Competitive bidding is an aspect of the cost structure in pay per click search engine marketing programs like Google’s AdWords.
An advertiser’s costs are determined by the competitive bid amounts he associates with each keyword in his campaign. Although several of the advertiser’s keywords may generate the same text ad, the competitive bidding environment largely determines what the actual cost of a click on the ad, referred to as cost per click, will be.
For example, a “tree removal” advertiser associates a maximum bid amount of $5.00 to the keyword phrase “emergency tree removal.” When the competitive bidding environment is rather static the cost per click is only .45 cents. But when the competitive bidding picks up, say after a terrible storm that has brought down many trees on homes, the cost per click goes up dramatically to $6.00.
The competitive bidding environment has caused click costs to increase 20% above the advertiser’s maximum bid amount of $5.00. Luckily, the advertiser is aware that this may happen and understands that the search engine marketing program, in the advertiser’s best interests, displays his ad because the maximum bid amount falls within the 20% overage range.
It takes skill and proper attention to accurately manage competitive bidding to ensure budgets and bid amounts are at the right level so your ad will continue to display, particularly when the competitive bidding environment spikes with an increase in bid activity, and generate productive clicks that convert. The goal of bid management is to ensure the best possible ‘return on advertising spend’ and the lowest possible ‘cost per conversion.’
See also PPC-Pay per Click, CPC-Cost per Click, CTR-Click Through Rate, CPM-Cost per Thousand Impressions, SEM-Search Engine Marketing, Online Advertising, Internet Advertising, Conversion Rate
