Webinar Video: Are CSEs Dead? The Evolution of Shopping Comparison Engines

Acquire customers and grow revenue through the new generation of Comparison Shopping Engines

 

https://www.youtube.com/watch?v=UqZ-6leOuQo

Editor’s Note: as of Jan. 8th, 2015, Mercent is now CommerceHub

Webinar Transcript

Anthony: I’d like to start today’s presentation with some recent observations that we have made here at Mercent* on the state of eCommerce in 2013.

First we want to talk about the boom in multi-screen shopping. So this number 16% of transactions tracked through the Mercent Retail Platform were driven through mobile devices in 2012. This represents a staggering 270% increase versus 2011 numbers. We expect this trend to continue into 2013 at an increased rate and I’d also like to point out that this 16% number is not inclusive of marketplace orders tracked through channels such as Ebay or Amazon.

Next I want to talk about the strong growth in Google Shopping. Mercent retail clients saw 27% same store sales growth from the old Google Shopping, which is obviously free + paid Google Product search traffic in 2011, inclusive also of Product Listing Ads traffic from 2011 into the new commercial model which emerged late in 2012. So retailers are seeing steady and strong YOY growth from Google’s new commercial-only model.

The next observation is the influence of Amazon and Google on overall eCommerce. Forrester recently put out some data and we’ll talk about that a bit later, messaging that 33% of overall online purchases began at either Amazon or Google. We believe this is an important trend for all retailers to understand as it does represent the bipolar destination of overall eCommerce and the growing influence of both of these partners.

And finally I’d like to talk about PLAs contribution to overall AdWords sales. In 2012 Mercent clients using the Mercent platform for both Product Listing Ads and Paid Search observed 51% of their total AdWords sales driven from Product Listing Ads. This of course accelerated with Google’s launch of their new commercial-only model as more and more ad-spend is driven towards PLAs. We believe this trend will continue as PLAs have consistently shown to date lower CPCs, higher average order value, and a higher click-through rate than traditional broad search text ads.

These four points are important for all retailers to understand as they do represent the rapid changes occurring currently in eCommerce, and it will affect the future competitive landscape.

Next I’d like to talk about the growing influence of Amazon and Google. This that Forrester data we spoke about a minute ago showing that 20% of all online searches for retail are beginning on Amazon.com. At Mercent we believe that this displays Amazon’s emergence as the top retail search engine in the marketplace.

Unfortunately for retailers, especially those participating in Amazon’s third party marketplace, Amazon is not a source of customer acquisition. Retailers don’t get to own the customer’s information, they don’t get to cookie to user, and aren’t able to cross-sell that user within their own products, the same way they are on their website.

More than ever retailers have to look for ways to increase their customer reach and the frequency for which they message their products to potential customers in order to diversify their acquisition sources online. As the market becomes more and more bipolar retailers need to look for new ways to source traffic and new ways to source customers. They must also realize that price comparison is an ongoing process, there are many points of interest online but they must find ways to capture shoppers at the point of intent, be it on Amazon, Google or the 67% of other sources here on this slide, either direct traffic, affiliates, social, or mobile sites.

What does this mean overall for your cross-channel strategy and how can you maximize the results of your customer acquisition efforts?

Well this graphic here represents the way that we believe retailers should capture demand, which is driven by downstream customer intent. To do this retailers need a diverse multi-channel strategy, not focusing solely on marketplace search, product ads shopping networks, or social but having a mix of channels that is representative of the way that customers actually shop online. Shopping has moved to a multi-screen approach, so retailers have to focus on broad distribution and they must customize the product assortments to maximize the influence of each channel.

For instance, social is a key influencer in retail, it has many downstream effects on conversion as well as product discovery. So in a channel like social, retailers must focus on their key products, their most desirable offers and trying to grow customer awareness and acquisition on those best products.

Conversely, marketplaces are critical drivers of overall conversion in retail, however, again they offer minimal opportunities of customer acquisition. Therefore, a retailer in a marketplace should focus on a broad product assortment. Think of a marketplace that has incremental sales channel or a chance to increase your shelf space. If Amazon is indeed the number one search engine in the marketplace for retail then retailers need to look for a way to increase the amount of shelf space that they have represented currently on Amazon, because customers are more and more beginning their product searches online at Amazon.com.

We also believe that the emergence of Amazon and Google has created a distinct new shopping channel. We call this Product Ads. Product Ads have emerged with programs launched by Google and Amazon to increase product distribution on their sites. Product Ads are complementary to other Ad Programs, such as search or marketplace, however they offer unique levers of control versus traditional shopping sites. They also have strict data quality policies, both Amazon and Google have a high regard for overall shopping experience, therefore have very high demands in terms of retailer data quality, pricing, consistency and availability within their Product Ad Programs.

Meanwhile the emergence of Product Ads has also caused the traditional comparison shopping engines or CSEs to change their model a bit as well. We see shopping comparison engines more and more now as “shopping networks” here at Mercent. In fact we don’t really use the term CSE internally anymore, because we believe they become much more dynamic now. They have migrated toward a blind display network model where retailers can’t necessarily see where their product is listed directly however their products are being listed on hundreds or thousands of websites across the internet.

It’s very similar to evolution of display advertising and it also offers retailers increased reach and opportunity on other downstream channels. So shopping networks have really become a point of influence and a chance to drive more and more customer acquisition outside of Amazon or Google, therefore we believe the CSEs are not dead, they’ve evolved.

Here is a timeline of that evolutionary process. We believe it began, of course, in the early days of online commerce, where traditional shopping comparison engines at the time were primary online search portals. Amazon had not yet emerged as a dominant player in the marketplace. Amazon was of course building their bookstore and beginning to launch third party product, but they weren’t tackling all of the individual categories they do today. Therefore shopping engine is still the vital role in the marketplace, offering price comparison and vast product selection. At that point, comparison shopping engines were very top funnel as well as very conversion focused channels, offering great product selection and conversion opportunity for retailers.

The next phase of evolution really began with the growth of Amazon and Google in the marketplace. Of course Google launched Froogle early 2000s and Amazon began to expand their third party marketplace sales, and also the categories they were listing within.

At this time, shopping engines evolved into what we call shopping aggregators. Essentially acquiring traffic from search and arbitraging that traffic back to retailers at a cost-per-click in most cases. So acquiring traffic from SEO or SEM and selling that back to retailers. Of course with recent changes in the marketplace of search, such as Google Panda updates as well as other changes in the SEO side, and increased competition and less ad space for text-based ads, we believe that the traditional shopping channels have now evolved to a new phase we call Shopping Networks.

This really began in 2010 with Yahoo Shopping closing their direct retail program, the outsourcing listing to PriceGrabber. So today product listing ad type units represented on Yahoo Shopping are actually driven by PriceGrabber directly. This represents exclusive display inventory as well as a chance for dynamic product reach. So in all, we believe this new shopping network model offers retailers increased reach as well as a chance to consolidate their overall strategy. We also anticipate increased consolidation within the marketplace, more and more sites will begin to outsource listings to third party shopping networks.

Here is some data from a study we conducted in the Fourth Quarter of last year. This includes data from roughly 100 retailers that participated with Mercent on Amazon.com, Google Shopping as well as the major shopping engines. Here we can see of course that Amazon for these retailers was by far the top sales driver, of course at the same time you can also see that average order value on Amazon was nearly half of what it was in other channels. We believe this is due to increased pricing pressure on Amazon as well as fewer opportunities to cross-sell customers. Therefore customers are buying different products, paying less for those products and ultimately buying from many more retailers. At the same time you can also see that Amazon offered retailers the lowest individual cost per customer, but again limited if any customer loyalty represented by the fewest orders per customer of all channels.

Next you can see that the metrics for Google as well as the shopping comparison engines are very similar, however shopping networks actually provide a lower cost of sale for our retailers as well as higher repeat buyer conversion. We believe this is due to the increased reach as well as broader distribution available through shopping networks. We call this the “network effect.” So by sending a single feed to an individual shopping network such as those listed on the screen, your product listings are distributed across the internet on hundreds or thousands of individual websites. Many of these sites had direct programs in the past but have now outsourced their listings to a shopping network.

You can see here represented on this list you have major search engines such as Bing, Yahoo, Ask.com or AOL. You also have major marketplaces such as Shop.com or Ebay. You have social opportunities such as Glimpse or vertical specialty sites like Designer Apparel or Pop Sugar. Each of these sites are powering product listings, product consideration and conversion is occurring on their websites however they are not directly controlling their listings, they are outsourcing their product listings to a third party.

We believe this represents increased opportunity for retailers to have a broader display of product ads and increased custom acquisition.

This is an example of Product Ads currently available through search, arguably a very important channel for all retailers. You can see here shopping ads represented on Ask.com which are powered by Price Grabber. This is not a direct program, this is a program that’s acquired only through listing with Price Grabber. We also see Product Listing Ads represented on Bing. This is part of a relationship that they have with Shopping.com and again an exclusive relationship that currently is only available directly working with that network.

We believe that retailers must more than ever consider traffic opportunities outside of Product Listing Ads with Google or Amazon. And, these two examples represent opportunities that are top of mind for most retailers.

Here is some recent data from Compete.com that shows overall reach of the US internet population available from the top 50 shopping network websites. You can see that shopping networks offer vast internet reach, nearly equivalent to that of Google. I’d also like to point out that this data is not retail-specific. So therefore Amazon may seem under-represented, but this is the total US internet population. Amazon of course is a retail focused site alone, but shopping networks do offer vast reach equivalent to that of top funnel search sites such as Google.

What does this mean for your overall cross-channel strategy, and what are the keys that retailers need to focus on for long-term success in this new landscape?

First off we believe that successful retailers today should remain engaged with shoppers at each point of product consideration. Again remember that price comparison does not happen in a bubble, retailers need to understand that shoppers are searching through mobile, tablet, as well as desktop on many different sites. Therefore having a singularly focused channel strategy will not allow you to maximize sales while also increasing customer acquisition.

We also believe that more than ever promotions are increasingly important because they allow retailers to move up funnel and target a broader shopping base, ultimately acquiring new customers. Therefore a channel like Shopping Networks or Social or Product Ads are increasingly important for promotions. Promotions allow you to find new customers and reach a broader customer base that may have not yet interacted with your brand.

Finally we feel it’s vitally important that a broad network strategy allows you to capture shoppers at the point of conversion. Here is some recent data from the Mercent platform in 2012. This represents overall same store sales for retailers that have been active on each individual channel type for over 15 consecutive months.

First off you can see Google Shopping’s transition to a fully commercial model. Most retailers saw some pain the early stages of this transition but again overall performance recovered strongly late in the end of the Fourth Quarter. And retailers are now seeing 20-30% consistent YOY growth inclusive of the free Google product search traffic in 2011.

You can also see Amazon as well as overall marketplace remaining a consistent and dominant competitor in the market. Marketplaces represent consistent growth and volume, but again do not represent strong sources of customer acquisition.

Finally we’d like to point out the consistent and steady YOY growth of Shopping Networks. Although not growing at the same rate of Amazon, Google or other marketplaces, shopping networks again offer steady growth and consistent return on ad-spend if managed properly. This is also after a period of rapid decline in 2011 after most retailers extended additional budget towards shopping networks as free Google product search traffic was drying up during holiday 2011.

We’d also like to point out, although not represented on this slide, that with the transition to Google Shopping, retailers have focused on increased profitability overall from shopping networks. Therefore we believe the decline represented here in December of last year is actually indicative of more efficiency and increased profitability overall from the shopping networks. So as budget has shifted toward Google, the shopping networks still remain a source of great traffic, however that traffic is now focused on for more profitability as retailers no longer have free traffic supplement their overall sales.

So how would Mercent suggest retailers manage a successful cross-channel approach?

First off, we believe that it’s vitally important to experiment with your product assortments. Having a customized product assortment per channel is more important than ever. You must customize your assortment to message the right users and the right products on each individual channel.

Next, we believe within shopping networks it’s very important to utilize where possible product bidding which will influence your overall reach within an individual shopping network. At this point all of the major shopping networks do support product level bidding, so it’s important to bid aggressively on your best sellers or your top products to increase the reach of those products within that individual network.

You can also utilize things such as zero bidding or penny bidding on certain networks which will limit the overall exposure of some of your non-core products during periods of low seasonality.

Next, we want to underscore the importance of analyzing your inbound referring site reporting from shopping networks which will allow you to optimize within each individual network partner. Although shopping networks remain blind networks, and you do not have direct ability to bid on an individual network partner, your bid again does influence your overall reach and distribution within that network. 
It’s important to understand where your products are being listed and which individual sites within that network are highest performing. Therefore you can tailor your bidding strategy to increase exposure on those top performing sites.

And finally we believe it’s important for retailers to take advantage of exclusive listing opportunities currently only available through shopping networks such as Yahoo Shopping or Ebay, both of these sites and many others that we showed earlier represent exclusive opportunities to increase your exposure and again balance the growing dominance of Amazon and Google within the overall retail marketplace.

Next I would like to turn it back over to our CEO, Eric Best, to talk about how the Mercent Retail Platform can help retailers succeed in this new dynamic marketplace.

Eric: Great, thanks Anthony, and before we jump into comments on Mercent Retail, our Software as a Service Platform, I just want to reiterate a couple of points that Anthony made. One was that while Google and Amazon represent both growth and volume opportunity in the market, we really strongly believe that shopping networks, those channels formerly known as comparison shopping engines, do represent an opportunity to generate volume at a reasonable return on advertising-spend or efficiency. The key here and this really leads into my comments about our software platform is that it’s really critical to approach each channel with unique data and that means syndicating a channel-specific assortment, ensuring that you’re in a position where you can optimize content on a per channel basis, that you have the right bidding strategy in the context of evolving pricing models across these channels, and ultimately that you have the ability to properly attribute orders to the right channel. And finally I would say to measure the success of the business based on SKUs that are converting and the inventory velocity, and profit margin, and revenue profiles of those converting SKUs as opposed to simply looking at the SKUs that are being advertised in the ads themselves of the product company.

So with that comment, let’s move over here – we will just talk a little bit more about this. Again, Mercent Retail, if you are less familiar with our platform, integrates directly with your eCommerce storefront and your warehouse management system. It is a real-time bidirectional data exchange with your critical operational data. And we facilitate channel-by-channel and product assortment-by-product assortment optimization of your campaign across all of the channels and channel sites that you see here, and the system is really designed to provide maximum flexibility so that you can achieve your particular strategic goal, whether that’s revenue growth, customer acquisition, inventory velocity, or gross margin dollars, again on a channel-by-channel and assortment-by-assortment basis.

I mentioned at the onset of the presentation today that Mercent’s platform and product roadmap is also evolving, we view the underlying strength of your merchandising offer as critical to your success in the marketing campaign, and so we are very focused in 2013 on deploying competitive intelligence collection, product matching capabilities, expanding our dynamic pricing capabilities which of course started with Amazon.com but are rapidly evolving. And then continuing to improve the business intelligence and analytics tools that we provide, as well as becoming more sophisticated in terms of automated bidding on a channel-by-channel basis.

Key final comment here in the context of a lot of what’s happening currently in the market is that, 100% of our client campaign strategy, performance and data are independently managed by Mercent, they are secure private and unshared, and we think that’s really important for our customers. 
So with that, we’ll come back to the open questions that are being posed by attendees on the webinar today, and I’m just going to have a conversation with you Anthony about some of the questions that our attendees are posing.

I want to start with maybe the most top of mind question of all, which is the performance of these shopping networks or CSEs, a number of attendees on the webinar today have noted that in their experience it’s becoming increasingly difficult to meet a return on ad-spend or payback requirement based on the evolving cost structures of the channels, especially during a holiday season. 
Can you talk a little about how that compares to what we’re seeing at Mercent and maybe just reiterate some of the best practices that we’ve already talked about here in terms of how retailers can ensure that they are meeting their efficiency goals?

Anthony: I think it starts with looking at your product assortment, there’s opportunity for your best sellers within every channel, like we said. But at certain times of year you may not message your entire catalog within every individual channel you are participating in. So we believe again it’s important to test assortment first. Assortment within a network will certainly be one of the most direct drivers of overall conversion and overall return on ad-spend. So if you have main products on a channel and each product is only collecting a few clicks that does add up to an overall high amount of ad-spend, so limiting your assortment first and then testing assortment, continually testing new products on a channel and trying to really focus on having a consistent and overall best performing product assortment first. From there product level bidding will of course allow you to increase exposure on your best selling product. So we believe it’s really a two-step process, and then consistently evaluating that process, consistently testing. At Mercent we have some automated controls to help our clients do that as well, so automated filters and process that will allow them to control selection at a product level on each individual shopping network that they participate in.

Eric: That brings me to a related question also posed by an attendee here, actually I will break this into two parts – one attendee asked, are there specific Mercent templates or best practices for product feed submitted to each major CSE, and related another attendee asked, how do you advise clients in terms of emphasizing merchant brand name terms within product titles or otherwise emphasizing merchant brand terms within the content syndicated to networks? 
I think there’s a Mercent-specific perspective here that relates to our approach to channel data requirements as well as channel-specific content optimization. Do you want to kind of touch on both of those together, maybe?

Anthony: Sure, so first I’d like to point out that through the Mercent Platform we eliminate the need to have individual merchant channel templates. So through the Mercent Platform a retailer has a single and universal integration, so as new product attributes are added to an individual channel, we don’t require our retailers to go back and remap their template for that channel to be able to include that attribute within the new channel spec.

Part of my role at Mercent is to work with all the individual shopping networks and make sure that we’re consistently up to spec with what their requirements are in terms of data availability and consistency. So we hope to solve that for our retailers through our platform.

The second piece I would say in terms of overall product brand and title testing, it’s vitally important to analyze your inbound search queries from each shopping network. If indeed you have a strong brand or several strong brands and you’re finding that you’re receiving a lot of traffic that is branded but not converting. Perhaps you might want to look at testing outside of brand and maybe removing brand from your title or description. We see this problem quite frequently in luxury products, especially luxury branded perfumes that can drive a lot of traffic but maybe not converting directly.

So I think it is important to at times to look to test outside of brand, or conversely I think it’s important to look specifically at category terms and see really what is the overall focus of your products, and think about merchandising your product best within that network, so is that represented with brand or category or is it represented by a unique part number or UPC. I think the content and the product you sell ultimately decide how you message each product within your individual channel network.

Eric: There was a question that was posed by one attendee here, earlier in the presentation we presented that the aggregate YOY same seller growth that we saw in Q4 on Google Shopping, this is the combination of both the old free program, product search, as well as the new PLA based pay to play based program, that those combined in aggregate we saw 27% YOY growth. Is that growth cannibalizing paid search? I can start by reiterating a data point that we presented earlier, that basically we’re seeing a 2:1 ratio between paid search and Product Listing Ads. But do you want to comment further Anthony on what we’re seeing on the interplay between PLA and AdWords?

Anthony: I think we are seeing some budget shift within search through different programs, but ultimately we look at PLA as overlapping with broad search. So if we look at inbound search queries that come from PLA, they are not very long-tail, they tend to be two to three words at a time, shorter phrases, generally more mid-funnel or category-specific searches. So there is definitely some overlap there but at the same time we’ve also seen that retailers with strong brands and strong brand search programs are still seeing growth there. So I’d say in some regard it’s specific to an individual retailer, but for a retailer selling a vast product assortment with a very large catalog, we do believe that there’s a lot of efficiency that can be gained from Product Listing Ads. So I guess in short the more products you have and the more individual brands you sell, you will typically likely see more efficiency through Product Listing Ads, because you are able to now better message individual product variations or message individual product categories that may not have direct coverage in overall paid search efforts.

Eric: Great, I am going to tackle a couple of these here directly and try to get through the few questions efficiently. Why was Bing asterisks on our slide where we presented the product ads? Well, I think publically we know that there has been some speculation that Bing will be launching their own version of a Product Listing Ads program in the near future.

There was a question about, my understanding is Mercent offers a portal for creating ads for various shopping networks, is your service limited to just that or does Mercent offer personal advice and consulting for retailer?

Just to reiterate in terms of how we engage with our clients – every one of our 500 brands that we serve is integrated with the Mercent Retail Platform, about half of our customers also like to retain Mercent to provide value-added services in the form of marketing optimization, data optimization services. So there’s a broad range of value-added services that we can offer to our clients in addition to the software platform. And those are generally fixed recurring fee-based services that we can provide, very predictable, and generally very helpful in terms of driving customer performance.

There was a question posed about our matched dynamic pricing capability on Amazon and when that capability may be available for channels beyond the Amazon eco-system. I will go out on a limb here a little bit and maybe in spite of best intentions on the part of our product management team, make an early commitment in terms of timing around expanded price monitoring and dynamic price calculation capabilities, to say that internally we are targeting mid-year announcements around the Internet Retailer Conference and Exhibition time frame in June for some exciting news from Mercent regarding broader application of our price optimization capabilities.

Webinar Transcript

Anthony: I’d like to start today’s presentation with some recent observations that we have made here at Mercent on the state of eCommerce in 2013.

First we want to talk about the boom in multi-screen shopping. So this number 16% of transactions tracked through the Mercent Retail Platform were driven through mobile devices in 2012. This represents a staggering 270% increase versus 2011 numbers. We expect this trend to continue into 2013 at an increased rate and I’d also like to point out that this 16% number is not inclusive of marketplace orders tracked through channels such as Ebay or Amazon.

Next I want to talk about the strong growth in Google Shopping. Mercent retail clients saw 27% same store sales growth from the old Google Shopping, which is obviously free + paid Google Product search traffic in 2011, inclusive also of Product Listing Ads traffic from 2011 into the new commercial model which emerged late in 2012. So retailers are seeing steady and strong YOY growth from Google’s new commercial-only model.

The next observation is the influence of Amazon and Google on overall eCommerce. Forrester recently put out some data and we’ll talk about that a bit later, messaging that 33% of overall online purchases began at either Amazon or Google. We believe this is an important trend for all retailers to understand as it does represent the bipolar destination of overall eCommerce and the growing influence of both of these partners.

And finally I’d like to talk about PLAs contribution to overall AdWords sales. In 2012 Mercent clients using the Mercent platform for both Product Listing Ads and Paid Search observed 51% of their total AdWords sales driven from Product Listing Ads. This of course accelerated with Google’s launch of their new commercial-only model as more and more ad-spend is driven towards PLAs. We believe this trend will continue as PLAs have consistently shown to date lower CPCs, higher average order value, and a higher click-through rate than traditional broad search text ads.

These four points are important for all retailers to understand as they do represent the rapid changes occurring currently in eCommerce, and it will affect the future competitive landscape.

Next I’d like to talk about the growing influence of Amazon and Google. This that Forrester data we spoke about a minute ago showing that 20% of all online searches for retail are beginning on Amazon.com. At Mercent we believe that this displays Amazon’s emergence as the top retail search engine in the marketplace.

Unfortunately for retailers, especially those participating in Amazon’s third party marketplace, Amazon is not a source of customer acquisition. Retailers don’t get to own the customer’s information, they don’t get to cookie to user, and aren’t able to cross-sell that user within their own products, the same way they are on their website.

More than ever retailers have to look for ways to increase their customer reach and the frequency for which they message their products to potential customers in order to diversify their acquisition sources online. As the market becomes more and more bipolar retailers need to look for new ways to source traffic and new ways to source customers. They must also realize that price comparison is an ongoing process, there are many points of interest online but they must find ways to capture shoppers at the point of intent, be it on Amazon, Google or the 67% of other sources here on this slide, either direct traffic, affiliates, social, or mobile sites.

What does this mean overall for your cross-channel strategy and how can you maximize the results of your customer acquisition efforts?

Well this graphic here represents the way that we believe retailers should capture demand, which is driven by downstream customer intent. To do this retailers need a diverse multi-channel strategy, not focusing solely on marketplace search, product ads shopping networks, or social but having a mix of channels that is representative of the way that customers actually shop online. Shopping has moved to a multi-screen approach, so retailers have to focus on broad distribution and they must customize the product assortments to maximize the influence of each channel.

For instance, social is a key influencer in retail, it has many downstream effects on conversion as well as product discovery. So in a channel like social, retailers must focus on their key products, their most desirable offers and trying to grow customer awareness and acquisition on those best products.

Conversely, marketplaces are critical drivers of overall conversion in retail, however, again they offer minimal opportunities of customer acquisition. Therefore, a retailer in a marketplace should focus on a broad product assortment. Think of a marketplace that has incremental sales channel or a chance to increase your shelf space. If Amazon is indeed the number one search engine in the marketplace for retail then retailers need to look for a way to increase the amount of shelf space that they have represented currently on Amazon, because customers are more and more beginning their product searches online at Amazon.com.

We also believe that the emergence of Amazon and Google has created a distinct new shopping channel. We call this Product Ads. Product Ads have emerged with programs launched by Google and Amazon to increase product distribution on their sites. Product Ads are complementary to other Ad Programs, such as search or marketplace, however they offer unique levers of control versus traditional shopping sites. They also have strict data quality policies, both Amazon and Google have a high regard for overall shopping experience, therefore have very high demands in terms of retailer data quality, pricing, consistency and availability within their Product Ad Programs.

Meanwhile the emergence of Product Ads has also caused the traditional comparison shopping engines or CSEs to change their model a bit as well. We see shopping comparison engines more and more now as “shopping networks” here at Mercent. In fact we don’t really use the term CSE internally anymore, because we believe they become much more dynamic now. They have migrated toward a blind display network model where retailers can’t necessarily see where their product is listed directly however their products are being listed on hundreds or thousands of websites across the internet.

It’s very similar to evolution of display advertising and it also offers retailers increased reach and opportunity on other downstream channels. So shopping networks have really become a point of influence and a chance to drive more and more customer acquisition outside of Amazon or Google, therefore we believe that comas are not dead, they’ve evolved.

Here is a timeline of that evolutionary process. We believe it began, of course, in the early days of online commerce, where traditional shopping comparison engines at the time were primary online search portals. Amazon had not yet emerged as a dominant player in the marketplace. Amazon was of course building their bookstore and beginning to launch third party product, but they weren’t tackling all of the individual categories they do today. Therefore shopping engine is still the vital role in the marketplace, offering price comparison and vast product selection. At that point, comparison shopping engines were very top funnel as well as very conversion focused channels, offering great product selection and conversion opportunity for retailers.

The next phase of evolution really began with the growth of Amazon and Google in the marketplace. Of course Google launched Froogle early 2000s and Amazon began to expand their third party marketplace sales, and also the categories they were listing within.

At this time, shopping engines evolved into what we call shopping aggregators. Essentially acquiring traffic from search and arbitraging that traffic back to retailers at a cost-per-click in most cases. So acquiring traffic from SEO or SEM and selling that back to retailers. Of course with recent changes in the marketplace of search, such as Google Panda updates as well as other changes in the SEO side, and increased competition and less ad space for text-based ads, we believe that the traditional shopping channels have now evolved to a new phase we call Shopping Networks.

This really began in 2010 with Yahoo Shopping closing their direct retail program, the outsourcing listing to PriceGrabber. So today product listing ad type units represented on Yahoo Shopping are actually driven by PriceGrabber directly. This represents exclusive display inventory as well as a chance for dynamic product reach. So in all, we believe this new shopping network model offers retailers increased reach as well as a chance to consolidate their overall strategy. We also anticipate increased consolidation within the marketplace, more and more sites will begin to outsource listings to third party shopping networks.

Here is some data from a study we conducted in the Fourth Quarter of last year. This includes data from roughly 100 retailers that participated with Mercent on Amazon.com, Google Shopping as well as the major shopping engines. Here we can see of course that Amazon for these retailers was by far the top sales driver, of course at the same time you can also see that average order value on Amazon was nearly half of what it was in other channels. We believe this is due to increased pricing pressure on Amazon as well as fewer opportunities to cross-sell customers. Therefore customers are buying different products, paying less for those products and ultimately buying from many more retailers. At the same time you can also see that Amazon offered retailers the lowest individual cost per customer, but again limited if any customer loyalty represented by the fewest orders per customer of all channels.

Next you can see that the metrics for Google as well as the shopping comparison engines are very similar, however shopping networks actually provide a lower cost of sale for our retailers as well as higher repeat buyer conversion. We believe this is due to the increased reach as well as broader distribution available through shopping networks. We call this the “network effect.” So by sending a single feed to an individual shopping network such as those listed on the screen, your product listings are distributed across the internet on hundreds or thousands of individual websites. Many of these sites had direct programs in the past but have now outsourced their listings to a shopping network.

You can see here represented on this list you have major search engines such as Bing, Yahoo, Ask.com or AOL. You also have major marketplaces such as Shop.com or Ebay. You have social opportunities such as Glimpse or vertical specialty sites like Designer Apparel or Pop Sugar. Each of these sites are powering product listings, product consideration and conversion is occurring on their websites however they are not directly controlling their listings, they are outsourcing their product listings to a third party.

We believe this represents increased opportunity for retailers to have a broader display of product ads and increased custom acquisition.

This is an example of Product Ads currently available through search, arguably a very important channel for all retailers. You can see here shopping ads represented on Ask.com which are powered by Price Grabber. This is not a direct program, this is a program that’s acquired only through listing with Price Grabber. We also see Product Listing Ads represented on Bing. This is part of a relationship that they have with Shopping.com and again an exclusive relationship that currently is only available directly working with that network.

We believe that retailers must more than ever consider traffic opportunities outside of Product Listing Ads with Google or Amazon. And, these two examples represent opportunities that are top of mind for most retailers.

Here is some recent data from Compete.com that shows overall reach of the US internet population available from the top 50 shopping network websites. You can see that shopping networks offer vast internet reach, nearly equivalent to that of Google. I’d also like to point out that this data is not retail-specific. So therefore Amazon may seem under-represented, but this is the total US internet population. Amazon of course is a retail focused site alone, but shopping networks do offer vast reach equivalent to that of top funnel search sites such as Google.

What does this mean for your overall cross-channel strategy, and what are the keys that retailers need to focus on for long-term success in this new landscape?

First off we believe that successful retailers today should remain engaged with shoppers at each point of product consideration. Again remember that price comparison does not happen in a bubble, retailers need to understand that shoppers are searching through mobile, tablet, as well as desktop on many different sites. Therefore having a singularly focused channel strategy will not allow you to maximize sales while also increasing customer acquisition.

We also believe that more than ever promotions are increasingly important because they allow retailers to move up funnel and target a broader shopping base, ultimately acquiring new customers. Therefore a channel like Shopping Networks or Social or Product Ads are increasingly important for promotions. Promotions allow you to find new customers and reach a broader customer base that may have not yet interacted with your brand.

Finally we feel it’s vitally important that a broad network strategy allows you to capture shoppers at the point of conversion. Here is some recent data from the Mercent platform in 2012. This represents overall same store sales for retailers that have been active on each individual channel type for over 15 consecutive months.

First off you can see Google Shopping’s transition to a fully commercial model. Most retailers saw some pain the early stages of this transition but again overall performance recovered strongly late in the end of the Fourth Quarter. And retailers are now seeing 20-30% consistent YOY growth inclusive of the free Google product search traffic in 2011.

You can also see Amazon as well as overall marketplace remaining a consistent and dominant competitor in the market. Marketplaces represent consistent growth and volume, but again do not represent strong sources of customer acquisition.

Finally we’d like to point out the consistent and steady YOY growth of Shopping Networks. Although not growing at the same rate of Amazon, Google or other marketplaces, shopping networks again offer steady growth and consistent return on ad-spend if managed properly. This is also after a period of rapid decline in 2011 after most retailers extended additional budget towards shopping networks as free Google product search traffic was drying up during holiday 2011.

We’d also like to point out, although not represented on this slide, that with the transition to Google Shopping, retailers have focused on increased profitability overall from shopping networks. Therefore we believe the decline represented here in December of last year is actually indicative of more efficiency and increased profitability overall from the shopping networks. So as budget has shifted toward Google, the shopping networks still remain a source of great traffic, however that traffic is now focused on for more profitability as retailers no longer have free traffic supplement their overall sales.

So how would Mercent suggest retailers manage a successful cross-channel approach?

First off, we believe that it’s vitally important to experiment with your product assortments. Having a customized product assortment per channel is more important than ever. You must customize your assortment to message the right users and the right products on each individual channel.

Next, we believe within shopping networks it’s very important to utilize where possible product bidding which will influence your overall reach within an individual shopping network. At this point all of the major shopping networks do support product level bidding, so it’s important to bid aggressively on your best sellers or your top products to increase the reach of those products within that individual network.

You can also utilize things such as zero bidding or penny bidding on certain networks which will limit the overall exposure of some of your non-core products during periods of low seasonality.

Next, we want to underscore the importance of analyzing your inbound referring site reporting from shopping networks which will allow you to optimize within each individual network partner. Although shopping networks remain blind networks, and you do not have direct ability to bid on an individual network partner, your bid again does influence your overall reach and distribution within that network. 
It’s important to understand where your products are being listed and which individual sites within that network are highest performing. Therefore you can tailor your bidding strategy to increase exposure on those top performing sites.

And finally we believe it’s important for retailers to take advantage of exclusive listing opportunities currently only available through shopping networks such as Yahoo Shopping or Ebay, both of these sites and many others that we showed earlier represent exclusive opportunities to increase your exposure and again balance the growing dominance of Amazon and Google within the overall retail marketplace.

Next I would like to turn it back over to our CEO, Eric Best, to talk about how the Mercent Retail Platform can help retailers succeed in this new dynamic marketplace.

Eric: Great, thanks Anthony, and before we jump into comments on Mercent Retail, our Software as a Service Platform, I just want to reiterate a couple of points that Anthony made. One was that while Google and Amazon represent both growth and volume opportunity in the market, we really strongly believe that shopping networks, those channels formerly known as comparison shopping engines, do represent an opportunity to generate volume at a reasonable return on advertising-spend or efficiency. The key here and this really leads into my comments about our software platform is that it’s really critical to approach each channel with unique data and that means syndicating a channel-specific assortment, ensuring that you’re in a position where you can optimize content on a per channel basis, that you have the right bidding strategy in the context of evolving pricing models across these channels, and ultimately that you have the ability to properly attribute orders to the right channel. And finally I would say to measure the success of the business based on SKUs that are converting and the inventory velocity, and profit margin, and revenue profiles of those converting SKUs as opposed to simply looking at the SKUs that are being advertised in the ads themselves of the product company.

So with that comment, let’s move over here – we will just talk a little bit more about this. Again, Mercent Retail, if you are less familiar with our platform, integrates directly with your eCommerce storefront and your warehouse management system. It is a real-time bidirectional data exchange with your critical operational data. And we facilitate channel-by-channel and product assortment-by-product assortment optimization of your campaign across all of the channels and channel sites that you see here, and the system is really designed to provide maximum flexibility so that you can achieve your particular strategic goal, whether that’s revenue growth, customer acquisition, inventory velocity, or gross margin dollars, again on a channel-by-channel and assortment-by-assortment basis.

I mentioned at the onset of the presentation today that Mercent’s platform and product roadmap is also evolving, we view the underlying strength of your merchandising offer as critical to your success in the marketing campaign, and so we are very focused in 2013 on deploying competitive intelligence collection, product matching capabilities, expanding our dynamic pricing capabilities which of course started with Amazon.com but are rapidly evolving. And then continuing to improve the business intelligence and analytics tools that we provide, as well as becoming more sophisticated in terms of automated bidding on a channel-by-channel basis.

Key final comment here in the context of a lot of what’s happening currently in the market is that, 100% of our client campaign strategy, performance and data are independently managed by Mercent, they are secure private and unshared, and we think that’s really important for our customers. 
So with that, we’ll come back to the open questions that are being posed by attendees on the webinar today, and I’m just going to have a conversation with you Anthony about some of the questions that our attendees are posing.

I want to start with maybe the most top of mind question of all, which is the performance of these shopping networks or CSEs, a number of attendees on the webinar today have noted that in their experience it’s becoming increasingly difficult to meet a return on ad-spend or payback requirement based on the evolving cost structures of the channels, especially during a holiday season. 
Can you talk a little about how that compares to what we’re seeing at Mercent and maybe just reiterate some of the best practices that we’ve already talked about here in terms of how retailers can ensure that they are meeting their efficiency goals?

Anthony: I think it starts with looking at your product assortment, there’s opportunity for your best sellers within every channel, like we said. But at certain times of year you may not message your entire catalog within every individual channel you are participating in. So we believe again it’s important to test assortment first. Assortment within a network will certainly be one of the most direct drivers of overall conversion and overall return on ad-spend. So if you have main products on a channel and each product is only collecting a few clicks that does add up to an overall high amount of ad-spend, so limiting your assortment first and then testing assortment, continually testing new products on a channel and trying to really focus on having a consistent and overall best performing product assortment first. From there product level bidding will of course allow you to increase exposure on your best selling product. So we believe it’s really a two-step process, and then consistently evaluating that process, consistently testing. At Mercent we have some automated controls to help our clients do that as well, so automated filters and process that will allow them to control selection at a product level on each individual shopping network that they participate in.

Eric: That brings me to a related question also posed by an attendee here, actually I will break this into two parts – one attendee asked, are there specific Mercent templates or best practices for product feed submitted to each major comparison shopping engine, and related another attendee asked, how do you advise clients in terms of emphasizing merchant brand name terms within product titles or otherwise emphasizing merchant brand terms within the content syndicated to networks? 
I think there’s a Mercent-specific perspective here that relates to our approach to channel data requirements as well as channel-specific content optimization. Do you want to kind of touch on both of those together, maybe?

Anthony: Sure, so first I’d like to point out that through the Mercent Platform we eliminate the need to have individual merchant channel templates. So through the Mercent Platform a retailer has a single and universal integration, so as new product attributes are added to an individual channel, we don’t require our retailers to go back and remap their template for that channel to be able to include that attribute within the new channel spec.

Part of my role at Mercent is to work with all the individual shopping networks and make sure that we’re consistently up to spec with what their requirements are in terms of data availability and consistency. So we hope to solve that for our retailers through our platform.

The second piece I would say in terms of overall product brand and title testing, it’s vitally important to analyze your inbound search queries from each shopping network. If indeed you have a strong brand or several strong brands and you’re finding that you’re receiving a lot of traffic that is branded but not converting. Perhaps you might want to look at testing outside of brand and maybe removing brand from your title or description. We see this problem quite frequently in luxury products, especially luxury branded perfumes that can drive a lot of traffic but maybe not converting directly.

So I think it is important to at times to look to test outside of brand, or conversely I think it’s important to look specifically at category terms and see really what is the overall focus of your products, and think about merchandising your product best within that network, so is that represented with brand or category or is it represented by a unique part number or UPC. I think the content and the product you sell ultimately decide how you message each product within your individual channel network.

Eric: There was a question that was posed by one attendee here, earlier in the presentation we presented that the aggregate YOY same seller growth that we saw in Q4 on Google Shopping, this is the combination of both the old free program, product search, as well as the new PLA based pay to play based program, that those combined in aggregate we saw 27% YOY growth. Is that growth cannibalizing paid search? I can start by reiterating a data point that we presented earlier, that basically we’re seeing a 2:1 ratio between paid search and Product Listing Ads. But do you want to comment further Anthony on what we’re seeing on the interplay between PLA and AdWords?

Anthony: I think we are seeing some budget shift within search through different programs, but ultimately we look at PLA as overlapping with broad search. So if we look at inbound search queries that come from PLA, they are not very long-tail, they tend to be two to three words at a time, shorter phrases, generally more mid-funnel or category-specific searches. So there is definitely some overlap there but at the same time we’ve also seen that retailers with strong brands and strong brand search programs are still seeing growth there. So I’d say in some regard it’s specific to an individual retailer, but for a retailer selling a vast product assortment with a very large catalog, we do believe that there’s a lot of efficiency that can be gained from Product Listing Ads. So I guess in short the more products you have and the more individual brands you sell, you will typically likely see more efficiency through Product Listing Ads, because you are able to now better message individual product variations or message individual product categories that may not have direct coverage in overall paid search efforts.

Eric: Great, I am going to tackle a couple of these here directly and try to get through the few questions efficiently. Why was Bing asterisks on our slide where we presented the product ads? Well, I think publically we know that there has been some speculation that Bing will be launching their own version of a Product Listing Ads program in the near future.

There was a question about, my understanding is Mercent offers a portal for creating ads for various shopping networks, is your service limited to just that or does Mercent offer personal advice and consulting for retailer?

Just to reiterate in terms of how we engage with our clients – every one of our 500 brands that we serve is integrated with the Mercent Retail Platform, about half of our customers also like to retain Mercent to provide value-added services in the form of marketing optimization, data optimization services. So there’s a broad range of value-added services that we can offer to our clients in addition to the software platform. And those are generally fixed recurring fee-based services that we can provide, very predictable, and generally very helpful in terms of driving customer performance.

There was a question posed about our matched dynamic pricing capability on Amazon and when that capability may be available for channels beyond the Amazon eco-system. I will go out on a limb here a little bit and maybe in spite of best intentions on the part of our product management team, make an early commitment in terms of timing around expanded price monitoring and dynamic price calculation capabilities, to say that internally we are targeting mid-year announcements around the Internet Retailer Conference and Exhibition time frame in June for some exciting news from Mercent regarding broader application of our price optimization capabilities.

 

Editor’s Note: as of Jan. 8th, 2015, Mercent is now CommerceHub