Beyond Just Ad Revenue: The Value of Commerce Advertising for Retailers

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Commerce advertising offers retailers an exciting new revenue stream by leveraging
existing assets:

• Manufacturer relationships
• High-value, in-market online shopper traffic
• Rich first-party purchase data

While Amazon Advertising’s estimated $10 billion in 2019 revenue is certainly an eye-popping opportunity for retailers, the value of commerce advertising extends beyond just short-term revenue.

Stimulates commerce

Beyond the revenue that commerce advertising generates, the real money might be in the sales generated—and the retailer’s split—by these ads.

Consider Amazon’s $222B in 2019 US e-commerce revenue versus it’s $10 billion in ad revenue. Only Amazon knows what percentage of its sales is incrementally driven by its commerce advertising, but the power of advertising to drive sales is undeniable and it would be counterintuitive to assume that these ads would be insignificant to Amazon’s bottom line beyond simply ad revenue.

Relevant ads improve the customer experience

For the most part, commerce advertising is managed by manufacturers to market their own products. As a result, customers now receive enhanced recommendations throughout their shopping experience. Essentially, these ads are “strategically curated” by the marketing teams of the manufacturers that pay for them.

After all, who better to understand which messages and images to present to targeted consumers than the brands that make those products? Manufacturer marketing teams understand the right keywords to match to ads and know which images are most useful for consumers as they research. An online marketplace doesn’t typically have the expertise nor staff to curate ads at scale to ensure that they are targeted to the right people with optimal ad creative. In most cases, ads managed by individual manufacturers might offer a better customer experience to guide shoppers through their purchase journeys.

New manufacturer partners who want to be more involved

Commerce advertising isn’t just for household name brands anymore. Other categories that haven’t traditionally sold online are joining the ranks of more recognizable brands who want to disintermediate distributors and be more active with direct-to-consumer (D2C) models and the goal of stimulating ecommerce sales which are growing in double-digits year-over-year. This all equates to incremental investments in commerce advertising, driving greater growth for commerce publishers.

Not just short-term revenue, high-margin revenue

Digital advertising doesn’t necessarily require a retailer to warehouse stock, deal with shipping/breakage/theft/spoilage.

As pointed out in the eMarketer article, Why Retailers Are Getting into Digital Media, the margins are very high and the revenue value of commerce advertising is significant:

“Digital ad revenues aren’t just revenues— they’re highly profitable, with a more favorable margin profile than the typically thin-margin retail business. Consider that leading digital ad platform Facebook’s gross margin is over 80% and Google’s is over 55%. Walmart’s retail-dominated business, by contrast, is under 25%.”

Are you getting the full value of commerce advertising?

Other retailers besides Amazon and Walmart have brought commerce advertising solutions to market and more are set to launch or improve their offerings in the next year or two. Commerce advertising enables manufacturer marketers to encourage sales on ecommerce marketplaces as shoppers browse those online stores. And—at least on Amazon—conversion rates can be higher because consumer confidence in a retailer’s customer service is often higher than via the brand’s D2C site (for better or worse).

Leading brands and agencies—as well as retailers making the transition to be publishers—leverage Skai Ecommerce’s advanced optimization, analytics & automation solutions to get started quickly, navigate new ad formats, and drive growth.

Contact us today to schedule a brief demo to see how we can help.

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