Do Specific Phrases have Advantage over Broad terms?

Probably a silly question, but not sure of the answer...

[veroxii]

I'll give an example.

MegaConglomerate Co bids on the broadmatch keyword "widget" (without the quotes) with a max CPC of $5.

LittleCompanyThatCould bids on a specific phrase "small furry widget" with a max CPC of 75c.

So a user comes along a googles for "small furry widget", or "green small furry widget".

Obviously both companies bid on that search, but my logic says that LittleCo's ad is way more relevant and that their ad will show up above MegaCo. Is that correct? How does the whole comparison of "specific phrases" vs "broad keywords" work?

Cheers,
-V

[farside847]

3 word terms tend to have a higher CTR, so even though you have a lower max CPC, you can still beat out the big guys since Adwords takes both into account.

95% of my terms are 2 or more words. They cost less, have a better CTR, and convert better. But, they are more work to make because you need to have much more of them to obtain the same traffic as the single word terms.