Why it works: how retailers and brands can benefit from a blended CPC/Fixed Tenancy approach
Cost Per Click (CPC) has been a proven digital sales model for some time, providing rich pickings for the likes of Amazon and Google who have millions of sellers. It’s also a very sound strategy for retailers with long-tail brands, but with such tough competition for the best positions it doesn’t suit everyone as it can be unpredictable and requires a considerable amount of time, resources and brand knowledge to achieve the desired results.
Online retail has undergone exponential growth and the increase in revenue streams that it delivers mean that developing an effective online strategy is now more important than ever. Brands are realising just how important visibility on the digital shelf is and the big impact it has on both online and in-store sales, consequently the switch in focus of global advertising budgets from traditional to digital media continues to grow year on year.
Much of this growth is driven by a desire from brands to invest at the point of purchase. They also want greater transparency, more effective reporting with trackable customer data and real-time performance metrics of product lines. It’s clear that all of this is far easier to achieve with online retail, which has given rise to a new blended model that combines both the CPC and Fixed Tenancy models in one technology platform.
Let’s first look at why there is a need for a new approach. Brands and agencies like to know what they’re committing to upfront and so they often struggle with the unpredictability of CPC, for example, when categories are competitive or during peak seasons. Budgets run out and more time is required to reactivate programmes; due to price fluctuations, brands get turned off and so do the campaigns. CPC also requires a good deal of expertise in search terms, as well as continuous monitoring, brands end up having to invest too much time and quickly become disinterested as a result of lower ad saturation and less optimised campaigns.
This has a knock-on effect with retailers too as they start to experience wavering levels in their revenue. Their time gets eaten up by managing variable budgets of up to 100 or more brands which in turn costs money. They’re also having to constantly support, educate and re-sell to brands. Performance factors such as CTR (click through rate) conversion rate and competition for each search term make it hard for retailers to tell brands what budget they need to commit to CPC.
While CPC is still a very important digital sales tool, the alternative blended model provides retailers and brands with a viable and improved strategy whereby a CPC/auction approach is augmented with a Fixed Tenancy model (a form of Sponsored Products model) through a technology platform such as CitrusAd. Fixed Tenancy packages provide guaranteed advertising placements for brands, and guaranteed revenue for retailers. Combined with CPC, this blended model offers a complete approach to retail media.
About the Fixed Tenancy model and how it can augment the CPC model
The top two rows (6 to 8 positions) in any e-commerce platform are the positions of value. Approximately 80 per cent of the clicks and impressions happen here, which is why brands want their products positioned here. It’s the equivalent of being positioned at eye-level on a physical store’s shelf. Valued up to a Cost Per Mille (CPM) of a certain amount, these premium positions enable retailers to provide brands and agencies with far more simplified and effective digital advertising channels. Agencies will set a typical Return on Ad Spend (ROAS) target of between 200 per cent to 400 per cent for this solution, and due to the fact that it’s more personalised consumers get a far more positive retail experience and as an alternative brands will use their most popular products in ‘sponsored product’ campaigns.
Why the Fixed Tenancy model benefits brands?
Fixed Tenancy follows a tried and tested formula because it offers brands a familiar format that’s similar to other media packages they buy and guarantees them a high-selling position for a known time period.
The set-up process is simple and easy to manage and once in place requires less effort and therefore less stress. As the budget is pre-set the costs are predictable and so brands can budget for a far longer period and, in return, they have a transparent, cost effect platform at the point of purchase that will out-perform their other digital advertising options in all the key ROI metrics.
Why the Fixed Tenancy model benefits retailers?
Brands care about high-value, top page positions are highly important to them and they are used to buying large, fixed packages so Fixed Tenancy makes perfect sense to them. They want guarantees that they will occupy these positions and fixed tenancy brings this peace of mind to retailers.
The fixed tenancy model allows retailers to focus more on selling packages, and less time on advertising opportunities and campaign management leading to a far more streamlined media delivery process. Smaller teams can generate larger amounts of money collaborating more smoothly with e-commerce departments.
By offering a combination of fixed tenancy packages for larger brands, and a self-serve, auction-based model for smaller, long-tail brands, retailers can deliver all brand types the level of real-time reporting that they want. The ultimate goal for the retailer is to ensure that advertiser spend is locked in and that means they can benefit from a fixed baseline revenue, with the upside of the additional revenue from the long tail.
There is no discounting CPC, it’s a powerful model which will remain the blueprint for certain companies in certain cases and it will always play a role in some non-tier one retailers’ online advertising strategies too. The blended model goes one step further though and offers the ideal approach that benefits both retailers and brands. The reason for this is that it allows retailers to concentrate on their merchandising strengths, while delivering a performance-based and innovative online advertising strategy that brands understand. When brands understand what they’re committing to then they will be willing to invest more, which can only further benefit retail revenue streams.
Published by Retail Times