In last week’s Skai post, Walmart Connect’s Advanced Second-Price Auction Focused on Relevancy, we shared insights from a pivotal WMC article regarding several new announcements:
Most notably, though, was the launch of its advanced, second-price auction for Sponsored Products and Search Brand Amplifier to help give advertisers the confidence to bid their best, with a reduced risk of overpaying.
“Combined with our recent search-relevancy enhancements, advanced second-price auction helps reduce advertisers’ risk of overpaying for cost-per-click bids, giving them the confidence to bid their best and putting Walmart advertising within reach for budgets of all sizes,” [wrote Walmart Connect’s, Dionne Resnik.]
This move to a second-price auction helps Walmart Connect’s program to be on par with other retailer publishers.
That change went into effect last week.
Today, Skai’s Senior Director of Marketing Research, Chris Costello, checked in on aggregate campaign performance insights from our clients running advertising on Walmart Connect.
“When we looked across all Walmart activity hosted on the Skai platform before and after the implementation of the second-price auction policy on 6/6, we found that average cost-per-click decreased by 19%,” says Costello. “The daily average for the six days before the switch was $0.74, and the six days since was $0.60.”
Average Cost-Per-Click across Skai’s clients running on WMC before and after last week’s second-price auction shift
Why CPCs dropped in Walmart Connect’s advanced second-price auction
We asked Skai’s Retail Media Industry Lead, Kevin Weiss, why second-price auctions are the modern-day standard for pay-per-click (PPC) media:
The amount an advertiser pays for a click is based on the market’s perceived value of that click. An auction is the best way to determine a click’s market value because it allows everyone in the market to state their perceived value in the form of a bid price. When you have a first-price auction, the market value of a click is more volatile. The difference in perceived market value between one advertiser and the next can be massive.
Generally speaking, businesses don’t like volatility, and the same applies to advertising. When the same click costs X one day and 2X the next day, many advertisers will behave more conservatively by keeping their bid prices low and letting others deal with volatile costs.
Second-price auctions, on the other hand, produce the most stable costs for an advertiser. In a second-price auction, the gap between the highest bid price and the next highest bid price is automatically eliminated. This is why we had high confidence that the initial impact after the WMC switch would be that average costs per click would go down—as the market value is now based on a combination of two bid prices instead of just one.
This effect helps the average cost-per-click stabilize over time as advertisers zero in on each click’s market value and the corresponding price the market is willing to spend on it. Eventually, advertisers gain confidence in the more stable marketvalue of a click, allowing them to gradually increase their bid prices until it reaches the maximum market value. In the long-term, second-price auctions create a higher average cost-per-click than first-price auctions while also giving advertisers what they want (i.e., less volatility).
Key Takeaways from the WMC advanced second-price auction shift
The second-price auction works in favor of advertisers. Walmart Connects switchover to the second-price auction model is the only time that we can remember at Skai of this happening. Generally, auction-based publishers either start this way or change to the second-price model during a major overhaul of their platform when many other variables are changed—a precise determination of its impact isn’t always clear.
This 19% drop in ad CPCs shows that advertisers win in second-price auction models.
As Weiss explains, advertisers base bid-to-value on factors. So if analysts or algorithms detect positive keyword performance, bids will likely go up. Marketers also have a familiar or comfortable maximum CPC for any particular program, so if their total CPCs start to go down, they may feel okay.
This is another signal of retail media’s maturation. As publishers launch in an emerging channel, standardization helps minimize its complexity, which reduces friction to quickly scale and drops barriers to attain positive performance. WMC’s shift to the second-price auction signals that retail media is becoming mature.
To learn more about Walmart Connect’s second-price auction, please visit the Skai blog post, Walmart Connect’s Advanced Second-Price Auction Focused on Relevancy.
And, for all of your Walmart Connect needs, check out Skai’s Retail Media solution—schedule a quick demo to see all of our cutting-edge innovation for yourself.