How e-commerce integrates online advertising into the supply chain and product decision-making

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E-commerce and retail specialists can no longer look directly at media metrics such as ROAS. Their world just got bigger.

In addition to the media and advertising supply chain, they need to consider product development and manufacturing as well as shipping and fulfillment.

Amazon provides sellers with Advertising as Sales Cost (ACOS) and Inventory Performance Index (IPI) metrics. These indicators take into account not only the costs of marketing, but also the costs of warehousing and fulfillment, and the costs of shipping the products. Metrics have made supply chain data a go-to metric for online marketers.

As a result, for many brands and vendors, these supply chains converge on shared data.

At Amazon, it’s important to keep your warehouse inventory flowing and in stock for profitable, organic search results to appear. Also, for in-store brands, it’s virtually impossible to deliver basic goods like candy bars and 6-beer packs to someone’s door without sacrificing profit, so place an order. The cost of treatment even affects new product development and marketing.

Advertising data is no longer just used for advertising. You must notify the supply chain of product development and execution. Data-driven marketers are also hungry for real supply chain data to enhance their online advertising efforts.

Amazon effect

Amazon is the clearest example of how ecommerce marketing has disrupted many different supply chains into one. It’s a great sales funnel.

Consider Amazon ACOS Advertising Performance Metrics (Advertising as Cost of Selling). While many advertisers are familiar with ROAS, Amazon-specific ACOS is only part of the profitability of ecommerce advertising, including merchandising, packaging, warehousing, and fulfillment. orders. It shows that all other elements are included in an indicator.

Considering only the advertising costs, the product can appear to roll off the shelves in a very profitable manner. However, given the cost of manufacturing, packaging and shipping a particular item, the brand can actually lose money.

Amazon’s Inventory Performance Index (IPI) is another cross-supply chain index that combines manufacturing and execution in Amazon’s product scoring method to determine how well the product is performing. organic searches are displayed. ..

Mattress manufacturers can take up a lot of square footage in the warehouse, so Amazon is limiting its capacity, but brands spend a lot of money on advertising and don’t put the mattress in the warehouse for days. If you keep it in stock, it can get expensive. You will be rewarded with your IPI score and your visibility on Amazon’s shopping site and space in its warehouse.

Brian Bart, CEO of Amazon’s advertising agency Canopy, said Amazon has put more emphasis on IPI scores over the past year. At the start of the 2020 pandemic, Amazon was limiting warehouse inventory as it focused on cleaning the homes it needed and delivering health supplies. However, Amazon has not relaxed those rules, and the stricter IPI appears to be a new standard rather than a temporary response to a pandemic.

“By reducing inventory capacity and focusing on IPI, Amazon is eliminating sellers with less inventory management experience,” Burt said.

This is a significant change for Amazon. Pay-to-play has always been the rule on Amazon, which has been a boon for sellers with nifty ads and keyword targeting tactics. Currently, Amazon is forcing these sellers to improve their manufacturing and fulfillment supply chains. Otherwise, you will not be able to effectively use your advertising supply chain (i.e. Amazon will provide advertising inventory to brands with a high IPI).

Experienced brands are also struggling to migrate to this e-commerce.

Trevor George, CEO of Amazon distributor BlueWheel Media, says companies that sell single or small packages of common household items like batteries and toothbrushes aren’t used to on-time sales and deliveries. These brands ship pallets of hundreds of items to retailers.

According to George, many traditional CPG brands are losing money on Amazon sales because they don’t want to sacrifice their e-commerce market share. Make a plan to get there.

Supply chain convergence is not just about advertising. Achievement-oriented businesses thrive in advertising.

Whitebox, an ecommerce media and fulfillment startup that runs an ecommerce warehouse and delivers the last miles, hired former AppNexus CRO Marcus Startzel as CEO two years ago to add a business. advertising. We look at crossover opportunities from an actual supply chain perspective. ..The company’s analytics and advertising products Called Omnifi, released in June, integrates programmatic advertising and warehouse data on Amazon.

Retail and e-commerce converge

Amazon may be the biggest example of retailers needing to take a deep look at all three supply chains, but real retailers face the same challenges and come up with their own solutions.

French grocery chain Carrefour launched an online advertising platform in June. Like Amazon, it goes beyond incremental revenue and expanding buyers’ marketing transactions.

Elodie Perthuisot, E-Commerce and Data Director of Carrefour, said:

For Carrefour, the advertising platform is part of experimenting with new forms of execution and new cost structures, from curbside collection to express delivery. Each mode of implementation entails different costs for Carrefour, in the form of employees who have to collect and package the groceries, or of bikers and drivers who receive orders in front of people’s doors.

Carrefour’s analytics services help partner brands understand what types of products are sold most effectively, based on a variety of fulfillment options. As such, brands may be successful in ordering large amounts of groceries for in-store pickup, but they don’t end up with smaller express delivery. bag.

“Improving the costs of each link in the value chain, in particular transport, as well as packaging and preparation”, is an important part of how the advertising platform can help Carrefour negotiate an e-commerce environment.

There is room for more sophistication. On Amazon, cheap items to deliver to someone’s home can turn some of those potential delivery savings into product price reductions or advertising.

GoPuff, which delivers drugstore and convenience store products within an hour, also launched an advertising platform last month. What sells effectively in stores, like impulse buy merchandising and product placement by cashiers, doesn’t always translate into e-commerce. Andy Berman, vice president of marketing solutions, said.

The GoPuff Advertising Platform, like any other intersection of advertising and retail execution, shows how the cost management structure will change as you move into e-commerce. For example, a 6-pack bottle of beer that someone collects from a convenience store can be shipped and stored more easily as a can.

Alternatively, the brand may overreact to change, Berman said. Many candy stores have large, traditional candy shelves with cash registers because impulse buying has declined over the past year (i.e. people weren’t looking for open boxes in candy bars). I suffered because I quit. However, products that seem to be declining in stores can sell well on impulse buying platforms like GoPuff.

He said using advertising and analytics services will open up more channels to re-value brands by helping GoPuff refine its overall e-commerce practices.

Advertising and e-commerce data is also climbing the business pyramid.

Previously, advertising campaigns were based on advertising data. The optimization was based on digital advertising metrics and data obtained from the media itself. Now that advertisers get data from more organizations, they can understand if they are delivering profitable business results rather than pure advertising ROI (like improved click-through rate or reach). to augment. CEOs and CFOs are as interested in the cost structure of online advertising as they are about global trends in shipping and product costs.

Agency Dentsu Merkle acquired experience e-commerce agency Live Area earlier this month. It was a rare deal to combine a media agency with a retail consulting agency that manages merchandising and creative strategies.

Petestein, a global leader in Dentsu experience and e-commerce, said Markle’s addition of LiveArea may seem like an unpleasant addition due to the agency’s different focus and billing structure. However, as ecommerce and advertising data moves up the chain, it is valued with cost and profitability data that exceeds traditional CMOs.

“We look [convergence] Within the brand organization, we will be with the Director of Revenue, the CFO and ultimately the CEO who runs the business, ”said Marklesstein.

How e-commerce integrates online advertising into the supply chain and product decision-making

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