Online retail is evolving at pace and will continue to do so. By 2023 22 per cent of global retail sales will be online. While there might be some adjustments to that figure due to the global pandemic that’s still a huge leap from 2019 when it was 14.1 per cent. Much of this growth can be attributed to much improved revenue streams yielding far greater profits than ever before. Over the past few years we have also seen a very definite shift in the focus of global advertising budgets from traditional to digital media and, consequently, developing an effective online media strategy is now more important than ever.
Brands are driving this change in their desire to invest at the actual point of purchase and to use channels that provide greater transparency and more granular levels of reporting. They understand just what impact digital shelf space and activity have on both online and in-store sales. Just like a physical retail shelf, the digital shelf is where online shoppers go to browse, research and discover products. Getting a prominent position on the digital shelf is the gateway to a large and captivated audience along with the big growth opportunities in terms of sales and brand awareness that this brings, but how can it be achieved?
A word on CPC
The Cost Per Click (CPC) advertising model seems an obvious solution but probably won’t provide the desired effect for anyone other than the mass merchants. Let’s take a closer look why. CPC has been around since the mid-1990’s and really took off when Google introduced AdWords in 2000; the subsequent rise of micro-advertising helped refine the CPC model. Amazon applied CPC to a Point of Purchase e-commerce platform to great success, so much so that by 2021 the platform is expected to reach a 50 per cent share in global online sales (STATISTA). Eager to ride on the coat-tails of such domination other large retailers followed suit. Furthermore, the unparalleled access to real-time reporting was a revelation for brands and the traditional model of ‘fixed buy’ was forever disrupted.
A clear view of the road ahead
Yet while CPC might be great for the likes of Amazon and Google who have millions of sellers, it does have its limitations. It requires large, pre-set budgets with considerable brand oversight along with a host of other complexities so it isn’t right for every brand or retailer and can result in “CPC fatigue”. Brands and agencies want a clear view of what they’re buying into up-front. They don’t like variables and the unpredictable nature of CPC, such as competitiveness for categories and peak season fluxes, which are less than ideal for profit and loss forecasting. CPC also needs constant monitoring making campaigns difficult to plan, and such is the lethargy, they can often end up being switched off.
Unsurprisingly this uncertainty around revenue has a negative effect on retailers who are typically managing variable budgets, often for more than 100 brands, so it’s a costly exercise when they are continually having to support, educate and re-sell to brands. Not being able to accurately predict and inform brands on how much budget they need to assign to CPC is a huge problem. Fixed price media is a far more appealing option as it’s what internal merchandising teams have become used to rather than the moving target that is CPC.
A blended approach
It’s not all doom and gloom for CPC, and it shouldn’t be discounted as it still provides the ideal platform for mass merchants and a highly effective tool for those retailers with a customer base largely made up of long-tail brands. There is an alternative solution, though, which both brands and retailers can benefit from in the shape of a blended model using a CPC auction approach with a Fixed Tenancy model providing a guaranteed advertising position that in turn helps retailers retain their advertising base and increase revenue.
In any e-commerce platform the top two rows, of which there are between six and eight positions, are where brands want their products to be as it’s where all the action is with approximately 80 per cent of clicks and impressions. It’s the digital equivalent of being shelved at eye-level in a bricks and mortar store. These premium positions can be valued up to a Cost Per Mille (CPM) of a certain amount and enables retailers to provide brands and agencies with far more simplified and effective digital advertising channel. With a typical Return on Ad Spend (ROAS) target set by agencies of between 200 per cent to 400 per cent this solution provides a far more positive consumer shopping experience due to the fact it’s more personalised and brands will use their most popular products in ‘sponsored product’ campaigns.
Packages are usually available for varying time durations, with the cost based on expected impression volumes derived from the previous year’s performance in those positions. They are guaranteed to be in a high-selling position for a set period of time.
For brands, fixed tenancy offers many benefits including the assurance they are occupying the best positions, the opportunity to focus more on the analytics rather than CPC prices, a predictable cost model and a solution that is likely to outperform their other digital advertising options.
For retailers, the fixed tenancy model means they can focus on providing complete solutions rather than wasting time on campaign management. They are also assured of a fixed baseline revenue from a brand that’s willing to commit and a smoother delivery process with far more thorough reporting.
With CPC and fixed tenancy models it’s not a case of ditching one for the other, but more about selecting a technology platform that offers a blend of both and allows retailers to focus on their core business merchandising strengths, while at the same time giving brands a high-performing, innovative online advertising strategy that avoids CPC fatigue.
Brad Moran is CEO of Citrus Ad, an auction based advertising software for e-commerce retailers. Brad’s career began in the arena of elite sport playing professional AFL, before founding his first e-commerce tech company (NoQ) at the age of 24.