All posts by shaynastewart

What Retailers Can Expect With New Sales Tax Implementation across the US

With many states facing large deficits and less monetary support from the Federal Government, they are now turning to the next frontier of income growth: e-commerce sales tax.  This has been a long debated topic, so it is not a huge surprise that the state and retailers have come to terms with this. So with these changes, what can we expect to happen in the e-commerce industry?

There has been trepidation that e-retailers could see a drop in conversions due to charging consumers sales tax, however, according to research there is no reason to expect a change in consumer behavior. A study by comScore shows the value of shopping online:

  • Comparison shopping- without ever having to leave the room, consumers are able to hit multiple retailers to find the best price on the same product or supplementary products.
  • Daily specials- More and more consumers are subscribing to emails of their favorite brands to “shop” the specials. Even recently we have seen e-retailers make a business model out of the daily special.
  • Mobile Advantages- Exclusive apps that provide value through the convenience of shopping any time of day from (almost) anywhere in the world

Nowhere is there mention of not paying sales tax as a value of shopping online, inferring that sales tax has little to no influence on online shoppers.

How will sales tax affect comparison shopping?  No matter which e-retailer the consumer purchases from, there will always be a sales tax incurred (pending that they live in a state that mandates a sales tax).  Implications to comparison shopping are annulled as the actual price of the product will still dictate the e- consumer’s decision, not the sales tax.

In comScore’s “Online Shopping Customer Experience Survey,” the survey concludes the top reasons that people abandon their digital shopping cart:

  • They were not ready to purchase, but wanted to know the total cost.
  • They were not ready to purchase, but wanted to save the cart for later.
  • Shipping costs were more than expected.
  • Order value was not large enough to get free shipping.
  • Shipping and handling costs listed too late.

While during the time of the survey, taxes were not an issue, we do find that hidden costs can be a detriment to proceeding to purchase. However, one must think that most e-consumers are aware of their state’s sales tax mandate; so the effect of a surprise cost at the end of the purchase will be minimal, if it occurs at all.

This sales tax may cause higher fixed costs for the e-retailers in order to manage charging the consumers, however, in the short run, it is expected that this cost will not be filtered into the marginal cost of the products and should not drive up consumer price.  This sentiment in addition to the sales tax savings not mentioned as a reason why consumers shop online and the minimal surprise that the e- consumer will be charged the sales tax, will not have a large implication on the e-consumers shopping behavior.

In the long run, we may see prices of e-retailers increase if the cost of managing sales tax across states becomes onerous. If the e-retailer is also brick and mortar, we would expect the price of the goods in the B&M to rise to the same level as the e-commerce store, in order to stabilize prices between the two.  In this instance, we would not see a shift of e-consumers turning into B&M consumers.

E-retailers that are also B&M have incentive to filter more sales through the website as the amount of fixed costs of running the e-commerce store is much less than the B&M.  These types of retailers also have more incentive to keep e-commerce inventory prices equal as many people use online as a comparison shopping tool. In the event of any of these scenarios, it is unlikely that there will be a shift from e-commerce to B&M.

In light of the sales tax being mandated by more and more states, e-retailers should focus even more so on their core capabilities or value proposition. For example, if you’re an e-retailer that’s largest value is selling affordable work out gear, make sure that you are strongly conveying that message to all current and potential consumers.  This message should be apparent across all media touch points that a retailer has with their consumers. As long as consumers still feel the e-retailers value is greater than the marginal cost of the sales tax plus the purchase price, the consumer will not abandon their purchase based on having to pay a sales tax.

 

Leveraging Rich Ads and Branded Sitelinks in Yahoo!/ Bing

With Yahoo!/ Bing (YaBing) releasing a beta for sitelinks, alongside the release of Rich Ads earlier this year, IgnitionOne investigated how to leverage the budgets of branded campaigns to increase efficiency to marketers’ YaBing account.  The basic premise of leveraging the two products’ budgets to increase efficiency lies in the ability to predict brand click-through rate (CTR).

How Rich Ads Work

Rich Ads run only on exact and phrase match types, can only run on brand terms or extremely relevant non-brand terms and the ad position only shows at a rank of 1. This design of the Rich Ads, along with the fact that no competitors can set up a Rich Ad campaign running on another marketer’s brand terms, indicates that the algorithm which dictates cost-per-click (CPC) for this product is slightly different from the algorithm we see in the perfectly competitive open market (i.e., the non-Rich Ads campaigns’ algorithm). The algorithm in the “open market” determines rank and CPC by looking at Quality Score (QS), which is usually a 10 for branded terms, CTR, as a relevancy proxy, and the next in lines competitors’ bid in comparison to your bid. Due to the Rich Ads’ design we can take out QS as a major determining factor for the CPC you are charged, as well as the next-in-line competitors’ bids. We also know that the algorithm is only predicting CPC as the rank and never changes for Rich Ads. This leaves CTR determining CPC. As we all know, CTR is determined by clicks and impressions.

So how can marketers use this information in tandem with their branded sitelinks strategy?

The Strategy

Since the Rich Ads algorithm primarily gathers information from within its campaign and pulls relatively little information from the market, it has more of a lagged model than the “open market” algorithm. Essentially, it uses past data to predict what will happen to the CTR in the future. The shift between the lows and the highs of brand demand (i.e., impressions) is where this gets interesting.

The lag experienced in CPCs, essentially based on impressions, is about 1-2 weeks (note: this may vary based on the amount of impressions your brand receives). During the period in which your brand has reached the descent from the apex of a high demand period, you will be charged high CPCs for about two weeks into your descent of demand within the Rich Ads campaign without the justification in ROAS (i.e., conversions or AOV decreases). This is when IgnitionOne recommends decreasing your daily budget caps so that your rich ad campaign will, in fact, flight (see Figure 1.0). From here, marketers should reallocate extra budget into branded campaign that has sitelinks, to ensure that all exact, phrase and broad match terms come in a rank of 1 (See Figure 1.1). This is important as the “open market” algorithm will adjust more quickly due to your competitors pulling out of the market/lowering their bids during periods of low demand. The algorithm will adjust more quickly also due to your ability to change more keywords’ average ranks to a 1, thus bolstering CTR, which will in turn lower your CPC. Once you see the Rich Ads’ CPCs coming down to where they should be, your brand should increase the budget to where it will not flight further.

Best Practices:

-Identify if your CTR follows this same pattern during extreme changes in brand demand.

-Watch your Rich Ads campaign to see how it performs during fluctuations in demand. You will need to understand your brand’s CPC lag time.

-Set keyword bids high in the Rich Ads campaigns. You will need to manage spend in your Rich Ads by daily budget rather than CPC, as there are no competitors bidding on these terms and no dispute for rank.

-Set the Rich Ad campaign serving setting to “accelerated.”

-Do not turn off your Rich Ads campaign during the period in which your CPCs will not justify the ROAS. You will need the Rich Ads algorithm to collect data in order to get CPCs where they should be.

-Ensure your branded campaign has enough daily budget to take over the Rich Ads campaigns’ daily spend when you switch over.

NOTE: How to predict changes in CTR

Impressions and clicks rise in periods of high demand for your product or brand. However, it is common that in periods of extremely high demand, clicks are able to maintain at the same rate as the demand (i.e., impressions). Due to this effect, brands typically can experience drops in CTR. Since CTR is the main dictator of our Rich Ads CPC, brands using this product can experience higher CPCs during high demand periods. This is not a huge detriment to the account as conversion rates tend to be fairly high in Rich Ads campaigns and also during times of high demand. Conversely, CTR increases as impressions decrease during a brand’s offseason causing CPCs to decrease in Rich Ads. It is during this time that IgnitionOne would recommend keeping Rich Ads budget caps high.

Figure 1

Figure 2

Planning for the Holiday Season with an Unexpected Change in Consumer Behavior

This holiday season is expected to be more competitive in the e-commerce space than last year. It might even prove to be the year of the savviest shopper. Consumers are now armed with more knowledge of retailers’ deals and strategies during Q4 than ever before. Research also suggests that the purchasing process will take ten days longer than last

year, indicating that people are shopping smarter and comparing goods among competitors. With the asymmetric information gap closing between consumer and retailer and the development of the more patient, knowledge-seeking consumer, retailers need a way to finesse this nouveau consumer behavior into their Q4 Search Engine Marketing strategy.

The key factors to help leverage the new consumer behavior in Q4 2012 are:

1. Understanding your assist data
2. Identifying changes in product trends
3. Using on-site data to gauge category interest

Understanding your assist data will help you leverage your budget during the holiday season. This is particularly important as the consumer will be extending her purchase latency. It is plausible to have keywords in your account that drive a lot of traffic, but do not convert, especially earlier in the season. However, since your ad appeared early in the purchase cycle, the consumer is likely to return to your site from a different media or search engine marketing keyword. By attributing credit to keywords and media that occur early in the path to conversion, you can justify staying competitive on terms that may not be the last click before the conversion.

Identify changes in product trends by using Google trends. Whether you are introducing new products for Q4 or trying to gain a fresh perspective on the products that you already have, it is important to understand how the consumer is searching for, viewing and shopping for your product. This differs from the standard search query report, as you are able to see the full picture of how people are searching rather than looking only at terms that triggered your ads. If you type in an exact match term that matches one of your products, Google Trends will show the growth over time, allowing you to anticipate what the demand will look like during December. It will be important to leverage the top and rising terms by placing them into your account. What this will do is put you right in front of the consumer demand you are looking to capture and help to assess any competitors that may be outperforming you.

Using on-site data to gauge category interest is the most important aspect of planning for Q4. Category interest groups can be tracked by IgnitionOne after a consumer clicks on your ad and navigates your site. The interest groups indicate which category or product the user looks at during the session, in order to understand the consumer’s intent and the interplay among the products you offer.

For example, a consumer queries “youth jeans” with the initial intent to shop for their teenage daughter, however, they see there is a category which interests them to shop for themselves. It is this type of on-site activity that is important to gauge in order to finesse consumer conversions rather than forcing a behavior through arbitrary sales. Identifying trends in related category interests and putting together meaningful sales and/or messaging towards consumers will aid in achieving this outcome. This tactic is similar to the in-store Black Friday sales, where you put a particular item at a deep discount in order to attract sales in other sections of the store. This works better online because we have data to confirm that the people who are converting on clothes for their children are also buying a new coat for themselves. Strategies such as serving the consumer a message that reads “Buy any full-priced junior item and get 50% off of one women’s apparel item,” will encourage consumers to act and allow retailers to gain conversions on highly competitive items by bundling them with something else of interest to the consumer.