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Most of our natural traffic goes to our home page, so
we have directed our adwords traffic to our home page, also.
Google suggested targetting the specific product page for targeted keywords, rather than the home page.
I can't really see this making much difference.
For a retail site selling moderate price goods at about 15% below retail, with relatively low competition, in a niche market, I think 0.5% conversion really sucks.
What is typical for adwords. It would be nice to get 2% conversion from adwords, but is this realistic?
Also by targetting the specific product page, you can get a better control on your keywords and your ROI.
I will report back in a week. I will be happy to get my conversion to 1%. If I get 2 to 5% conversion I will get silly drunk for a week :)
The only reason PPC should be lower is if you want some exposure on broad terms that are used at the beginning of a sales cycle that don't necessarily convert immediately (or want some other branding/exposure for non converting keywords whatever the reason).
Outside of the above scenario - PPC should always convert higher. With organics, you don't always dictate what keywords you rank for and what page that visitor will goto first.
With PPC you control the keywords, the expectation (ads) and landing page.
I'd start by lining up your organic keywords with your ppc keywords, looking at the conversions side by side and examine the differences.
Basically, keep testing landing pages, text ads (add a few new tiles and compare results), focus your keywords and add buy phrases to your keywords, add negative terms, and keep adjusting.