Naturally, product price has an impact on everything in eCommerce, but when it comes to Google Shopping this impact is incredibly severe. A simple 5% increase in price produced a whopping 60% drop in clicks while keeping the bid stable. It certainly appears as though impressions and clicks in Shopping are very sensitive to pricing, more specifically how your price compares to all the similar products on Google Shopping.
For a deeper insight into what is actually going on inside Google Shopping, we analyzed a dataset of more than 15,000 Google Shopping client conversions across the German, UK and US markets covering several international retailers from the fashion, sports, outdoor and luxury sectors.
What we found shed a lot of light on how price affects Shopping performance and why. It also gave us some insights into what retailers can do to turn this phenomenon into a positive for their business.
How does price affect performance in Google Shopping?
Taking a look at the graph below, which shows the knock-on effect of a price increase for Aasics sneakers, we see to what extent clicks are negatively affected by such an increase. It’s significant, with a mere 5% price increase incurring a 60% reduction in clicks.
The decrease in clicks was so severe, it demanded further investigation into the connection between price and performance. So, after dividing a retailer’s products into two groups…
- Products they sold at a higher price than the competition
- Products they sold at a lower price than the competition
…we then compared their performance.
What we found was that even though both groups were roughly the same size, the cheaper products received 134% more impressions than the more expensive ones. What we’re seeing here (and on the graphs below) is Google’s algorithm in full operation; it recognizes that cheaper products perform better – they receive more clicks, creating more revenue for Google – and consequently, gives those products more impressions than the expensive ones.
We generally expect cheaper products to generate a higher click-through rate, explaining the higher traffic share, but the difference in impressions is clear proof that the Google Shopping algorithm favors products with lower prices and therefore serves those product ads for a higher number of relevant searches.
Furthermore, the performance of those cheaper products, compared again to their similar but pricier counterparts, is better. In fact, on Google Shopping there’s a 280% increase in conversions for cheaper products, as well as a higher CR resulting in a 30% lower CPO.
Many marketers believe that Google Shopping is a great way to cover the long tail of all products. But further analysis of our data highlighted the importance of key products. A small number of products drive the majority of sales, with only 10 percent of all products being responsible for 60 percent of traffic.
From an even larger analysis (3,900 products and five million impressions), we found that the cheaper products in the sample generated 4.3 million impressions, against only 1.8 million impressions on expensive products. As a result, of course, the number of clicks shows a similar outcome. In addition to this, we found that it was the products that were cheaper in relation to their competitors that were converting significantly better than the expensive ones.
These are significantly important insight for retailers: in Google Shopping, cheaper products are king.
Price vs Ranking
When we talk about ranking in Google, there are multiple factors that can affect your position. Price is one of them, but all retailers need to consider:
- Retailer rating – new retailers will be rated down, so user ratings are absolutely essential.
- Bid amount – an important one, but one that can be blown out of the water by cheaper product prices.
- Performance history – more history leads to more impressions, simple as that.
All of the above are considerations for any search campaign manager, but the impact that product price has on position is one that certainly can’t be ignored.
*Data from price comparison provider, based on >3000 queries
As you can see above, in 65% of all cases from our sample, the product with the most competitive price was ranked in first position – no matter what the retailer or bid.
Bidding and pricing are a double-edged sword
It’s only when you look at both bidding and pricing together that you get the full picture on how to utilize Google Shopping to your advantage, as they both work by a very similar mechanism:
- High bids will generate many impressions, but they decrease your ROI through higher CPOs.
- Low prices will generate many impressions, but they decrease your ROI through lower margins.
Bidding may be the key element of Google Shopping, but ultimately, pricing is the dominating influencer. Google will not even allow you to participate if they think your prices aren’t competitive.
Why is Google doing this?
Is Google overreacting to price? Why wouldn’t they 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. Users will almost certainly stop using Google Shopping if they always see expensive products in the top results.
When we look at the Google shopping results page, we find offer lists with all the advertisers who offer the same respective product. The first result usually receives most clicks. Influence factors – as we now know – are pricing and website quality rating followed by audience relevance and bidding.
Based on our research, we concluded that the first result in the offer list is around 19% cheaper than the average price and the second advertiser is on average 2% cheaper. This explains the heavy impression changes we have seen with small price movements. Once your products are not among the cheapest on offer, your traffic will drop off sharply.
How to use price to your advantage
So, given Google’s low price bias, how do you reach your goal, a high ROI and a healthy traffic volume?
Use reduced prices as a gateway
When someone’s clicked on your Google Shopping ad, that means they’ll buy the product, right? No, not necessarily.
We analyzed what people purchased after clicking on a Shopping ad, and found that they don’t always buy what they click on:
- 34% purchased the initial advertised product.
- 16% purchased a different product in the same clothing category.
- 14% purchased a different product in an entirely different clothing category.
Of the 36% who went on to purchase from a brand other than the advertiser’s:
- 15% bought from the same category.
- 21% bought from a different category.
What this means for retailers is that the real goal of Google Shopping should be to get someone onto your site. Your best bet to beat your competition is to focus your attention (i.e. your Google Shopping ad spend) on your most competitively-priced products.
Getting people out of the Google marketplace and to your website is the most important thing. Even if you don’t make as much margin as you would from a product at a higher price, that cheaper product will show up higher in Shopping results, consequently increasing the chance of someone clicking through to your site and browsing there.
Don’t overbid if you are more expensive
The Google Shopping auction follows an S-curve. 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.
This curve makes it even more important that you don’t raise your Max CPC too much on non-competitively priced products. You need to analyze 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.
Stock exclusive inventory
If you’re the only one selling your products, you don’t have to worry about competing with other retailers in Google Shopping on price. 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 – both directly and through Google shopping.
Create a shopping 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.
Pricing: key takeaways
Price is a key influencing factor which advertisers need to get right in order to succeed. Even the smartest bidding strategies can’t fix sub-optimal pricing.
However, selling everything at a lower price than your competitors implies a race to the bottom in the long run – not a good strategy. Instead, take advantage of the fact that people don’t often buy what they click on. Smart advertisers will sell only a few select products at a very low price, using these products as entry points for traffic from Google in order to upsell and cross-sell other higher-margin products.
Work with your merchandizing or pricing department to develop a comprehensive pricing strategy. Google Shopping has a lot of potential to act as an instrument to test price elasticity in order to better identify the ideal price of products. Product Advertising is an excellent tool to determine the ideal price and margin for each of the SKUs in a portfolio. So, including marketing expense into margin calculations gives you a deeper insight into the actual cost of your products.
By analyzing all the of data available, advertisers will be able to manipulate bids and product prices to generate the maximum value for their business. These findings could even suggest that eventually, bidding and pricing could be merged into one big retail optimization platform, allowing retailers to gain the very best value by optimizing advertising and inventory simultaneously.