The Cost of Traffic is Increasing Whilst Product Value is Decreasing in eCommerce
It’s a brutal but honest truth. Consumers have been conditioned and bred to believe that price reduction is the highest form of “value”. There’s no doubt that Amazon is having a negative impact on our culture as consumers, being the biggest player in the market comes with ethical responsibility. Premium products might survive, but they won’t thrive in the Amazon A9 Algorithm ecosystem.
Perceived Product Value Reduction
The truth is Product Value is diminished in the eyes of the consumer by a number of factors. Amazon not necessarily at the centre of all of them. Much of the issue in the world of Private Label Amazon is that the market is flooded by cheap ‘direct from china’ product retailers and the endless flood of failed Amazon Private Label Sellers who are liquidating huge amounts of stock on a continuous basis.
The endless swathe of new entrants, followed by swift exits is putting a surefire strain on the market.
Deal shopping is an obsession
I haven’t even mentioned the obsession with low-cost deal shopping that Amazon encourages both on the seller and the buyer side of the equation that throws the consumer into a whirlwind of expectation, where they feel they’ve been ripped off if they’ve paid full price!
You get the picture.
Your product in the eye of the consumer is having it’s value torn to shreds by the systematic stripping of a product right back to it’s bare essentials.
All of this emphasises the need to use the tools at our disposal when selling on Amazon as effectively as possible. But fundamentally, Amazon is majorly in control of the customer experience (the essence of your brand in the eyes of the customer).
Ok. It’s all sounding doom and gloom so far.
On a positive note, anyone selling on Amazon faces these same challenges. Trying to enhance the perceived value of your product whilst playing on someone else’s marketplace is simply THE challenge we’re all facing. Equally, we all have the same levers and tools (ish).
Meanwhile the cost of traffic is a risk, and an opportunity…
The cost of traffic…
What does that actually mean?
I’m including the following in “traffic cost”:
- Amazon Commission rate (yes, this is a price you pay for organic traffic, pageviews and sessions from Amazon)
- Amazon PPC (a little more obvious)
- Facebook Advertising
- Google Advertising (Ads and Shopping)
- Email Marketing (email capture mechanism and software)
- Content Marketing (if you’re doing it properly)
Andrew Youderian’s State of the Merchant report provides some really compelling numbers on the cost of traffic. The report is the culmination of survey data gathered by the CEO of eCommerce Fuel from a broad range of eCommerce businesses.
I’m completely translating from RoAS (return on Ad Spend) to real Dollar amounts, but that’s just because it makes it all the more compelling
Facebook Ads
Median 3.0 X RoAS
That’s $10 Ad Spend to sell a $30 product
33% of the product cost is consumed by FB Advertising
An increase of 19% in the RoAS from the previous survey (2018)
Amazon PPC
Median 4.0 X RoAS
That’s $10 Ad Spend to sell a $40 product
25% of the product cost is consumed by Amazon PPC
An increase of 16% in the RoAS from the previous survey (2018)
Google Ads
Median 4.0 x RoAS
That’s $10 Ad Spend to sell a $40 product
25% of the product cost is consumed by Google Ads
An increase of 10% in the RoAS from the previous survey (2018)
“…This is double digit percentage growth year on year in the cost of paid traffic…”
Amazon Sponsored Traffic is increasing it’s share of overall traffic
Growing from 4.0% of overall traffic in July 2017 to more than 11.0% of traffic in July 2019!!!
WOW
If that translates into cost (which I strongly suggest it would), that means margins have eroded by an equal percentage. Of course, everyone has increased their prices by more than 7% in the last 2 years, so we’re all ok…
Traffic costs are going to continue to grow.
We’re not at “peak Ad cost” just yet.
So…
How the hell is this an opportunity?
Well, there are still some old school methods which can deliver traffic at a fraction of the cost of Paid Ads.
And the more expensive other forms of traffic get, the more attractive the cost effective and sustainable one’s start looking.
There is buyer traffic OUTSIDE of Amazon and Facebook
There are fund managers and investment managers out there who exclusively trade “content websites”. These websites don’t actually “sell” anything.
They don’t have their own products.
They don’t have an eCommerce component.
These sites generate their revenue through… you guessed it – the money you’re pumping into paid advertising!
It’s such a lucrative industry BECAUSE of the margin erosion and escalating advertising costs in the eCommerce industry.
These sites are selling for multi-million dollar deals. All the time. Not just the “occasional” one here and there. Institutional investors and pension fund managers are getting involved – it’s “The Traffic Gold Rush”
eCommerce businesses cashing in on the Traffic Gold Rush
Content sites can make so much because their traded resource is traffic, and eCommerce businesses will pay a bunch for buyer traffic.
Content sites are also phenomenal at scaling and bringing in high volumes of traffic, meaning there’s not as much pressure to deliver the sale right off the bat. Conversion rates can afford to be a lot lower, as long as it’s made up for in ultimate volume.
Low conversion rate doesn’t necessarily mean BAD.
The truth is. On Amazon we’ve been conditioned to act like a sex depraved speed dater on viagra. At the ring of the bell, we’re asking for [cough, cough] “The sale”
When in fact, the whole principle of content marketing is about “funnelling” would be customers through a journey of know-like-trust-refer.
Content sites have Value-First built into their DNA
Read anything on building content sites and there’s an determined focus on “providing value through high quality informational content” alongside any “buyer intent” content.
It’s a relationship.
It’s taking back control of the customer journey.
It’s just good business.
So how do you cash in as an eCommerce business owner, or more specifically an Amazon Seller?
Answer: Become your own advertising platform.
Yep.
Build or Buy a Content Site (otherwise known as an Affiliate Site, Media Property, Authority Site, Niche Site and bunch of other terms)
Run your own in-content Ads
Create content that’s useful and ultimately convinces the visitor that they should “go to Amazon and buy your product WITHOUT even searching the Amazon algorithm”
Some of you are thinking: “Holy shit. You can do that?”
Yes.
When you’ve price anchored the value through YOUR content, the customer is now conditioned to view their purchase completely differently to the “must get this at a discount or next to nothing” mindset.
Pay for Traffic or GET Paid for Traffic
I know which side of the fence I’m pitching up.
The question is, where are you going to position yourself?
Pay through the nose for traffic?
Or get low cost, sustainable, consistent traffic – paid for by others?
But I’ll never get as much traffic as Amazon?!
True. But you don’t need that much!
Sell 30,000 units a year?
So at 3% conversion rate, you’ll need 1,000,000 website views per year.
That’s not small, but it isn’t huge either. Check out some affiliate websites over on Empire Flippers marketplace and you’ll see plenty of sites delivering WAY more than 1M views a year.
That’s compared with Amazon’s BILLIONS of views per year, per category!
Conclusion
- Articulating product value is getting more difficult, especially on Amazon – there’s no real opportunities for differentiation.
- Amazon is conditioning the consumer to devalue your product.
- Traffic costs are escalating at a great rate and we’re not at “Peak Ad Cost” yet, probably a long way from it.
- Content sites offer traffic at a fraction of the cost of Paid Ads (not forgetting Amazon’s commission on every sale)
- Content sites are also a way of capturing would-be customers earlier in the buying cycle and delivering value.
Which side of “The Traffic Gold Rush” will you choose?
