With the new Google Shopping
merchants have to consider unexpected costs in their business case as the
formerly free of charge Google Product Search has ceased to exist. A simple
calculation with typical marketing budget allocation to the major comparison
search engines and Google Product Search shows the impact from a merchant’s perspective. Looking at the cpcstrategy’s sample (with approximate figures) Google Product Search returned about 20%
of the total revenue. The fact that this return comes with no money spent has reduced
the total Cost of Sale (COS) of the whole segment to 18%. That means that the
other comparison search engines had less pressure to provide competitive
performance so far. The calculation below shows how merchants’ spendings would
result in a higher COS (22% = lower performance) without Google Product Search.
The question is now: How much
should the COS improve in order to compensate the free Google Product Search
traffic? We will assume that the new Google Shopping will settle down to the
previous market average of 18% which obviously worked for the merchants. Under
these circumstances all the other price comparison players will be under
pressure to achieve that same performance level.
The merchants calculation:
After having spent money for Google Shopping every additional channel with
lower performance reduces the total ROI. However by adding some of the lower
performing channels the margin (in absolute terms) will rise while adding other channels might eventually generate losses. Nextag and Amazon would
have to improve by 10% to deliver full value for the money. On the other side Shopzilla
and Pronto would have to do much more to catch up (33% improvement needed).
Consequences:
1. Drop out marketing channels VERSUS
lowering prices on the sourcing side
One of the main principles
for a merchant is to buy for the lowest price possible on the sourcing side and
then sell to the public on a market price level. In order to buy low the
merchant needs to sell in high volumes. When marketing costs go up – and this
is what happens now - then a merchant typically would compensate it by buying goods even cheaper than before.
Obviously a merchant should
drop out marketing channels that produce losses (negative ROI). But this
depends on how much the sales go down. Simply dropping out channels could just
conflict with the needed volumes on the buy side.
More realistic is that merchants
will monitor more closely how products perform and then eventually drop low
performing categories from a marketing channel. If this conflicts with the
volumes needed it might even drop complete products from the own catalogue. So
watch out for more clearance sales of specific products in the coming months!
2. Renegotiation of CPC’s
Merchants with negotiating
power will approach channels that are unable to increase the performance. They
will demand lower CPC’s or better traffic quality. For the services that offer
bid options for certain products the merchants will redefine the rules. There
will be products that will be pushed up and others that are not regarded as
competitive products will disappear from the bid list.
3. Deeper engagement with Google
Shopping and Product Listing Ads
Merchants will have to
understand the interdependecies between the Product Listing Ads (PLA) and their
SEA + SEO. This leads to interesting challenges for the bid management. They
will have to monitor how clicks for certain products develop and asses the
synergies between them. Other aspects are competitors search results and
cannibalization between duplicates.
If the organic search results
loose performance due to the prominence of PLAs, the SEO measures must be
strengthened. In any such case, this would weaken the merchant’s business case
and would make all the consequence listed here more important.
4. Be innovative!
Many merchants regard
comparison search engines rather as lead generation tools. That’s why they
accept in some cases Cost of Sale figures far beyond 30% maybe even in the
hundreds. The calculation is that customer retention activities generate enough
return. Now it is even more important to make sure that customers come back and
buy more often. A good reputation and a well performing customer service is the
key. Social media offers the best opportunity to engage with the user. For
those who understand the metrics and are aware of the context – retention,
reputation, customer service - social media will help to build lasting and profitable
customer relationships.
* Improved COS means actually, that the rate has reduced.
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