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8 Dimensions You Need To Improve Ecommerce Profitability
Despite growth, ecommerce profitability is a challenge for many brands
Remember the 1990s when shopping malls were bustling with teenage mall rats munching on Auntie Anne’s? Today, many of those same malls sit abandoned. Or remember the anticipation in the weeks leading up to your dELiA*s or other catalog order to arrive? We never would have dreamed that a “buy now” button could trigger a same-day delivery.
For a segment less than 30-years old, ecommerce penetration and growth has been massive – particularly in the last few years. According to McKinsey & Co, the global pandemic accelerated ecommerce growth more in three months than it did the ten years previous. Today, most people have settled back into in-person shopping slowing the overall pace of ecommerce growth. However, ecommerce shows a steady upward trajectory with uncapped potential.
According to Insider Intelligence, ecommerce will make up nearly a quarter of all retail sales by 2025. To put it in perspective, GroupM estimates that retail media will soon represent 11% of the global advertising spend globally – a category that didn’t exist up until a few years ago.
It’s clear retail ecommerce is a channel that can’t be ignored. Even so, many companies haven’t figured out how to translate popularity to profitability. In fact, 1 in 4 ecommerce leaders surveyed by Salesforce says ecommerce isn’t profitable. And as a looming recession results in cautious spending and more careful measurement of ROI, the growth of retail media only heightens this tension.
Is ecommerce profitable? Only if you do it right.
There are many factors that can impact a brand’s profitability, including the quality of the product or service, the effectiveness of marketing and sales efforts, the state of the economy and the competitive landscape.
To improve profitability of a brand, it is important to consider a wide range of indicators and datapoints rather than relying on a single metric.
Successful brands have cracked the ecommerce probability challenge in retail ecommerce channels where they are selling indirectly to consumers.
Looking at leading brand’s success, we’ve defined 8 metrics you can measure and optimize for to improve the profitability of your ecommerce business.
8 Dimensions to improve ecommerce profitability:
- Brand Strength
- Share of Voice
- Retail Media Advertising incrementality
- Product Availability
- Price Leadership
- Content Score
- Customer Sentiment
- Assortment Strength
In the coming sections, we’ll help you understand how to measure and optimize across 8 dimensions for an overall improved ecommerce profitability.
1. Brand Strength
Brand strength can often have a positive impact on profitability. A strong brand an help a business differentiate itself from its competitors and attract and retain customers, which can lead to increased sales and revenue.
A strong brand can also sometimes command a higher price for its products because customers are willing to pay more for the perceived value and quality associated with the brand. It can also drive customer loyalty, which can reduce the costs of acquiring new customers and increase the lifetime value of existing customers.
How to measure brand strength
When you shop for your pet’s dog food or your favorite shampoo, it’s likely that you’ll type the brand or product name into the search bar. This is known as “branded search,” or search keywords that include your brand, sub-brands, or product name.
One way to measure brand strength is through the search volume across branded search terms. This volume indicates how aware prospective customers are of your brand. When customers seek products by name, customers are seeking your product alone – signaling loyalty. And loyalty is an indicator of repeat sales. But not all brands start out with loyal customers.
The first step in building a loyal customer base and improving brand strength is to attract these potential customers. And, the best way to do this is while they’re in the first step of the buying cycle, or the awareness stage.
Use upper-funnel brand awareness tactics to improve brand strength
It’s at the awareness stage that consumers are trying to solve a problem, get an answer, or meet a need. For instance, they might have sore gums and are looking for a solution, or are hosting a dinner party and are looking for inspiration to dress up their dinner table.
At the awareness stage, they haven’t yet engaged with your brand or category. Your goal is to meet them at their need so that they discover your products and keep your brand or product top-of-mind when they are ready to buy.
One way to improve brand strength and awareness is through Demand-Side Platform (DSP) Advertising.
What is Demand-Side Platform Advertising?
Demand-Side Platform Advertising (DSP) is programmatic buying and selling of advertising placements. This means it’s an automated way for brands to target relevant audiences at the right time with ads that appear on the retailer’s platform and off of the platform on 3rd party publisher sites.
Why is DSP great for top-of-funnel awareness?
DSP can help you reach audiences both on and off of the retailer’s platform, not just when they are searching on the channel itself at the point-of-purchase. Plus, advanced targeting enables you to target based on if they share characteristics with your existing customers, if they’ve browsed your category within the last 30 days, specific demographic and location data, among other targeting capabilities. DSP can help you reach new audiences at scale, although DSP benefits are not limited to brand awareness alone. Learn more about the benefits of DSP beyond this upper-funnel awareness in our DSP webinar on-demand.
2. Share Of Voice
Most customers shop using the search box. They might have a specific idea of what they’re seeking or they might be researching ideas. And their likelihood to buy depends on where brands are within the search results. In fact, 70% of Amazon customers never click past the first page of results and the first three items displayed account for 64% of clicks. If your products are pages deep in the search results, your chances of consumers converting are low.
What is Share of Voice (SOV)?
Share of Voice (SoV), or Share of Search (SOS), is a performance metric that helps compare your brand’s presence and discoverability in paid and organic search results relative to your competitors.
SOV is considered a lagging indicator because it reflects the past performance of your brand or product calculated on data about past media exposure, market share, or sales and does not necessarily predict future performance.
However, a high share of voice can be correlated with profitability. For instance, if your brand or product has a high share of voice, it might be because it is a market leader with a strong reputation, contributing overall to its profitability. On the other hand, a brand with a low share of voice may struggle to gain attention and sales in the market, which could impact its profitability.
SoV is a lagging indicator of your profitability. Learn more about Share of voice, including the share of voice calculation and how to measure share of voice in our blog.
How to improve Share of Voice
The digital shelf changes every minute, and your success hinges on how quickly you can assess and respond to any changes in how your brand is performing in the category keywords that matter most. This means you need a solution to dynamically harvest thousands of relevant keywords.
By automatically monitoring and analyzing how current search trends in various channels affect you, your competitors, and the marketplace as a whole, you can make significant SoV improvements in very short periods.
To improve your organic share of voice, you can optimize product listings to include the most relevant high-volume terms. The higher your brand appears in the top keywords, the stronger your share of voice performance.
If your competitors are heavily investing in search advertising, they might be outranking you on relevant high-volume terms and this could indicate that you might need to increase your investments.
3. Retail Media Advertising Incrementality
Recent research from McKinsey & Company found that, on average, CPG vendors allocate 7-9% of their gross sales budgets for retail media network advertising, such as Amazon’s DSP. The research also found that vendors typically spent 3-5% more than the average when focusing on growth and sales acceleration.
This is because advertising spend can have a significant impact on a company’s profitability. In general, advertising and promotions can help increase sales and revenue by raising awareness of a company’s products or services and persuading customers to make a purchase. This can lead to higher profits, especially if the cost of the advertising campaign is less than the additional revenue generated.
Wasted or inefficient advertising spend can have a negative impact on profitability. It can eat into the budget that could have been used for more effective advertising efforts. This can lead to a lower return on investment (ROI) for the business, as the spend isn’t being used effectively to drive sales or engagement.
How to effectively measure advertising effectiveness for improved ecommerce profitability
With retail media advertising increasing in both popularity and percentage of spend, it is critical that brands can accurately measure and optimize for the true impact of spend. Unfortunately, many brands are measuring this with ROAS alone, which isn’t a bad metric to track and improve against, but alone it doesn’t provide a complete view of spend.
As an example, if you’re a cereal brand determining where to invest your search advertising dollars across two keywords, you might see that one has a higher return on ad spend (ROAS) than the other. On the surface, this higher ROAS keyword looks like a better spend.
However, the keyword with the higher ROAS is also where the cereal brand is already ranking with a top-5 organic presence, meaning a large portion of the purchases occur naturally without spending. In this instance, measuring ROAS alone doesn’t account for the true dollar impact of this advertising spend.
What is incremental return on ad spend (iROAS)?
Incrementality is the measure of the true impact of advertising spending on sales. Whereas Return on Ad Spend (ROAS) includes sales that would have happened organically without advertising, incremental Return on Ad Spend (iROAS) represents sales that would not have taken place without advertising activities. Measuring both metrics provides a closer understanding of true ROI, and optimizing advertising against iROAS can help improve outcomes. Learn more about how to gain a complete view of ROI and supplement ROAS.
4. Product Availability
Product availability can impact a company’s profitability in a number of ways. If a company has a product that is in high demand and is always available for sale, it can potentially generate a lot of revenue and contribute significantly to the company’s profitability.
On the other hand, if a product is out of stock or otherwise unavailable for purchase, it can be catastrophic to lost sales and lower profitability.
In one survey, consumer packaged goods (CPG) vendors lost 20% to 30% of potential revenue on out-of-stock days throughout the year. What’s worse, is that the time your product was out of stock represents just half of the total impact.
You lose profit on wasted ad spend on an item that’s out of or about to go out of stock. And after being out-of-stock (OOS), it can take up to a week to ramp back up to your former sales volume and organic search placement. Plus, not having a product available can also diminish your search ranking, brand equity, and customer loyalty.
Fortunately, it’s easier than ever to forecast spikes in demand and prevent ecommerce profitability losses due to out-of-stock issues. Machine learning tools ensure that sellers always have reliable and channel-specific sales estimates for the days, weeks, and months ahead. These tools also make it easier to manage related OOS errors that can impact your profitability, and for which your team should actively audit for, identify and take action:
- Accurate forecasting – Predict OOS to inform vendor-initiated orders and autocorrect PO errors to increase fill rates
- Inventory-aware advertising – Predict what’s running low and redirect advertisements away from an item at risk of going OOS to avoid wasted advertising spend on items with low or no inventory
- Erroneously suppressed listings – Automate alerts and correct when products are delisted as unavailable when there is still inventory available
To prevent buyers from taking their business elsewhere, online sellers must maintain healthy inventories 24 hours a day, 365 days a year. Thankfully, managing OOS and its related impact to your profitability are not nearly as hard as it was a few years ago.
5. Price Leadership
Price is perhaps the most important lever in determining your ecommerce profitability. A company that practices price leadership my attempt to influence the prices that its competitors charge for their products or services, either by setting its own prices at a level that its competitors feel they must match in order to remain competitive, or by aggressively lowering its prices in order to undercut its competitors.
The impact of price leadership on profitability can vary depending on the specific circumstances. If a company is able to effectively set the prices for its products or services and its competitors follow suit, the company may be able to increase its profitability by charging higher prices. However, if the same company engages in price competition with its competitors and lowers its prices in an effort to gain market share, this may lead to lower profitability in the short term. If the company’s competitors do not follow the company’s lead and do not adjust their prices in response to the company’s actions, this could also negatively impact the company’s profitability.
The importance of competitor price tracking for ecommerce profitability
Tracking competitor’s pricing can make sure you don’t end up paying for dead stock or implement steep promotions.
Your price is one of the factors impacting your ability to win and maintain control of the buy box. And considering 80% of all Amazon sales are through the Buy Box, winning the Buy Box directly corresponds to your profitability.
Checking competitor’s pricing and price changes can be a full-time job, but tools exist to help automate monitoring and alerts to ensure your price leadership and make sure you keep the Buy Box:
- Track and remove third-party variants: Omnichannel eCommerce platforms can find and flag third-party variants across Amazon, Instacart, and other marketplaces.
- Create automated alerts for duplicate listings: Using algorithms to find copycat product pages with unauthorized pricing or content ensures brands create consistent expectations and experiences.
- Chart price changes as they happen: With a bird’s-eye view of your digital shelf, you can respond to unauthorized sellers engaging in artificially low pricing or price gouging before they cause significant reputational damage.
6. Content Score
When shopping for a product in-store, you can interact with it to understand its size, read the label, and compare it to other products on the shelf. Your product pages are essential at recreating this experience for the digital shelf. The listing details not only provide the details they need to make a purchase decision, they can also increase the likelihood of purchase. According to Salsify, 70% of shoppers are more likely to buy if your product content has relevant images, videos, text and reviews.
On the other hand, if your product listing is confusing or unclear, a customer might avoid purchasing it. Or, if it isn’t an accurate representation of the product, it can impact customer sentiment and reviews.
How your ecommerce product content optimization impacts ecommerce profitability
Let’s break it down the impact of product content on profitability a little further. Ecommerce product content optimization is the process of improving the content to not only make it more appealing to potential customers, but also to improve the search rankings. This is why how your content performs can impact profitability:
- Improved search rankings – Optimizing content to improve search rankings can lead to more organic traffic and potentially more sales
- Increased sales – well-written and informative product descriptions that clearly communicate the value of a product can persuade customers to make a purchase, which can increase sales and profitability
- Reduced marketing costs – By Optimizing content on a product page, a company can make it more likely that a potential customer will find the product when searching. This can reduce the need for paid advertising in some instances, which can lower marketing costs and increase profitability.
- Improved customer experience – product content that is well-written and easy to understand can improve the overall customer experience, which can lead to increased customer satisfaction and loyalty, which can lead to repeat business and therefore higher profitability
Content optimizations vary by each retailer
It’s important to keep in mind that each retailer has its own requirements and best practice optimizations for product content that can impact your success. For instance, Amazon content will benefit from 4 or more images meeting specific requirements, 3 or more bullet points, and titles up to 200 characters.
And it is not enough to simply publish this content, you must also continually optimize the content to increase conversion. Including valuable and relevant keywords across your title, description, and features can impact and influence where your listings rank in the search results.
Because each retailer requires a unique product listing from the other, and products are often optimized for seasonality or other changes, managing any variations and changes from the version of truth and monitoring how much content changes impact your revenue can help you fine-tune optimizations to maximize your ecommerce profitability.
How to optimize product detail page content
- Product Titles – A specific, concise, and clear description of the product that begins with the brand name followed by the official product name and quantity. It can include other pertinent attributes, like size, flavor, variant, color or other most important features. The title can be up to 200 characters, however, mobile listings can get cut off at 50 to 75 characters so the important information should be up front. Capitalize the first letter of each word, and avoid using special characters, and promotional and sales messages.
- Product Descriptions – Attract shoppers with a description of up to 2,000 characters that informs and engages your customers by answering the important questions about your products, highlighting capabilities, and competitive differentiators.
- Product Features – Bullets that showcase the five most important features and how they benefit your prospective customers.
- Images and Video – Connect with shoppers using a diverse assortment of 4-9 clear, high-quality images that accurately represent the product you’re selling from multiple viewpoints.
- Enhanced Content – Provide more detailed rich content and multimedia that helps tell a bigger story about the product and your brand, such as comparison charts.
7. Customer Sentiment
If the product content is what attracts and connects with customers, your ratings and reviews are what convinces them to buy.
When you search for a product like a new vacuum cleaner on Walmart, what do you pay attention to? It’s unlikely that you’re going to invest in a product that has a 2-star review or where there aren’t yet ratings and reviews.
Positive reviews can improve a company’s search rankings and make it more likely that potential customers will find and purchase the product. Positive customer sentiment can also lead to increased word-of-mouth marketing, as satisfied customers are more likely to recommend a product to friends and family.
One negative customer experience doesn’t just impact a future sale of that customer. Too many negative reviews can impact future sales of all customers, and negatively impacts your search rankings. On the contrary, a positive review can improve your rankings and overall ecommerce profitability.
If your products have a high percentage of negative ratings compared to the competition, it’s a good idea to assess and take action. For any trends, such as customers indicating the item they received didn’t live up to the expectations you set in the product description. Or maybe there’s a consistent broken or missing part that needs to be corrected. Evaluate reviews for these commonalities and optimize accordingly. In some situations it might be a good idea to reach out to the dissatisfied customers to offer a replacement or to correct the situation.
Overall, it’s important for ecommerce brands to pay attention to customer sentiment and reviews and take steps to address any negative feedback in order to maintain a positive reputation and maximize profitability.
8. Assortment Strength
Your product assortment refers to the range of products that you offer for sale. The strength of a product assortment can impact your business’s profitability in a number of ways.
One way that product assortment can impact profitability is by attracting a wider range of customers. A business with a strong product assortment is more likely to have something for everyone, which can lead to increased sales and higher profitability.
Another way that product assortment can impact profitability is through the ability to cross-sell and upsell products. If a business has a strong product assortment, it can offer related products to customers as they make purchases, which can lead to additional sales and higher profitability.
Product assortment can also impact profitability through economies of scale. If a business has a large product assortment, it may be able to negotiate better prices with suppliers due to the volume of goods it is purchasing. This can lead to lower costs and higher profits.
How to improve assortment strength for improved ecommerce profitability
The assortment you expose your customers to can increase sales and profit margin. And the right data can help you improve your assortment and overall ecommerce profitability. What are the subcategories where you do not have presence, and what SKUs are currently winning in those categories?
Data can help you stay tuned to trends at the SKU or Category level by retailer, highlight gaps in your assortment, and identify relevant categories where you do not currently have a presence. Evaluating the strength of your assortment can ensure you’re representing consumer needs as they evolve.
Measure and respond to the 8 drivers of ecommerce profitability
As digital shelves become more crowded and complicated, brands of all sizes and industries struggle to understand and respond to market trends. The value of AI-driven insights coupled with AI-powered prioritization cannot be overstated. Brands that invest in these tools can almost effortlessly pivot their sales and marketing strategies minute-by-minute. This level of agility has helped our CommerceIQ clients to see returns on their investment upwards of 4x.
Improving ecommerce profitability in today’s markets requires a technology-first approach. Brands need tools that empower them to keep up with the pace of algorithm updates and consumer demands. There are hundreds of point solutions with valuable features and benefits. But there is only one platform that centralizes intelligent insights and automations within a user-friendly, all-in-one environment.
CommerceIQ’s Retail Ecommerce Management (REM) platform helps ecommerce brands transform their business by streamlining operations, simplifying reporting, and automating tedious tasks. From Nestle to Colgate, our customers have seen incremental sales grow by 18% – with millions of dollars in incremental net profit, sometimes greater.
Benchmark your performance against the competition
Perhaps your company currently lacks the necessary tools to implement the ecommerce profitability tips in this article. Or you have disparate tools that force you to waste time manually consolidating their outputs. In either case, transitioning to CommerceIQ’s centralized eCommerce management solution will help you cut costs and significantly boost profitability.
Want to try it out? CommerceIQ Category Leaderboard is an instant comparative performance analysis of how your brand is performing across the 8 critical dimensions you need to improve profitability. This analysis is based on 5-million data points from across 50,000 brands’ ecommerce performance.
CommerceIQ’s Category Leaderboard is available for no cost, requires no credit card or subscription. See why 2,200+ leading brands trust CommerceIQ to win. Learn more and request access to your Category Leaderboard today.