The Sponsored Product Ad Ecosystem is Broken

As the competition for exposure and positioning on traditional PLA networks like Google Shopping heightens, many brands and retail marketplaces are turning their attention to an alternative form of CPC advertising.

Sponsored Product Ads (SPA) (also called Promoted Listings, Promoted Product Ads (PPA)) are an advertising format that allows brands to pay for better placement on the websites of retail marketplaces such as Walmart, Amazon, eBay. For a CPC fee paid by the brand, a product’s visibility is boosted to the top of the organic results, increasing the likelihood of a sale. These ads are cropping up on category pages, search results pages, and product details pages.

Similar to the display ads you’re used to, these ads work by going through a third party Ad Networks or DSPs which manages the bids from brands and surfaces the products on the retailer’s website.

For brands, these ads generate sales, increase category share, provide more accurate targeting and the ability to reach those very close to a purchasing decision.

For retailers (like Walmart, Staples, Kohl’s, Sears, Best Buy, Wayfair, Target and many others), these ads provide two extra sources of revenue.

  1. Revenue per click: CPC value paid by the brand (minus) the network/DSP fees
  2. Margin or profit per conversion: since the format works as a click-in, not click-out, The click on the Product Ad leads to the product details page (PDP), and if the ad relevance score is high, then the CTR and the CR probably will also be high

In practice, however, we find that these online retailers or e-commerce marketplaces (the media owners) have a very different view of how their retail media should be monetized, sold and marketed than the Ad Networks and DSPs managing these ad placements. This disconnect in objectives and the lack of DSP options has to lead to a broken system which isn’t benefiting retailers the way it should be.

Three separate objectives

What should be a symbiotic relationship between brand and retailer has descended into a broken system of irrelevant ads and misspent ad money. All because of the differing objectives of the three players. Let’s look at those objectives more closely to see if we can pinpoint the issue.

Retailer/Marketplace

For site monetization teams at large retail marketplaces, the ultimate goal of using Sponsored Product Ads is to generate more sales and achieve maximum yield for their online assets. Using their ad inventory, which is growing QoQ or YoY, they’re looking to get the best CTR & Conversion Rate (CR) multiplied by the highest possible revenue per click, across all their categories.

All that is in addition to being able to sell more high-margin products, accelerate inventory turnover and support their media team in delivering superb media performance metrics such as ROAS, CTR or CR to secure repeated and larger budget allocation from the advertising brands.

However, there are several factors besides CTR, which determine a good SPA relationship. Ad-fill rates often “Ok” in just a few of the categories, yet for the rest of the categories its very low or non-existent, leading to empty ad space or poor ad quality (ie. irrelevant ads). Every irrelevant ad being shown but not clicked is a wasted monetization opportunity for the eCommerce retailers.

How likely would you buy the sponsored dish soap while shopping for a blender?

Retailers also lack control over their price floors and what brands are willing to pay in order to advertise on the site. This is because big brands often buy media from retailers’ indirectly (through networks or DSPs) as a package in a bundle of multiple retailers.

It’s also difficult to balance the revenue from CPCs against the revenue from a traditional sale. For the retailer’s CFO/CRO Getting both is obviously preferable, but that means DSPs need to make sure they can surface relevant ads for the category or search term.

Finally, there’s no easy way for a retailer to work with multiple DSPs or ad partners at once. Therefore, they are limited in the brands that are eligible to advertise on their site by the ad partner they currently work with and the brands they represent.

Brands, Sellers and Manufacturers

So far we’ve talked about those buying SPAs on retail marketplaces as brands, but any manufacturer or product seller would also benefit from purchasing SPAs. The brand’s objective is to generate sales while justifying their investments to do so, focusing on ROAS, and the impact of the incremental value of their ad spend on the sales performance of their products.

The goal is the same as any other ad format (video, display, PLA) the ad spend must generate a greater lift in sales on that medium than what could be obtained organically.

For SPAs to be worth the investment, brands must be able to see measurable positive sales change, lift in brand-name / product-name search within the retailer’s website, and increased share of sales within the brand category(s).

Ad Network and/or DSP

Ad Networks and DSPs function as the middleman between the brand and the retailer. Therefore, there are multiple objectives to achieve, and two sides to make happy while making money in the process.

  • A higher yield of the available retail media inventory to please the retailers
  • Achieve campaigns’ objectives for the brands
  • Maintain a steady flow of repeated campaigns/budgets from media buyers

The major challenge is their capacity to fill the growing inventory of diverse product categories across multiple retailers and being able to generate substantial revenues to meet retailer’s expectations. At the same time, DSPs need to deliver against the brand’s objectives.

Their current solution is to package similar categories, similar performance, similar interests and sell bundles into a Run of Network (RON) kind of targeting to the brands’ media buyers. Remember that DSPs only get paid if a shopper clicks on a sponsored product ad regardless of if that click leads to a sale.

DSPs focus on automating everything. Automation makes it easier for the brands to allocate campaign budgets, push targeting criteria, and then the network/DSP’s black box algorithms will do the rest. You just have to trust it! This automation includes how the budgets are allocated across their portfolio of retailers. Brands simply receive a report on the average eCPC, average ROAS, average CTR, and average CR of the whole campaign.

This system makes it almost impossible for brands to opt-out of paying for ads on retail sites that are low-performing or irrelevant.

Revolutionizing the ecosystem

In exploring how we might be able to enter this ecosystem, Crealytics has surveyed site monetization teams at multiple retailers running the format, brands allocating budgets for the format, media agency execs in charge of media buying, as well as ad networks and DSPs serving the format.

Doing so has highlighted the fact that this system is not working for brands or retailers in the way that it should. A lack of competition among DSP players means that brands and retailers are stuck using systems that allow them virtually zero control over how these SPAs work. Brands aren’t able to accurately target retailers who are most relevant or who provide the best ROI and retailers aren’t able to fill their ad slots with enough relevant products to effectively monetize the medium. It’s clear that more innovation is needed.

We’re currently roadmapping a solution that addresses these conflicts, pain points and achieves the objectives of all 3 parties.

If you’re working at any of the 3 parties and interested in the results, please contact us.

ABOUT THE AUTHOR


Mostafa K. Attia is the Head of Programmatic Advertising Crealytics,
Mixing online advertising, e-commerce, and digital media services for the last 17 years,
Managing the programmatic AdTech business unit for Sponsored Product Ads monetization programs on e-commerce retailers sites.

    Find more about me on:
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