So google evaluates the quality of your ad by partially factoring in the ad's CTR. I think it should be the conversion rate.
All the search engines claim to want to give the users the highest quality experience, which is why they rate the ads in the first place...Google wants the "best" ads to be the most visible.
IMO, when someone clicks all the way through and makes a purchase, that keyword and ad is highly relevant - my combination of the ad with the keyword i was bidding on led my targeted customer to make a purchase.
Let's say that same person clicked on the ad, but didn't like what they saw and left my site. How can both of these clicks count for the same "quality?"
Sure, we'll get a great CTR...but look at the conversion rate and you'll see that something is definitely wrong.
I believe google's definition of "quality" is nothing more than a way to promote the ads that already get a lot of clicks, resulting in more money for google. IMO, it has nothing to do with actual quality (as far as generating a sale by pairing the search term with landing page)...google just figured out a way to emphasize and promote the ads that are bringing them the most PPC revenue, therefore bringing in even more money.
Sure, the actual CPC goes down when quality goes up, but i can't monitor that on 25,000 KWs. What ends up happening is my average CPC stays the same, I just get a higher ad position...resulting in - YES!- more clicks!
Does anyone else agree that the highest quality ads are the ones that convert, not the ads that just get clicks?