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Coming from the other end (after someone clicked an ad), I got to say: ads work well. The metric used @work is: cost of sale. The merchant pays for each click
by chokma 7y ago
Coming from the other end (after someone clicked an ad), I got to say: ads work well. The metric used @work is: cost of sale.
The merchant pays for each click on the ad that is redirected to his product page. What seems like a recipe for wasting incredible amounts of money on an army of click bots is working - because the merchant defines a target cost of sale for those clicks, meaning for example he expects a sale worth 100$ when spending 10$ on ads (a cost of sale of 10%).
And the merchant will set a budget and won't repeat/continue a campaign beyond those costs, so it is in the ad publisher's best interest to deliver real paying customers instead of an army of bots.
Cost of sale is of course different for each product category - clothes and perfume have huge margins (so the merchant may be willing to pay 30% of the final sale price for advertising costs), computer parts less so.
In the case of ebay and amazon and other large retailers it's common to not pay per click but for a percentage of an order's total volume (x% of shopping basket's value once an order is placed). In that case, we have to trust the retailer to deliver correct sales data to us.
- tempestn 7y agoBut doesn't this ignore the selection effect discussed in the article? IE to use your numbers say you get a $100 sale for every $10 spent on ads. And say your profit margin (outside of ads) on that sale is 20%, so you earn $20-$10 = $10 in profit. However, what if 3/4 of the people who clicked on your ads would have found you anyway, through organic search results or other means? Then that $10 spend only actually generated $5 in net income before ads, or a $5 loss after the cost of the ads. It's tough to say what that number is without doing some testing, but the point is that you can't simply treat all the business coming in via ads as attributable to the ad spend.
- dontich 7y agoAlmost all tech companies run lift studies / incrementality tests on all of the largest channels. For net new users, the incrementality is usually quite good. (for SEM-Brand and other high intent traffic, not so much... )
- chokma 7y agoTrue, you could very well cannibalize your own advertising efforts. I think that may be a problem for brands who already advertise themselves. For example, I agree it makes no sense for Ebay to place an ad for the search term "ebay" if they are already the first search result. If you have a well known brand, you will have a lot of people who will search you out directly. In that case it's a matter of running campaigns and see what sticks - if you spend 10% of your budget on an agency's ad campaign, and very few new customers turn up, you may be wasting money. But if you have a small to medium online shop, I think it makes sense to have someone run ad campaigns for you on as many domains as possible - and pay only for high quality traffic. If you re-sell shoes from Nike, you will have a very hard time getting a click from someone who would have bought at your shop anyway, because your competitors will pay for Google PLA and other ad campaigns and anyone who is looking for a good offer will run into their ads.
- user5994461 7y agoSince you're taking the example of Ebay. When Ebay doesn't pay for ads, the top paid result Amazon most of the time. When Amazon also runs out of ad money, it's a less reputable site taking the top site, sometimes a plain scam.
- jmeyer2k 7y agoI think the selection effect is much larger for big, well-known companies. Everyone knows eBay, so advertising is obviously going to give decreasing returns. For smaller, lesser-known companies, I think advertising is much more effective. The chance is much lower that people will know about your product and buy it than if you spent more on advertising.