertisers are shifting more dollars to paid search and digital media," said Roger Barnette, president of SearchIgnite. "Retailers want media they can buy on a performance bases to track and measure."

Marketers may be spending more on search campaigns, but Merriman Curhan Ford Analyst Richard Fetyko initiated coverage of Google Friday with a sell rating. While Google will likely become one of the first to rally as the economy stabilizes, the investment firm sees a near-term downside to consensus estimates, and believes investors will get a better entry point into the stock within the next six months.

Fetyko said in a research note that SEM is typically the last place to see cuts. Advertisers are adjusting keyword buys to protect margins and returns on investment, which are under pressure as sales-conversion rates and average order values drop.

Barnette asserts that since advertisers are continuing to spend more money on search campaigns, they must be paying off. But he can't provide proof that investments are returning dividends in the form of sales. "My guess is retailers are throwing more mud up against the wall," said Robert Passikoff, CEO of Brand Keys, New York. "More advertising money has gone online. Retailers are not running to something, but rather away from traditional marketing in hopes of getting some sort of measure of return. The cost to run a search campaign isn't as expensive as TV."

Consumers continue to purchase online at a steady rate, according to conversion rates. The average order value dropped 6.2%, slightly less on average per transaction than in past years. And while there is no data to support the trend, many retailers are aggressively lowering prices on items much earlier in the holiday sale cycle compared with years past. Barnette attributes the lowered average order value to aggressive promotions.

SearchIgnite manages about 30 million active keyword queries on Google, MSN and Yahoo during the second half of 2007 and 2008 across retail marketers. All are SearchIgnite clients or sister company 360i.