eCommerce advertising in the US – a high level view

The E-commerce Industry is experiencing a non-linear Growth 

The e-commerce industry in the U.S. was approximately $600BN in 2019 and according to the U.S. Department of Commerce growing faster than 2018 at a pace of 13.6% is one of the fastest growing areas of the economy.  

 

This big market is attracting large retail corporations as well as eCommerce entrepreneurs that are trying to capture a stronghold in the market. It is currently estimated that there are over one million e-commerce businesses in the U.S. alone (and growing daily), each competing for consumer attention using eCommerce advertising.

U.S Ecommerce vs. Total Retail Sales
Source: Digital Commerce 360

The influence of COVID 19

In relative terms, looking at the long-term eCommerce growth we observe that eCommerce sales in the US grew from 9% in 2016 to about 11% in 2019 and was predicted to cross 12% this year 2020. 

 

However, COVID19 changed the course and probably made the industry jump 4 or 5 years into the future displaying a non-linear step-function growth with initial evidence in the US indicating an increase of over 50% in many online sales categories . 

 

With the changing consumer purchasing behaviour and the shrinking Brick & Mortar stores, the post-crisis eCommerce share of all retail will most probably be much higher than forecasted.

E-commerce share of total retail sales in United States from 2013 to 2021
E-commerce share of total retail sales in United States from 2013 to 2021

Seizing the opportunity 

the booming eCommerce attracts many businesses that would like to join and seize the opportunity. But the more retailers, the more critical becomes the need to stand out from the competition in fight for the attention of the consumer.

 

In the world of physical retail stores, the task of getting discovered is translated into real-estate and location. Be it the High-Street or the Shopping Mall, retail businesses must be discovered and make it easy for their customers to know of their available merchandise. 

 

In the digital space however, getting discovered and grabbing the volatile consumer attention, largely means turning to The Big Three websites.

In similarity to the physical world, there are two alternatives for online stores.

 

 

Online store on a Marketplace

The Shopping Mall can be compared to the online Marketplaces, with Amazon being the largest and far behind are eBay and Etsy servicing retailers. The marketplace invests in creating digital presence, so that retailers on the platform can enjoy organic traffic from consumers. However, the marketplaces often gets saturated with many retailers selling similar or same products, hence, retailers need to also use Pay Per Click (PPC) advertising plans offered by the marketplace.

 

The cost of Sales on a marketplace

For professional sellers on Amazon amounts to a significant portion of their top-line revenue when they pay fees ranging from 6% to 25% (an average of 13%) of sales. This number contains the Amazon charges include selling plan fees and eCommerce advertising fees if so chosen by the seller.

 

 

Online store as an Independent Website

The alternative to the Marketplace is the independent online shop. Most of the eCommerce in North America and the UK is using one of the following technologies; Shopify, Magento, WooCommerce and BigCommerce. There are differences in the technologies in terms of ease of use, time, cost and skills required for setting up a web-store with these technologies.

 

Regardless of the chosen technology, an independently owned web-shop requires its owner to operate and advertise to get noticed, however in this case the effort and spend goes to the other two giants; Facebook and Google.

 

The cost of Sales for Online Stores

Research shows that successful online retailers spend as much as 22% of their top-line revenues on eCommerce advertising in an effort to bring relevant shoppers to their stores.

Digital Marketing Spend
Digital marketing spend as percent of revenue

Why is the Cost of Sales going up

In contrast to Brick & Mortar, when selling online shops must ensure they are present on the first page whenever people are looking for their products. Even strong brands must keep this online presence at all times, therefore they execute a number of different activities such as creating Social Presence on Facebook and Instagram and improving their SEO (search engine optimization) to enable Google Indexing of the website that can help drive organic traffic of interested shoppers to the store products. 

 

But the biggest problem for the growing eCommerce is the supply of space on the first page vs. the demand of retailers. The ability to organically direct a substantial amount of shoppers traffic to the shops is limited. For that reason, the competition between retailers on the first-page moves to the paid advertisement, still, the limited supply of advertising space and the growing demand, constantly elevates the price of getting discovered. Which means the cost of acquiring a new eCommerce customer is constantly increasing.

 

What can the retail advertiser do

In order to stay profitable while growing sales, the digital retailer needs to crack the secret of How to Lower the Advertisement Cost (Lower PPC) and Elevate Exposure (Increase Impressions) to sell more at lower cost. To do that, one must understand the logic of the AI robots responsible for placing Ads at the chosen Advertising Platform to ensure campaigns gets high relevance score.

 

 

Amazon, Google and Facebook are doing everything to ensure their customers receive the best service. The meaning of “Best Service” however, is slightly different for the different platforms.

the Big 3
Source: Businessinsider.com

Amazon is focused on ensuring an overall positive shopping experience, therefore showing consumers with the highest scoring sellers (“Best Seller” badge) on the first page. Amazon retailers must ensure their customer ratings and reviews are high.

 

Facebook on the other hand is after ensuring their users see, at all times, the most relevant content to their interests including for that purpose relevant Advertisements. For that reason, and based on many analytics measurements, Facebook will give high quality score to relevant Retail Ads that convert well.

 

Google is after providing users with the most relevant search results. Simply put, for a retailer advertisement, if in response to a query, the user clicked on a search result in the first page and eventually made a purchase, it indicates high-relevance of the Search Keywords to the Ad Text and to the landing page on the target store-website. 

 

Ads with optimized Keyword-Ad-Landing page experience get high quality score. High Quality score will in turn make Google AI Robots prefer that Ad on others – this will Increase Impressions, and also lower the required PPC bidding cost, as the engine always looks to optimize the user experience, even at the cost of making less revenue to Google.

 

The conclusion here is that in order to drive sales up at lower PPC cost, the retailer must optimise its Ads relevance while increasing Ads exposure to ensure increasing amounts of interested shoppers arrive and buy the store products.

Photo by Franki Chamaki on Unsplash
Photo by Franki Chamaki on Unsplash

AI is transforming Marketing Technology

With the improvement of AI, more and more of the digital eCommerce advertising activities can be automated. 

 

The new dimension of possibilities opened by the advancement of AI and the availability of AI based computing resources made it possible for companies to aim at solving the other complexities of eCommerce advertising, Automating the activities of the Advertising Agencies. 

 

Although Google, Amazon, and Facebook can help tremendously by reducing complexities associated with advertising, they are not in a position to replace the agency PPC Expert. In Fact, the more advanced and feature rich are the big three, the more that is required from the PPC expert. 

 

Companies like Storeya, Cobiro, Adscale and Okiano are automating different aspects of digital advertising with varying focus on Services and Retail on the different platforms.

 

Here is some of what Facebook, Google and Okaino offer to eCommerce Advertisers.

 

Facebook AI

At present time, when it comes to advertising, Facebook focuses on using AI for smart bidding. They provide the following bidding types:

 

Lowest Cost without Cap, Facebook automatically bids looking to obtain the lowest cost results. Automatically increasing bids as needed to get the results based on a given optimization goal. 

 

Lowest Cost with Bid Cap, automatically bid to get the lowest cost and increase bid as needed to get the results, however do not surpass a specified bid limit.

 

Target Cost, tries to maintain stable, average cost at a given budget.

 

Cost Cap, will look at getting the most results possible while staying within the set cost per action. 

 

Lowest Cost witn Min ROAS, Specific bidding option for value optimization. 

 
Google AI

Google is long focused on advertising eCommerce and is taking many actions to counter the hegemony of Amazon as well as the steps of Facebook into the domain. It’s fair to say that Google is the most advanced in implementing AI based advertising algorithms.

 

Automated Bidding Google offers a variety of bid strategies where each is using AI for optimization. For example, choosing to optimise for “Maximum Clicks” bid type will make Google show Ads to users most likely to click on them, where choosing “Maximum ROAS” (Return on Advertising Spend) will work to show Ads to users likely to purchase while minimizing Click numbers. Other Bidding strategies like “Target CPA” (Cost per Acquisition).

 

Responsive ads are a type of AI managed Ads that automatically adjust their size, appearance, and format to fit available ad spaces. So a single responsive ad may appear as a small text ad in one place and a large image ad in another. To create their ads, advertisers enter their assets (for example, headlines, descriptions, images, and logos). Then Google Ads automatically creates the ads people see.

 

Dynamic Search Ads are a type of Ads that use different headlines and landing pages generated using content from the eCommerce website, which keeps your ads relevant and saves you time and forms some kind of A/B testing. Advertisers need to add a creative description. 

 

Okiano AI

Okiano is focused on using AI to automate the work of the PPC Expert for eCommerce. From creation of the Ads and Associated Keywords search terms to creating full Advertising campaigns on Google Ads by developing advanced deep and machine learning algorithms to deliver unparalleled  ROAS.

 

Creative Magic is an advanced AI technology that creates effective, great-looking ads without a designer! It’s completely automatic deducing Ad Creative from automatically crawling the online store to create hundreds or even thousands of great looking Search Ads. These Ads are then used for search campaigns and A/B testing to yield the best possible results.

 

Smart Keywords, a technology that generates a large number of relevant keywords with known search volume. This technology replaces the PPC Expert need in searching for keywords needed.

 

Campaign Builder, builds perfect campaigns in Google Ads, the Campaign Builder is using the Ads created by the Okiano Creative Magic technology and the search terms created by Smart Keywords to construct excellent AdWords campaigns optimizing the important Keyword→Ad→Landing page experience, thus, creating Search Campaigns that work from the start.

 

Sales Amplifier, sophisticated remarketing and retargeting, identification of new keywords derived from user searches and associating them with the Ads and landing pages and automatically generating new Ads that increase sales and scale the eCommerce business in a competitive landscape.

 

Budget Optimizer, AI-powered bidding is a valuable application of artificial intelligence in advertising, yet it’s an extremely complex technology to master, Okiano Budget Optimizer automatically manages Google Ads budget to the level of Keywords related to store category and family of products. This way Okiano AI is Managing Google’s AI to drive cost down and sales up.

 

 

Related Readings

Winterberry Group report
Facebook and Google Are Each Making Intriguing E-Commerce Moves
Facebook launches Shops to bring more businesses online …

Shops on Instagram

 

Google, Facebook and Amazon Are the Only Winners in Ecommerce

 

US Online Media Spend in 2019 and the Outlook for 2020

 

IAB data on US digital ad spending

 

Who Are Amazon’s (AMZN) Main Competitors?

 

AI is transforming Marketing Technology

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