Google AdWords system automatically match keywords to the most appropriate ad within ad groups that have multiple ad variations. Here's a fictional scenario, to illustrate:
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A new advertiser, Hank, wants to increase traffic to his site, on which he offers 100 different house-cleaning products in six broad categories. Within his Standard Edition account, Hank creates one ad group which comprises six different ads (one ad for each broad category of products that he offers) along with a list of several hundred keywords which describe his 100 products.
He does this, feeling certain that the AdWords system will automatically match each keyword to the most appropriate ad among his many variations.
In reality, however, the AdWords system does not match keywords to ad variations in this way. Instead it rotates the ads as the keywords are searched -- which could lead to Hank's potential customer seeing an ad for vacuum cleaners when they were actually searching for furniture polish.
How does Hank make sure that the right ad shows for each keyword? A basic solution would be to create six ad groups, one for each of his six broad categories. Each ad group would cover one of the categories and have a list of keywords closely related to the products in that category.
Or, he could advertise in an even more targeted way -- by creating a multitude of ad groups, each of which focused on a single product.
Just how granular you choose to be with your targeting depends on your business and your goals, of course. But most advertisers would agree that it's always better to show a potential customer an ad about the exact thing for which they've just searched.[AdWords Blog]