In this installment of the Multichannel Handbook, we look at strategies for maximizing the gains we can achieve by selling through Comparison Shopping Engines. Our goal is to make the CSE channel as profitable as possible, and these strategies will help.
Lifetime Customer Value (LCV) is a metric that’s been in use for a while now, especially in e-commerce, so you may be familiar with the concept already. Nonetheless, this metric is often overlooked by retailers when considering expansion into a new sales channel. When making decisions in a channel, LCV is of paramount importance; this is the case when selling through Comparison Shopping Engines as well.
Simply put, Lifetime Customer Value is the value of expected future sales to a customer, net of all associated costs of selling to that customer, and discounted for the time value of money. There are several methods for calculating LCV, and they can get pretty complex (Wikipedia offers a nice article on the subject, here). For our purposes, let’s keep it simple and look at an example.
Suppose your company, Widgits ‘R Us, has an average order value of $50; customers who shop with you come back often, and typically place at least one order every quarter. If we estimate that customers will remain loyal to your company for 3 years, on average, then each customer has a gross LCV of $600 ($50/quarter x 12 quarters); or, with a 10% net income margin, a net LCV value of $60.
Now, let’s frame your Comparison Shopping Engine decision with the net LCV of $60 in mind. If you now know that customers typically generate $60 in profits, you have a ceiling somewhere below that figure when determining how much to spend on your CSE budget, on a product by product basis. Furthermore, even though a product sale through a CSE may generate a small net loss (for that one sale), it may still provide you an opening to land another customer – whose $60 LCV will more than make up for that loss leader over the lifetime of selling to that customer.
The bottom line: because CSEs can become an expensive sales channel, using the LCV metric offers a strategy for making great product inclusion decisions.
In an earlier installment, we discussed the importance of sound data management. The investment you made in that foundation will pay off for you when selling through Comparison Shopping Engines. This is because good data helps keep your sales going through CSEs.
When we talk about “good data” here, what I’m really focused on is correct data. Is that UPC the right one for that product, or is bad data causing our backpack to be compared to Campbell’s Tomato Soup?
Providing good data not only ensures that your product is being compared correctly to other offerings, it also lowers your cost in the long run, by weeding out click mistakes (people who click your product when they were actually looking for something else). Some of the most important data fields to scrutinize when sending data to Comparison Shopping Engines include:
- Product ID (UPC, EAN, etc.)
- Manufacturer and Manufacturer Part Number
- Title (with relevant keywords)
- Description (with relevant keywords)
- Shipping rates
The bottom line: sending good data increases your CSE sales and leads to lower CSE costs.
This strategy tip is one we borrow from pay-per-click advertising, and it’s all about bid management.
When you are considering bids for products with the Comparison Shopping Engine you’re selling through, you often will run into competitors who are getting higher placement than you are. The natural temptation is to jack up your bids to get ahead and get your product more prominently displayed. But that’s not the best approach.
Instead, you should take baby steps. The reason is that, many times, a small incremental bid change can make a big difference in your results. For example, suppose you are bidding $0.25 for a specific product, and you notice a competitor who shows up and knocks you out of first place. Rather than jumping your bid up to $0.50, test 1 or 2-penny increases in your bid, until you get back in first position. You’ll be surprised at how often it only takes a few cents to make a big move in placement!
Ahh, Christmas: what a season it is! Time with family and friends, yes. But for most retailers, the holidays are where most of the year’s profits are made. And just as that is true for you, it’s also true for Comparison Shopping Engines – they get a big bang for their holiday traffic buck.
How? By raising their rates during the holiday shopping season.
So this strategy tip is our simplest: pay attention to your CSE’s fine print and watch how holiday rate increases will impact your profitability. Many retailers miss this point, get to the new year, and wonder why they spent so much extra in CSE commissions. Don’t let that happen to you this holiday season!
Coming Up Next…
In our next installment, we will explore the world of pay-per-click advertising, and how that advertising channel can reap benefits for your company. See you back soon!