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RedEnvelope Searches for Holiday Success

With more consumers turning to search engines as the starting point for their shopping, RedEnvelope tripled its search marketing budget from a year ago as it prepares for the holiday season.

The San Francisco-based gift retailer plans to expand its keyword list to more than 3,000 terms during the holidays. When it began using search to lure customers three years ago, its list was 250. Search referrals, including those from non-paid search results, have become a major sales driver. Two years ago, search accounted for 12 percent of online marketing sales. It now yields 35 percent.

“In the past two years, we've started to look at it very differently,” said Myles Felsing, director of online marketing at RedEnvelope. “It's a great source of customer acquisition for us.”

RedEnvelope's expanded search budget results from a larger keyword list and rising click prices. Click-price inflation has carved into return on investment for many terms, Felsing said, but not enough to dissuade the company from search.

“It used to be phenomenal, and now it's good,” he said.

When it managed 250 keywords, RedEnvelope handled search marketing in-house. As the size of the program grew, RedEnvelope decided it needed help managing it, Felsing said. In October 2002, the company turned to Performics, now a unit of DoubleClick. Performics, Chicago, already handled its affiliate marketing program.

Performics looked to expand the number of keywords in RedEnvelope's portfolio, said Stuart Larkins, vice president of partner services at Performics. It first looked to site search information and worked with RedEnvelope to develop terms based on its product mix for the holidays.

In addition to using the keyword-suggestion tools at Google and Overture, Performics employs linguistic analysis, such as building off terms. For example, the generic (and high-priced) term “gifts” would be expanded to “gifts for her,” “gifts for him” and other related phrases.

“It is art and science,” Larkins said of building keyword lists.

The holiday season for search lasts from November through January, Larkins said, because many consumers search for items in January that they did not receive during the holidays.

Along with bidding on more keywords, Performics expanded the focus of RedEnvelope's search campaign beyond Google and Overture. It added second-tier search platforms FindWhat.com and Kanoodle. Alternative search engines offer lower click prices, but less volume and more overhead for campaign management, Larkins said. Performics also began using comparison-shopping engines such as Yahoo Shopping and Shopping.com.

One area RedEnvelope mostly has avoided is contextual paid listings, such as Google's AdSense for Content.

“For us, as an upscale gift retailer, there's just not a lot of general articles out there talking about gifts,” Felsing said.

RedEnvelope is not alone in its experience with search. As rival retailers pour more resources into search, they increase the competition for placement. Click prices on average rose 26 percent in the past year, according to Jupiter Research. The cost increases cut into the $1 RedEnvelope made for each 10 cents spent in search.

Instead of looking at overall return for its keyword list, RedEnvelope has adjusted to have return targets for buckets of 500 keywords in various product areas and for different seasons, with lowered expectations for those with steep competition.

“We had to loosen the reins a bit,” Felsing said.

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