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Shopzilla's New Single Rate Smart Pricing Model

This afternoon, Shopzilla officially announced to its advertisers that it will update its current Smart Pricing program to a Single Rate bidding model starting on June 18, 2013. The new Smart Pricing will utilize a single minimum bid of $4.00 per click for every product category in an effort to "simplify" the bidding process for retailers. The announcement emphasizes that actual CPCs will be a fraction of the $4.00 minimum bid, and Shopzilla asserts that CPCs will stay in line with average levels observed over April and May, as outlined in the following table:

What is Smart Pricing?

From the beginning, the main idea behind the Smart Pricing program has been to use category and product conversion data to determine CPCs that account for traffic quality. Shopzilla first rolled out Smart Pricing on May 15, 2012 to 11 subcategories and, after deeming it an initial success, expanded the program to encompass all categories as of July 18, 2012. Looking at a sampling of RKG clients in a variety of verticals, actual CPCs were between 36% and 60% of their minimum category bids after the July 18, 2012 Smart Pricing roll out. Looking at the two months prior to and then following the change, most of the clients sampled saw CPCs increase by less than 8 cents, with a fraction showing a decrease or staying the same. These figures translate to a typical range of an 8% decrease to a 23% increase.

The Single Rate and Beyond

Assuming that average CPC’s do in fact stay the same after the transition date, the impending update to the rate card should result in no real change to performance. However, the notion of having to set a $4 minimum bid across the board is bound to shock a large number of advertisers, many of which already see Comparison Shopping Engines as a pricey medium when compared to Google Product Listing Ads. With every category currently producing actual CPCs that are more than 75% below the new $4 minimum, it seems that setting a less shocking $2 minimum per click would have achieved the same result with a lower likelihood of backlash. There would still be room for substantial CPC increases during the holiday season, and any simplicity gains for the advertiser would remain. Better yet, since the minimum bid is largely irrelevant to observed CPCs, why not eliminate it completely? Instead, let the retailer choose either “yes, I would like to be eligible for click costs” or “please bid this product at $0” at the SKU and/or category level.  Shopzilla could still allow for a relative bid increase for products the seller would like to push up, and provide an expected CPC based on recent averages for that category. Our ideal scenario would be for the seller to bid whatever it deems appropriate based on a SKU’s contribution to performance goals.  Who knows better than the advertiser how valuable their traffic is?  In the meantime, a more transparent on/off option with expected CPC model could serve as a more digestible version of the new Single Rate model that's on its way. We are interested to see how the results play out and what changes we will need to make to ensure a smooth transition and maintain efficient performance for our clients.  We'll report back with our findings after Single Rate pricing is active for a few weeks. Stay tuned!
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