The holiday period will soon be arriving and retailers want to know what to expect. Last year Hal Varian, Google's Chief Economist, provided us with data and analysis to better understand the trends relating to online consumer research and purchase behavior during this critical period. The information proved to be invaluable to our retail clients in preparing for the holidays and understanding the week by week holiday traffic and associated cost and click metrics. Therefore, we are once again turning to Hal to analyze the 2007 data.

Lots of people focus on CPC (cost per click) but ultimately the performance measure that really matters is CPA (cost per aquistion). These two metrics are tied together by the conversion rate:

CPA = (cost/click)/(conversions/click) = CPC/CR.

The chart below shows median CPC, median conversion rate, and median CPA during the 2007 holiday season for US Google AdWords advertisers who use conversion tracking. The series have been normalized so they all start at the same point on October 1. Click on graph below.

The most obvious feature in the plot is the dramatic increase in the conversion rate (green line) that starts around December 1 and continues through December 17, the peak online shopping period. During this period, the median cost-per-click (red) shows a small increase, but the conversion rate (green) goes up by even more. The result is a significant drop in CPA. So even though clicks are slightly more expensive during the holiday buying season than during other times, the cost per conversion is much lower.

It is also of interest to look at how the number of clicks changes during the holiday season. Click on graph below

We see a steady march upwards in clicks starting Oct 1, with two noteworthy peaks: the first on Black Friday, the day after Thanksgiving, and the second on December 10, which was the peak of the online holiday shopping period in 2007. We may see something a bit different this year, since there are 5 fewer shopping days between Thanksgiving and Christmas. Furthermore, given the current economic situation, consumers are likely to be hunting for bargains, so holiday sales of excess inventory may well kick in earlier than normal. Both of these facts suggest that merchants should get an early start on planning their 2008 holiday ad campaigns.

Posted by Emma Weisberg, Google Retail Team and Hal Varian, Chief Economist, Google