By Peggy Studer, CMO at RelevanC
All marketplaces face the same question: which comes first, the seller or the customer? The answer is simple: sellers; because without products, you don’t have customers. This makes recruiting and retaining sellers a significant consideration for marketplaces, which is why numerous resources are available to help with their seller acquisition strategy.
On the other hand, the challenge of retaining sellers is closely linked to the challenge of enabling seller growth, and this is where retail media can help. Marketplaces have realised that, beyond adding a high-margin revenue stream, advertising services such as sponsored products can also boost both seller satisfaction and retention.
However, there are pitfalls that marketplaces fall into when implementing retail media. And these can prevent them from seeing the seller growth and advertising revenues they were expecting. Here we take a look at the three most common reasons for poor sponsored product performance and what marketplaces can do to avoid them.
A Seller’s Market
With the proliferation of new marketplaces comes the opportunity for sellers to spread their inventory across multiple platforms to reach more buyers. Paul Conley from Digital Commerce 360 commented, “Third-party GMV is growing faster than total GMV on marketplaces. And marketplaces are growing faster than total eCommerce. With growth like that at stake, marketplaces are doing everything they can to attract and keep merchants.” But this relationship between sellers and marketplaces isn’t binary since sellers will often sell through multiple marketplaces. This can be an issue for marketplaces relying on seller loyalty and retention to grow.
For example, according to Argometrix, 42% of online sellers operate through four or more marketplaces, and only 7% sell on only one marketplace. So, although sellers are not in short supply, there’s strong competition between marketplaces to attract and retain them.
The Retail Media Difference
The goal of any merchant is to sell their products. To do that, the product first needs to be discovered by the shopper. A survey of merchants found that 47% cited “giving my products a better chance of being discovered” as their reason for selling on a marketplace. Therefore, any marketplace’s goal is to provide merchants with opportunities for product discovery, which is why many marketplaces have implemented sponsored product technology.
Done right, sponsored products can create a virtuous circle that allows sellers to achieve the product discovery they need to grow their businesses. This drives conversion and revenue for the seller while increasing their willingness to invest more in sponsored product advertising.
So, why are sellers still facing challenges when selling on your marketplace?
Why Your Sellers Still Can’t Sell
Enabling sponsored products helped your initial ad revenue spike, but now ad revenue and sales are down, and sellers are going elsewhere. What’s going on? Ultimately, the problem is that sellers cannot scale their businesses on your marketplace fast enough, and these are the three reasons why.
1. Creating High-Performing Ad Campaigns is Too Difficult
We’ve already established that most sellers sell across multiple platforms. Each marketplace will offer its own advertising tools, and each comes with different features, a different pricing model, and delivers a different ROI. But you are not just competing on price and performance. Each platform also comes with its own learning curve. Your sellers are sellers, not marketing professionals, and they are busy people. So, the more complex and manual you make it to place sponsored products ads, the more room for error and the greater resistance to adoption you are likely to encounter. Start by putting yourself in the shoes of the seller. No time, no marketing expertise, and a healthy dose of scepticism of paying for “yet another” service.
Here are three ways to maximize sponsored product seller adoption:
- Make sure the onboarding process is simple, effective, and fast. Onboarding should be accompanied by training resources and an interface that encourages acclimation. The process should guide sellers to discover value in your retail media offering, quickly bringing them to an “aha” moment where building a campaign becomes second nature.
- Creating a successful campaign means balancing variables such as minimum bid price, product choice, and keyword selection. One of the benefits of the walled garden of a marketplace is the availability of closed-loop reporting data. This allows for the creation and training of AI algorithms to take the guesswork out of campaign creation. Use AI-guided tools to automate the campaign creation process and maximize ROAS for your seller.
- Set-and-forget campaign creation is great once you have the trust of the seller. To gain that trust, put the seller in control. Provide different levels of automation from 1-click through to fully manual operation and guide the user at each step with real-time recommendations. Then show the seller exactly how each campaign is performing with live reporting.
2. You are Serving Irrelevant Ads
Although tough to hear, marketplaces often serve irrelevant ads to their consumers. The purpose of a sponsored product ad is to generate conversion for your sellers and profit for your marketplace. At the very least, a sponsored product ad must perform as well as the organic result it is replacing.
The temptation is to attempt to monetise every position at all costs. But your ad relevance will decrease as you look for ways to fill positions. Irrelevant ads annoy customers and diminish loyalty. Worse, you’ll see a poor click-through rate (CTR) and low conversion rate. So now you are driving down organic revenue and CPC revenue as well as de-valuing your digital assets.
One way to mitigate this is to use the relevancy score of the ad as a starting point rather than the number of available display positions. This way, you ensure that the most relevant ads are taking the top positions. Then you can consider giving over space to the less relevant ads lower down the page.
It is important to measure your algorithm’s ad relevance constantly. Defining relevancy for an ad already served is straightforward. The data challenge, however, is to do the same on the fly by calculating the likelihood of clicks and of conversion at the very moment a shopper clicks on the search button. Any delay in displaying the ad will detract from the shopping experience and negatively impact ROAS.
3. Lack of Fair Competition
Sellers can become victims of your marketplace’s success. New sellers with no transactional history or customer ratings are penalised since organic search algorithms prioritise products bought and reviewed by existing customers. This self-reinforcing loop exacerbates the problem for new sellers trying to sell a good alternative product because it prioritises the big vendors in the top spots.
The lack of fair competition means smaller merchants get overlooked for those with a stronger transactional history. If you can’t give your sellers the visibility they need, they will move their budgets to competing marketplaces.
Ultimately, promoting fair competition amongst vendors for ad positions creates a virtuous circle for the marketplace. By supporting smaller sellers, shopper choice is widened, driving customer loyalty and GMV. More offers mean a high potential for ad relevance and a better fill rate, ultimately leading to higher advertising revenues.
The challenges behind fair competition are technical. The first step is to ensure that you can differentiate between product and offer to allow a seller to win the buy box. Second, ensure that your definition of relevancy factors in look-alike considerations for products displayed. And third, ensure your sellers have the help they need to keep product descriptions and media relevant and comprehensive.
Retail media isn’t just a way of monetising a marketplace’s digital inventory; it’s also an enabler of a high-growth seller community – a marketplace accelerator. By putting the needs of your sellers first, you create the building blocks for a sustainable business because your merchants can do what they do best – sell. Therefore, investing in the tools sellers need to scale fast is an investment for higher GMV and ad revenues.
relevanC offers a turnkey sponsored product solution, built from the ground up for marketplaces. Our technology powers the Retail Media operations of retailers and marketplaces worldwide. Founded in 2017, relevanC has offices in France, Brazil, and Colombia and operates globally.