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Archive for January, 2015

Guide to statistics (intro) — for Yelp-listed business owners

Thursday, January 15th, 2015

The issue has been near-beaten-to-death in the United States. In fact, the FTC just concluded a long investigation involving hundreds of thousands of pieces of potential evidence that Yelp attempts to pressure businesses to pay for listings in exchange for suppressing negative reviews, but failed to find a smoking gun.

The same business owner complaints are now coming to light in Canada. There’s no conspiracy north of the border, either.

It’s easy enough to sympathize what business owners are going through, of course, because it feels real to them. No one likes negative reviews. I often feel like some of the negative reviews on TripAdvisor or Yelp are unfair. One lady crazily calls out a B&B proprietor for his “heavy drinking,” when hundreds of other guests of the lodgings and restaurant (including us) saw him working hard and having no issues with partying, day after day after day. “We are open, warm people and we gather around the fireplace in proximity to some guests, and I drink one beer because that’s genuinely how I live, and this is the thanks I get, a public shaming?” It’s no fun being a hardworking small business owner some days.

But more to the point, the narrative of Yelp harassment feels quite real, too, even though it isn’t.

The illusion of some sort of conspiracy is easy enough to explain away with basic statistics, and that breaks down roughly into two easy points.

  • First, the law of small numbers. I think many business owners would simmer down and accept the pattern of their reviews and ratings if they had large numbers of reviews. The distributions would revert to an average and the pattern would seem very steady. It’s a basic fact that in small sample sizes, results can be much more volatile. You’re more likely to be taken aback by the numbers when you don’t have enough numbers to work with yet. The business owners that have two glowing 5-star reviews and no others certainly aren’t complaining. Those who have two terrible reviews and two good reviews believe something is fishy, because the result is extreme. Yeah, but that result would even out given enough time. It’s the law of small numbers, pure and simple.
  • I’m not sure what principle of statistics this illustrates, but let’s call it “Yelp calls everyone.” Yes, Yelp does call on business owners to attempt to sell them upgraded listings. This isn’t selling the ability to suppress negative reviews. Some business owners have said “they imply it.” How do you know? If Yelp calls everyone, then eventually they’re going to call on someone when they’re going through a crisis of “oh no, I got a couple of really horrible reviews,” based on the law of small numbers (applying to them, possibly randomly).

Statistics are a bewildering thing sometimes. There are small numbers at play, and very large numbers, and lots of potential randomness. Out of that, we see coincidences, because we’re wired to create narratives to explain events. But perhaps it’s time to put down the tinfoil hat in thisĀ  case.

Like the FTC said: case closed.

Lowering PPC Bids: A Powerful Dynamic

Saturday, January 3rd, 2015

With the holiday rush over, many advertisers will be resting up from — and taking stock of — the past six weeks of frenzied bidding, higher sales, and hopefully strong returns. But we also have to roll strongly into Q1 and do the many things necessary to succeed in a more stable seasonal environment. Those to-do lists could be long; I don’t intend to cover the whole field in a blog post.

Here today, I’d like to focus on a single underestimated weapon in the PPC advertiser’s arsenal: bidding lower.

Raising and lowering bids is such a commonplace activity that it’s all too easy to forget that more than one thing happens when you do so. When it comes to lowering bids, you accomplish not one thing, but four (!). Let’s assume you lower a few — half-dozen or so — bids in a single ad group on keywords with decent volume. What happens? (Extrapolate that more broadly if you do it in many parts of your PPC account.)

(1) Quite obviously, you immediately lower the cost-per-click (CPC) on that bucket of keywords; you can assume that conversion rates to sales will be roughly unchanged. Your CPA (cost per acquisition) is thus immediately lowered, and ideally, brought in line with targets.

(2) Because there is generally a smooth curve that leads to lower ad positions and possibly reduced impression share as you lower bids, you receive fewer clicks, and thus (while, to be sure, making fewer sales) spend less in that bucket (ad group). Such adjustments have the effect of reducing the proportion of budget you allocate to under-performing buckets within the account. Presto, then: this simple act leads to better budget allocation.

(3) If you do enough of this, your PPC budget declines as a proportion of your total marketing and IT budget. If that’s occurring because you’re taking steps to improve the profitability of your PPC campaigns during slower seasons or in softer portions of your PPC accounts, you’re improving the reputation of PPC as a performance channel, and ensuring that it has the respect of management when it comes to opening up more budget in stronger seasons or for high-performing keyword opportunities.

(4) As soon as you stop overbidding and chasing PPC auctions to a place outside of your profitability targets, your lower ad positions leave some other advertisers in positions higher than you. They may pay a few cents more per click on those keywords, and suddenly find themselves getting served more clicks on broader matches and in underperforming sectors of their accounts. Ideally, they’ll panic and overreact (develop a negative attitude towards PPC in general, pause campaigns, etc.). But even if they act rationally, they’re likely to drop their bids to adjust in much the same way you did, which drops their ad position, and reduces their impression share, reduces cost pressure in the auction. Meaning you’re on track towards hitting CPA targets and maintaining good click volume.

After any frenzied period of bidding, it’s worth remembering that “what goes up, must come down.” Sure, we all want to grow. But for sustainable growth, don’t forget the power of a lower bid. Be patient! Other advertisers just may follow suit.

P.S. I know, I know. This isn’t what our friends at the search engines want to hear. But I hope they’ve got enough of our coins in their jeans by now, from their record profits in 2014.

 


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