Retailers that carry online advertising both open up a valuable revenue stream and serve customers better, argues Henry Eccles of Google. Jonathan Wright reports
When retailers set out to go online, building an ecommerce operation is self-evidently the main priority. Yet this isn’t all that’s being built. In the words of Henry Eccles, Google’s head of ecommerce-publisher partnerships, an ecommerce presence is also “an online media asset”. Think of the way, for instance, M&S.com, after initial teething problems, successfully combines content with commerce to engage customers.
At which point, many who work in the retail sector will roll their eyes and point out that the idea of retailers being more like media companies is nothing new, we’ve been here before. Except have we? Intriguingly, Eccles’ focus isn’t primarily on content, but advertising.
“Those browsing on websites of the Guardian, Telegraph or Mail are in a very different place to those on retail sites, who are in an intent-driven state at the point of purchase – and reaching shopping ‘intenders’ is the holy grail for most advertisers,” he says. “Do you actually want to target your advertising at someone who is at the point of purchase, where you can actually have an immediate influence on their purchase decision, what they might buy?”
The answer to this, from an advertiser’s perspective, is almost certainly yes. However, for many retailers, and for deep-seated cultural reasons, Eccles’ words may seem counter-intuitive. Just as offline retail is about trying to tempt people into the store, online retail is about trying to tempt people to an online destination. Why employ techniques that tempt potential customers to leave a site?
Do the maths
The numbers are one major reason. It’s been estimated online retailers generate 7.5bn page views a month, as against 3bn page views for news websites. While, according to a 2015 report by OC&C Strategy Consultants, Creating Value From Every Visit, news sites generated £400m in a year from search, display and trade advertising, retailers generated just £150m from the same sources. “British online retailers are missing out on an estimated £1bn worth of advertising revenues by choosing to not sell advertising space on their own websites,” claimed OC&C.
What should we make of this figure? To return to the idea of customers leaving a site, there’s no point of generating advertising revenue if a retailer is losing sales. Retailers’ fear of “cannibalisation” [see boxout], Eccles thinks, is overstated. “What we see, through a number of different methodologies, is that just doesn’t happen,” he says. “We’ve seen people that click on ads on retailer’s sites are actually more likely to then convert on that [original] site than they are on any other site, and the rationale for that is those that actually do click on ads are further down the purchase funnel.”
Besides, it’s worth remembering that it’s the retailers selling the advertising. It’s relatively straightforward to put blocks in place, so that, for example, a supermarket doesn’t carry advertising for a direct competitor. (Eccles: “You’re not likely to see ads for eBay on Amazon or for Amazon on eBay!”) In addition, retailers can carry out AB testing to measure the effect of advertising on the core business.
Finally here, it’s not as if big retailers don’t enter into these kinds of advertising agreements in the offline world. Think of supermarkets. “There are often very strong and lucrative trade marketing agreements in place between retailers and their supplier bases,” says Eccles. “These trading deals exploit the knowledge that without the paid merchandising support of the retail channel, it’s very difficult to drive any meaningful sales volume of a given product.
“There’s a good reason why all of the branded products are at eye level when you go into a Tesco store. There’s a good reason why all of the peripheral or tier two brands are at the bottom of the shelves or the top of the shelves. There are a lot of merchandising agreements in place. A lot of point-of-sale advertising goes on in the offline world, that has just not translated at any scale yet to the online world.”
One way to translate this kind of agreement to the online world might be to use advertising to drive people to a page on the site devoted to a particular brand. “That’s not hurting (1) the user experience or (2) commercial behaviour, it’s actually aiding and abetting the conversion behaviour,” says Eccles.
There are other analogues. Think of the panels on shopping trolleys. Now think of the white space that’s so often evident when you’re checking out online at a supermarket site. For companies such as those selling toothpaste or shower gel, which often have difficulty getting messages across online, this kind of advertising real estate seems an obvious place to try advertising because, as Eccles has already pointed out, customers are already at a point where they’re spending money.
“A huge quantity of offline advertising [the trade-marketing budgets] has just not migrated online and represents a huge, huge opportunity for retailers, especially in FMCG where traditionally it has been hard to justify digital spend,” says Eccles.
The Amazon factor
In the context of groceries, it’s worth noting that one retailer already carrying advertising has lately entered this sector of the market: Amazon. Eccles couldn’t be clearer about the competition the US behemoth poses. “The margin on advertising spend, it’s high yielding,” he says. “If you’re a retailer, it’s supplementary, it’s an ancillary revenue stream. My view is that retailers need to wake up to the idea that they have very large, unleveraged media assets. They look around and see Amazon beating them to the punch in core retail, it’s now beating them to the punch in doing media as well.”
Again, there are wider analogues between the online and offline worlds. Think of something as simple as having a café in a big store. It’s both a way to draw customers in and, in itself, to drive extra revenue. Now think of what Amazon does in the online world. It can’t sell you a cup of hot coffee delivered by drone (yet), but it can sell you instant access to a movie. It’s a retailer, yes, but it supports its retail operations through other revenue streams.
“Amazon sell a lot of stuff but their depth in any category is limited and the reason they can get you the best price, the best terms, is because they’ve got all of these other ancillary businesses,” says Eccles. “They’ve got media, Marketplace, content and Amazon Prime. Right now, being an online retailer shouldn’t be seen as being as simple as selling products.”
Already, big retailers in the US, including Walmart, Macy’s and Sears, are starting to copy elements of Amazon’s approach. If Eccles is right – and the fact that Amazon is already generating more than $1bn a year from media revenues suggests he is – UK retailers need to follow this example sooner rather than later.