Example redwidget and red widget are different. Way different.
But even something as simple as multi-colored widgets with kw of red widget and green widget.
I am trying not to touch a thing right now until I nail this down. I have too many bids where I am the only person that are at $5 right now.
Example is "green fuzzy widgets". We might also target "green fuzy widgets". or "greenfuzzywidgets".
The last one are costing 10 times the first one. Pretty hard to put all three keywords in our ad. So no way to have relevency on those. But how can you argue we are not on target with that term? Nice CTR but few impression and killing me on the CPC.
Just to be clear about how this works - for those of you worried that your minimum CPC's have jumped too high, they will go DOWN as long as you optimize and watch your CTR's. Conversely, for all those advertisers who are not optimizing and who think they have struck gold by getting their poor-quality ads to the top, their prices are going to go UP until they can't afford to keep the keyword(s) active. The end result of these changes will be the same as the old system - diligent advertisers who carefully optimize will see their prices dropping back down and their rankings going back up, while the sloppy "brute force" advertisers will see their ads moving down the page while their costs shoot upward.
I mean realistically how much actual optimization can you do for a 15 word ad other than target a few keywords. Google IMO wants you creating dozens of keyword specific ads that increase their clicks but not necessarily your conversions. A price decrease won't make up for the empty clicks.
I speculate it would work but you've got to remember its a new system. You could do a lot of work setting up keyword specific ads or phrases to lower costs but Google could nullify it a few days or weeks later. They don't want anybody making an end run around them making more money.