In line with our commitment to enable merchants to scale and grow their eCommerce businesses, we are delighted to share with you the latest in our ‘Mastering eCommerce’ series, where by taking a unified approach to eCommerce marketing, you can significantly increase your eCommerce Store revenue by connecting merchandising and product advertising.
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Throughout the ‘Mastering eCommerce’ series, we have been focusing on advanced strategies and tips to improve your customer experience, generate more ROI, and scale your eCommerce store to new heights. In today’s edition, we are pleased to introduce Jennifer Gimson from Crealytics, who have recently launched a new service offering which uniquely helps retailers optimize their product advertising based on inventory levels instead of just ROAS (Return on Advertising Spend).
Jenifer will take you through some of the underlying issues with a solely product advertising based strategy, and why a Yield Management based system can deliver a more unified and optimal approach to eCommerce marketing.
There are many moving parts when running an eCommerce business and each of those parts has their own unique set of goals and metrics for success. Ideally, all these different success metrics add up to the same business benefit. But the reality is that due to entrenched data silos most departments are actually working against one another.
In merchandising for example, you have specific goals such as clearance termination dates and inventory turnover rates. At the same time product marketing is more concerned with getting the best return on ad spend and often have no visibility into what’s going on in the warehouse.
These silos can lead to a real disconnect between the product that advertising money is being spent on and what products actually need advertising.
Traditional product advertising success is measured on ROAS (Return on Advertising Spend). Essentially, how much revenue you generate when after subtracting advertising costs. While ROAS is certainly an important metric, it focuses too much on making advertising efficient and ignores what is really best for the business.
ROAS tell us to spend money on the product with the best margin no matter what, but in reality that product might not need advertising to sell out or it could be low in stock causing a shortage.
When advertisers don’t know or understand what’s going on in the merchandising department they end up spending money on the wrong products because they are focused on optimizing ROAS.
When we analyzed our client’s product advertising spend, we found that 40% of the budget was being spent on products which sell out within three weeks. Now, unless you really need those products to sell that quickly, this is a real waste of money.
Spending money to push products with a good sell-through rate anyway will only make them run out sooner, leaving you with a massive inventory gap. Instead, you should focus your advertising money on products with a poor sell-through rate as these are the items that need advertising help to move as quickly the ones with a good sell-through rate.
Using feed advertising systems and an advanced product advertising tool, you can direct product and investment based on your sell-through rate and stock level.
There are of course other factors besides sell-through rate that your product advertising team should be aware of. Things like product seasonality, warehousing costs and clearance termination dates should all be factors into how aggressively or conservatively a product is being advertised.
All these factors contribute to what’s known as Yield Management. Yield is how much the sale of a product is worth to your business as a whole. Calculating Yield goes far beyond profit or margin, although those are very important factors.
For example, if something is becoming increasingly expensive to warehouse or the space is needed to make room for new products, it may be worth accepting a lower margin by increasing your advertising spend in order to shift that product.
By creating a feedback system in which advertisers are aware of the Yield value for each product, businesses can create a more targeted advertising strategy that focuses on what’s best for the business as a whole. As a result, ROAS may suffer slightly, but margins and revenue will go up. In return, product advertising can give merchandising teams a better sense of what sells well and what doesn’t.
When product advertising and merchandising work together to overcome their traditional data silos, the whole business benefits. Advertising money is spent on products that will have the greatest positive impact on the business as opposed to the ones that are easiest to sell. When this happens, retailers become more efficient and effective at selling their inventory, and stop wasting money advertising products that don’t need it.
Product Advertising should be aware of stock levels and inventory turnover rates so that they are not advertising something which is quickly running out of stock. At best the two departments should work together to generate a yield value for each product that takes into account everything from margins to holding costs.
For more on how to connect your inventory management systems with Product Advertising, check out Crealytics’ Retail Intelligence and Performance Platform.
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