Managing PPC for Online Marketplaces

By — 06.07.11

Managing PPC campaigns for retailers with online marketplaces is a unique challenge. Adlucent has learned quite a bit on this front by managing the paid search campaigns of some of the world’s largest marketplaces.

I’m defining a “marketplace” as a retail website where multiple merchants sell products and so may the marketplace owner. Amazon.com is the obvious example. On Amazon, you’ll find products that are sold by Amazon and products that are sold by one or more third parties (such as “Featured Merchants”). Buy.com, eBay, Wal-Mart, and Sears are other examples of marketplaces.

Amazon as an online marketplace

1. DataVision Computer Video is the Featured Merchant
2. Other Marketplace Merchants Selling the Item

The Two Challenges of Paid Search in a Marketplace

Paid search for marketplaces is difficult because of two broad factors. First, online marketplaces are competitive and highly dynamic. The listings of third party merchants selling a certain product can change by the hour as prices and shipping costs change, inventory levels deplete, customer ratings of the merchants change, or the various algorithms that rank the listings re-prioritize them (for Amazon’s criteria, see this page).

As merchants come and go, the CVR changes immediately. Sometimes the CVR goes up when a third party merchant is selling the item and sometimes the CVR goes down. As I’ve discussed previously, as your CVRs change, so should your CPCs. This results in frequent changes based on the current status of the display merchant and the expected performance of that display merchant.

The second major paid search challenge with marketplaces is that different products, categories and sub-categories often each have different A/S or ROAS targets. These could either be the margin goals of the marketplace owner, or the commissions paid by the merchants to the marketplace owner. In a large marketplace with potentially millions of products sold by thousands of merchants at hundreds of different margins, the complexity of managing PPC campaigns for marketplaces becomes evident.

For example, Amazon might have a margin of 20 percent on an item in the Kitchen category sold by Amazon itself. However, if a third party merchant was selling that item, Amazon’s margin might be 15 percent, which is the commission charged by Amazon to the third party merchant. These different margins allow for different bids.

How Adlucent Supports Marketplaces

To maximize the efficiency of paid search campaigns for marketplaces, the keys are scalability, predictive capabilities, and rapid response. At Adlucent, we’ve made sure that our software can process updated pricing, merchant and margin data several times per day, for millions of products and merchant combinations. Based on these feeds, we then model expected changes in CVRs and adjust CPCs accordingly to drive profitable revenue growth. We’ve also created custom bid management algorithms based on the unique circumstances of marketplaces. The algorithm takes into account the historic performance of third party merchants and varying margin information. In our view, this is the only way to effectively manage paid search for dynamic marketplaces.


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