We have been making some noise recently about the importance of pricing when it comes to Google Shopping, here we give an overview of how we put together this research and the ways in which advertisers can avoid losing out when it comes to pricing bias.
How does pricing affect the Google Shopping Auction?
To start with you need to understand how bidding works on Google Shopping.
The auctions follow an S-curve behaviour (we have done some studies on this): When you increase bids on a product, from a certain bid level, traffic increases very quickly. At very high bid levels, traffic will plateau. The challenge for bid management in Google shopping is to stop bidding up when you reach the plateau.
To find out what influence product price has in this traffic curve we selected a number of similar products with at least 6 competitors in the market. We checked this through the unified GTIN.
200 expensive products were at least 10% above market average price
200 cheap products were at least 10% below market average.
All products received the same bid per day, while we slightly increased the bid level over time. At every stage of the test, the cheap products received more impressions – although they were a similar category and had the same bid! The traffic for cheap products scales up very quickly, while the expensive products lag behind and are only slowly allowed to enter more auctions.
As you can see below, the S-Curve holds but the cheap products attain the plateau of maximum traffic quite quickly.
Higher prices mean much lower impressions:
The tests show that there is a direct relationship between product price, max CPC and impressions. With higher than average product prices, you can bid whatever you want, you will never win at Google Shopping. Google will make you pay a very high price for a tiny share of voice. We again see that price has a fundamental influence on all shopping auctions. For more expensive products, Google demands you to invest a much higher budget to receive the same revenue. Still, you can never achieve the same revenues as you would with cheaper price points.
Why are Google doing this?
Is Google overreacting to price? Why would they not accept your high CPCs and give you more clicks? In the end, they need to stay attractive and true to the user as a shopping comparison platform; the users will run away from Google shopping if they will see more expensive products in the top results.
When we look at the Google shopping results page, we find offer lists with all advertisers who offer the same respective product. The first result receives most clicks. Influence factors are – as we know -pricing and website quality rating followed by audience relevance and bidding.
We analysed the top 50 Nike products that are available on Google DE through popular “Nike” queries. We analysed all price points:
The first result in the offer list is on average 19% cheaper than the average
The second advertiser is on average 2% cheaper.
This explains the heavy impression changes we have seen with small price movements. Once advertisers are not among the cheapest, their traffic will sharply drop off.
What is the best way around this for advertisers:
- Use reduced prices products as a gateway:
You can build an advanced strategy using cheaper products as entry points in Google shopping. You can then upsell more expensive, high margin products. For more details on this, our full write up was featured in Search Engine Land.
- Stock exclusive inventory:
Try to offer exclusive products without competition. Becoming attractive to Brands has become more important than ever. With unified GTINs, Google tries to stir up competition. But if you are the only one offering a great line of products, shoppers will know you and always come to you – directly but also through Google shopping.
- Don’t overbid if you are more expensive:
Make sure you do not overbid on expensive products. Analyse impression volumes for different CPC levels and identify what the shopping S-curve looks like for your cheaper and more expensive products. Try to find the sweet spot where average ROAS is strong but incremental ROAS is poor. You can approach us if you want to know more about this behaviour and how we manage it.
- Push your own ecosystem:
Own the user relationship and build an ecosystem that makes you less dependent on driving users back to your site through paid search. Leading retail advertisers generate more than 50% of their revenues through their own brand mobile apps.
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