Who will be arranging your shelf?
Would you let Amazon manage your shelf?
Would you join an Amazon Sponsored Products Ad network?
Many online retailers and marketplaces that offer in-store promotions find themselves facing the question whether they should be selling their in-store promotions by themselves or be part of a retail marketing ad network.
The dilemma grows as more advertising and trade marketing budgets move from the brick and mortar stores to the e-commerce sites.
The trend among American retailers is to take back control over their in-store media – Walmart has established its own sponsored products program (joining Amazon, eBay and Etsy) and there are other indicators that support this trend.
Here is for example what the CEO of Criteo said in their Q2 earning call: “We are a company that used to sell clicks and now we are selling a platform solution, as a technology provider, a bit like a SaaS thing. And adjusting into this new pricing, it takes a lot of time. And this is why in the short term, as we are shifting to this new market dynamics…”
Here is short article that will help you choose the right path for your business.
Last updated: Sep 20, 2018
Would you give up on a 500 Billion Dollars business?
If you’d asked a brick and mortar store if they’d let someone else arrange their shelves the answer would probably be an automatic NO.
The shelf is a strategic asset which they won’t give up that easily. According to Google, brands spend 500 Billion dollars a year on in-store promotions and better shelf placements. That’s a lot of money and the stores have no intention of sharing it with anyone.
When it comes to online stores the answer is not that clear.
As mentioned before the current trend is to follow Amazon, Walmart, Ebay and AliExpress and to do take in-store promotions inhouse and sell it directly to the sellers and brands, but some of the online retailers and marketplaces still prefer to join Sponsored Product Ad networks and let them take over their top search results, get premium placements and sell it to the brands and sellers.
The main reason is that the online in-store promotion market is still emerging and estimated at less than 7 billion dollars a year (in the US alone, and that’s compared to the 500 billion dollars offline).
Working with a Sponsored Product Ad network is an easy way to get short term revenues with less effort.
Remember the first days of the mobile internet?
Mobile ad spent was very low and many of the top tier publishers gave their mobile media to mobile ad networks.
When mobile ad spent started to grow they took it (or at least most of it) back in house and let their sales team sell it.
Sponsored Product ads on ecommerce sites are like mobile ads back then, and now the numbers are starting to grow and so is the dilemma of the online stores.
Here are some factors that can help online stores decide if they should stick to a network or go solo and build their own.
“A lion doesn’t concern themselves with what the sheep think”
Remember this beautiful quote from “Game of Thrones”?
Not exactly the case but close enough and a good opportunity to repeat it.
If you are running a big online marketplace or a big online store and you are a leader in your territory or category (for example the leading shoes site in your country) the chances that you need a network are lower.
Stores in your position enjoy the stimulating advantage meaning that brands and sellers understand your store’s value and its significant role in the consumer’s decision journey and they really want to advertise in your store.
Selling the in-store promotions in this case is easier and there is less need for a network to get their budget. It is also not certain that an ad network can actually get advertising budgets in your territory and from brands that are relevant to your store (if it is focused on a specific category).
If you run a smaller store, a one that doesn’t have the stimulating advantage and that brands can live without advertising in it, the network is perfect for you as it will help you get budget from brands and sellers that otherwise would probably never do that directly.
Revenues and data – How much are you willing to give?
Another important thing is that when joining a network, you give up on a substantial chunk of your in-store advertising revenues because you share it with the network owner and the other stores. In fact you don’t really know what part of your potential revenues you are not getting as it’s not transparent and the network holds all the information.
Not only that the network knows what budgets it gets from the brands, how it is split between the stores, and what products they are promoting (their bid price etc.) it also holds your customers shopping data as it is embedded in your website and monitors everything – who bought what, prices, habits etc.
This kind of information is not something most stores would share that quickly (especially if the network might eventually use this data to harm your business and even compete with it).
Do no evil? Hahaha -or- What is the best way to win a prisoner dilemma?
Would you let Amazon manage your shelf? Would you join their Sponsored Product Ad network (if they had one)? Probably not.
And What about Google or Facebook?
Well, let’s see how it worked for online media publishers – They “partnered” with their two main competitors (Google and Facebook) – It worked out very well (for Google and Facebook) but crushed the publishers (https://www.theatlantic.com/business/archive/2017/11/media-apocalypse/546935/).
If you are not sure that Google and Facebook are also your competitors (currently in the ad business but potentially in the eCommerce business as well) read this: https://www.lsa-conso.fr/google-s-apprete-a-lancer-une-marketplace-en-france,292316.
The best way to win a prisoner dilemma is to avoid getting into one.
Are there any reason why store do join a network?
Joining a network does mean that you don’t have the direct expenses of running your own platform and sales teams. Running your own in-store promotion platform requires you to allocate resources and manpower to build it and then sell the ads.
It’s also a matter of strategic attitude – Are you aiming for the long term and consider your shelf a strategic asset or are you looking for easy short term achievements?
A network model is a good solution for the short term, however for the long term you must understand that by working with one, you give up on the premium shelves in your store and on an important part in your relationships with the brands and sellers.
Is there a rule of thumb to measure the potential revenues from your store’s Sponsored Products so that you can estimate if it is worth sharing with a network or deserve treating it as a meaningful business unit? Amazon is generating from its Sponsored Products almost 5% of their GMV. It didn’t happen overnight though. Do the math for your store.
How much are 2%-5% of your GMV? That’s where you should aim.
Are you a lion or a sheep?
At the end of the day it sums up to this one important question.
What kind of an animal are you?
If you are a sheep, one of many, and you are looking for instant immediate gain , you’d better join a network and enjoy the comfort of the herd (but be careful and aware that there are lions out there that might eat you or that your shepherd might send you to the butcher one day).
But if you are a lion in your domain and you plan several steps ahead than you should be thinking about running your own in-store promotion program and keep the control on your shelves in your hands.
Mabaya develops advertising tools and white label solutions that enable marketplaces and online retailers to monetize their traffic by offering sellers and brands to promote their products. Mabaya’s Sponsored Products Ads platform enables sellers and brands to bid in order to ensure their products are listed in premium locations in the online stores.