While comparison shopping engines (CSEs), such as Nextag, PriceGrabber, Shopping.com, Shopzilla, and TheFind are not the strong growth engines they once were, they are adapting to the changing landscape of online shopping. Most have shifted their business model from one that relies on traffic to their own sites to a model that places product ads on various networks. But is this enough? Although some merchants still see enough ROAS to justify the effort of listing on CSEs, these channels still underperform for most retailers. Have CSE targeting algorithms gotten worse? Has traffic to their sites gone down? Has the quality of their networks gone stagnant or deteriorated? Or have marketers simply forgotten how to effectively manage CSEs? The CSEs generally provide positive updates about traffic and network, yet many retailers talk about the impending death of CSEs. An additional question: are CSEs perhaps OK, but cross-channel effects make them inefficient for some retailers?
We went searching for answers and found evidence that cross-channel effects are at play and should be considered when evaluating the relative performance of CSEs and transactional marketplaces. (More findings in future posts).
The Amazon Effect on CSE performance
In 2012 Amazon chose not to spend money on Google product listing ads (PLA). To make up for traffic lost from this retreat from Google PLA and the free Google Product Search program (cancelled in 2012), Amazon apparently shifted budget to CSEs. Other marketplaces did as well. This is seen in CSE search results that are dominated by Amazon, eBay, Rakuten, and Sears. This move seems to have worked well for Amazon which acquired more customers, but the move also made the CSEs too costly for retailers who could not afford the CPCs that Amazon could.
Two Merchant Strategies Compared
We churned some data on the CommerceHub platform to analyze the effects of Amazon’s increased presence on CSEs. We divided all of our merchants that were active on CSEs in every month of 2012 into two groups: those that were active on the Amazon 3rd party marketplace for every month of 2013 and those that were never active on the Amazon marketplace in 2013. We then compared the performance of these two groups in terms of year-over-year sales growth on the CSEs and also on Google PLA, as shown in the following line graphs:
As the graphs illustrate, the performance of CSEs started to consistently underperform around June 2013 for the group of sellers on the Amazon marketplace, with no difference in Google PLA performance between the groups. It appears that at some point between June 2012 (when Google accelerated its shift to a fully pay-for-placement PLA program) and May 2013 Amazon significantly increased ad spend and its presence on CSEs, making it increasingly difficult for other, often smaller, retailers to sustainably compete on CSEs. In reaction, these retailers shifted budget to other better performing channels, particularly Google PLA, or stopped advertising on CSEs altogether.
According to our interpretation of this data, retailers who both advertise on CSEs and sell on the Amazon marketplace are competing against themselves on the CSEs. Clearly, selling on Amazon (and probably any 3rd party marketplace) makes it even more challenging to perform effectively on CSEs than on channels where Amazon doesn’t advertise, such as Google PLA.
For Retailers Selling on Amazon Marketplace & Advertising on CSEs, the difference between the Amazon commission (typically about 15%) and their target ad spend to sales ratio (A/S) is a reflection of the value a savvy retailer places on new customer acquisition. For example, if a retailer manages CSEs to a 15% A/S and their Amazon commission rate is 15%, this indicates the retailer is not willing to pay anything more to acquire a customer. (Remember that Amazon does not share the customer information with its 3rd party sellers and prohibits 3rd party sellers from marketing to the Amazon customer.) On the other hand, if the same retailer has a target A/S of 25% on CSEs, this indicates the retailer is willing to give up 10% more of each of sale to acquire the customer and remarket to them.
Retailers Selling on Amazon Marketplace & Not Advertising on CSEs are ceding customer acquisition on CSEs to Amazon (and other competitors) and, to some degree, they are also funding Amazon in order to acquire customers. Arguably acquiring and retaining customers is the #1 objective of any retailer. Retailers who sell on Amazon and forego customer acquisition should consider the implication of this for their business strategy. If a retailer cannot acquire customers more efficiently than Amazon or another marketplace, then the retailer needs to assess what it really is: is it a distinct retail brand or is it a merchandising service and logistics provider to Amazon. If it’s the latter, then it may make sense for the company to forego all customer acquisition and focus strictly on marketplace distribution and enablement. On the other hand, if customer acquisition is a primary goal then the retailer should monitor its percent of sales from marketplaces and use its CSE and affiliate channel performance as gauges of relative competitiveness.
Retailers Not Selling on Amazon or Any Marketplaces should consider if they could more efficiently increase sales volume through Amazon and other marketplaces. For example, if a retailer cannot get better than 100% A/S on CSEs, then maybe they would be better off by essentially enabling Amazon to acquire customers for them and achieve a 15% A/S. While losing the right to market to the customer on marketplace sales is a major concession to Amazon, the revenue upside is substantial. Very practically, that revenue can fund expansion not otherwise possible. Additionally, the verdict is still out about whether and to what extent a retailer can build a brand as a seller on Amazon. More on that in a future post.