Avoiding the Google Shopping Death Spiral

By Scott
TOPICSFeatured, Google, Product Ads
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Your competitors love it when you overprice your products, sabotaging the corresponding Google Shopping campaigns and sending them into a death spiral. The fallout generally follows this pattern:

Immediate Impact of Being Priced Too High

When your pricing is flawed, shoppers will be less likely to click on your Google Shopping ads. We’re not talking about a slight decrease, either.

Here’s an example of what we typically see when we audit a Google Shopping campaign and control for price competitiveness. All things similar, there’s a huge penalty for not being the cheapest when compared to neighboring sellers.

Illustration of how impactful a low price can be on click through rate

The Impossible Choice

When your click-through rate is low, Google will immediately reduce your ad’s visibility, which creates a double-whammy. You’re then left with two awful choices. You can raise bids to give your ad continued visibility, or you can do nothing and watch your revenue decline.

The 80/20 Rule Myth

The 80/20 rule, when applied to ecommerce, suggests that 20% of your products will generate 80% of your revenue, and too often, advertisers settle for this “reality.”

What we’ve found time and again, however, is that when something resembling the 80/20 rule is in effect, most of the 20% that’s selling well is priced very competitively, and most of the 80% is not.

This is a good time to bring up Occam’s razor, a problem-solving principle suggesting that when presented with hypothetical answers to a problem, you should start by evaluating the hypotheses that makes the fewest assumptions.

In other words, when you’re trying to diagnose poor performing products on Google Shopping, your first question should probably be: are we priced competitively?

Our 21 years of experience has allowed us to establish a predictive scale that anticipates how your pricing will influence your advantage against competitors. It looks like this:

When you’re not priced competitively, you’re at a disadvantage. And when you’re at a disadvantage, return on ad spend will decline. By a LOT.

When Return on Ad Spend Declines

What do most advertisers do when return on ad spend is in the gutter? They cut budget from the poor-performing campaigns and plow money into the high-performers.

This is a great way to improve campaign efficiency, but as a result, revenue and market share are likely to decline. Gross profits then decline, too, impacting the health of the overall business.

Won’t Lowering Prices Kill Gross Margins, Too?

Absolutely. If your pricing strategy is simply to undercut the competition at all costs, you’ll be entering a different kind of death spiral.

The best approach is to assume there is an optimal price for every product in your catalog; it should maximize revenue, return on ad spend and total gross profits at the same time.

Use competitive price reports and dynamic Google Shopping feed labeling to gain a performance edge

EXCLUSIVE Can Help

Our marketing experts and engineers are constantly looking for new ways to give our clients an edge. This year we rolled out a new competitive price optimization solution that could bring dramatic performance improvements to your campaigns.

Our new solution:

  • constantly compares your prices to relevant competitors on Google Shopping.
  • allows you to quickly increase or decrease bids based on price competitiveness.
  • recommends price increases or decreases that you can implement immediately.

You can request your EXCLUSIVE analysis today, and be sure to ask for your demo of our new competitive price optimization solution!

Featured photo credit: Comfreak