Profit Margin Variances in Marketplaces
Marketplaces have introduced a new avenue for both traditional D2C eCommerce businesses as well as CPG businesses that have not traditionally sold products online. Today, more new and notable marketplaces are arriving, but new channels come with new complexities.
It’s easy to look at marketplaces such as Amazon with wide-eyes and optimism. However, it’s important for marketers to understand that these marketplaces are still evolving in terms of interface, tools available to marketers, and capabilities of their platforms. A fee is also added on for brands selling on their platforms. Marketers should be mindful about their strategy and intentional about getting the expected ROAS from their investment.
Brands who have historically had one avenue to sell their products are now seeing significant potential in marketplaces. It can be overwhelming, however, to understand these other channels and how to generate positive returns. By using our unique Interactive Investment Management (IIM) philosophy, Rise helps brands determine how they can maximize their budget and fluidly spend across various channels, even down to the product level.
Understanding Product Profitability, Beyond ROAS
Brands that only have experience selling direct to consumer via their own websites typically have a great understanding of product margin, as the inputs taken into consideration are all directly controlled by the brand. Think labor, warehousing, shipping, and distribution costs, for example.
With the introduction of marketplaces, in-house investments become more of a challenge to include in product profitability calculations. Some of these investments may remain in-house, while others might be paid via a fee to the marketplace.
Amazon provides multiple options for brands who want to sell on their site. Brands can:
- own their pricing, inventory, and fulfillment processes
- own their pricing and inventory processes, but let Amazon complete fulfillment
- or relinquish all processes, including pricing control, to Amazon
While the third option presents itself as the most straightforward, it could potentially erode profit margins. To minimize risk, make sure you’re focusing on these priorities:
- Allocating your budget as effectively as possible across all relevant platforms/channels by evaluating your ROAS data
- Ensuring the experience (ads, landing pages, copy, etc.) is as relevant and personalized as possible to drive the conversion by testing your creative against each other
Having the ability to see a product’s profitability and margin by source and understanding the true value it’s driving is important because having this data allows for better budget allocation decisions to be made. Rise can help brands look at budget allocation opportunities across traditional search engines, like Google, and new marketplaces, like Amazon, all the way down to a specific product. By leveraging our proprietary technology, Connex®, we’re able to develop insights as it relates to Branded and Non-Branded costs across platforms. We’re then able to dig down to specific keywords and finally specific products. By doing so, brands can find each product's profitability beyond just ROAS.
Utilizing Technology to Fuel the Insights
To achieve these granular insights, getting both traditional and non-traditional engine data in a single source is vital but can be extremely time-intensive. If you’re working with high volume and at a granular level, aggregation can be nearly impossible due to time.
Connex Analytics looks holistically at cross-channel data. With this tool, data from dozens of different sources can be used to create mappings and construct a whole story of what trends are working most effectively for your brand. By generating cross-engine product-level insights in a matter of seconds, you can capitalize on opportunities quickly by shifting budget to the most effective channels.
With a holistic approach, Connex is able to support product profitability decisions through granular, cross-channel results. When you have an understanding of each product’s profitability by source, your budget goes further.
Why Holistic Experiences Dominate
By taking a holistic approach to budget allocation at a product level, brands can evaluate which channels are driving the highest conversion at a granular level. Contact Rise to learn how we help give brands answers to how much to spend on each platform, how to shift budget between platforms, and how to generate the most profitable program.