Merchants, CPC calculation changes on Google Shopping

19 March 2018

In June 2017, the Competition Directorate in Brussels fined Google a record €2.42 billion and asked it to review the operation of its Google Shopping search engine. Indeed, 19 price comparison sites have been fighting for years to prove Google's dominance in the price comparison sector, and Europe has proved them right.

The genesis of the conflict

In 2007, Google launched a new information indexing tool called Froogle and later Google Product Search. The service was the complete opposite of a price comparison service. First of all, it was totally free and did not offer the listed e-tailers a better positioning in return for a fee. Google Product Search quickly became Google Shopping when the Mountain View firm offered a paid version of this advertising space.

At the same time, Google is said to have revised its SEO ranking algorithm (which would have had an impact on the ranking of price comparison websites) and to have given direct access to Google Shopping from its results page. It is the correlation of these two events that the European Commission believes demonstrates an abuse of position.

At the end of 2017, Google therefore complied with the EU by offering price comparison sites the possibility of displaying their catalogues on this advertising space in the same way as other advertisers.

A first update without much impact

This first update by Google did not have a big impact on our clients' results. Indeed, in order not to penalise the e-merchant and not to confuse the Internet user, Google only proposes the advertiser's offer once.

For example, if a table and chair set is published by a merchant via Google Shopping and via Leguide.com with the same level of CPC and with the same quality of feed, Google Shopping will only display one offer.

An update on the calculation of the CPC

For the competition authority, this update was not sufficient. Indeed, it wants Google Shopping to be put on the same footing as other price comparison services.

It therefore asked Google Shopping to take a margin on the CPC as any other platform could.

This update in the Google Shopping help best explains the new way of calculating the CPC from Google Shopping:

How do I know how much CSSs bid in the auction on my behalf?
CSSs typically report the number of clicks sent to a merchant and the cost charged per click. Depending on their pricing scheme, they may also report additional information or share detailed bidding data. Google Shopping also reports the number of clicks sent to a merchant and the cost charged per click, together with other metrics. Google Shopping is required by the European Commission to be independently profitable. Google Shopping currently ensures profitability by deducting a fixed percentage margin from each merchant bid before entering it into the auction. The margin is included in the CPC paid by the merchant and is charged only when a user clicks on one of the merchant's ads. In general, we recommend that merchants compare cost and returns of different marketing channels to assess which ones work best for them.

In fact, the final CPC paid by the e-merchant will not change per se. Before, on a CPC of 0.10€, 0.10€ went into the pocket of Google Adwords. Now, with this new update, Google Shopping must take a margin on the CPC.

The margin level of Google Shopping is of course not communicated, but on a hypothesis of a 10% margin on a CPC of 0.10€, it is 0.09€ that goes into the pocket of Google Adwords and 0.01€ into the pocket of Google Shopping.

What impact does this have on e-tailers' results?

At first sight, we can say that this update will have no impact for the e-merchant as the net CPC paid on Google Shopping will not vary. However, what we understand from this new operation is that the reference CPC for competition between comparators remains the Adwords CPC and not the Adwords + Shopping CPC. As a result, competition between price comparison sites and Google Shopping will become tougher.

Logically, the share of voice of price comparison sites should increase for the same CPC level. In turn, if you want to maintain your share of voice, you will have to increase your Max CPC.

To measure the impact of this update, we recommend that you monitor the "ClickShare" indicator available in your Google Adwords interface. ClickShare is the number of clicks generated on the Search Network divided by the estimated maximum number of clicks you could have recorded.

If you wish, ask one of our shopping experts to help you in this process!

Source 1, Source 2, Source 3

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