Pay for placement
Posted on January 25, 2008 by Martin Zagorsek
In the physical retail business, it’s common for manufacturers to pay retailers to get the best shelf space. The most common way is called “co-op” or MDF (Market Development Funds), the manufacturer pays the retailer cash that the retailer spends on local ads or other promotional programs to help sell the product. A more extreme version is a slotting fee that a manufacturer sometimes has to pay simply to get their product onto the shelf.
The practice has recently spread to the e-commerce world, facilitated by companies like Guidester. In the old days, when you visit an ecommerce site and type something into its search window, the results you get are ranked by relevance, using some type of search algorithm. What Guidester offers e-retailers is the ability to sell placement in their search results, on a pay-per-click basis. Kind of like Google AdWords, except in the main results rather than alongside them.
Search results for “digital camera” at ritzcamera.com
This of course degrades search results - the whole reason Google runs paid ads alongside their regular results, and never mixes them. Google also gives preference to ads based on relevance to the search keywords. If retailers start selling their search results (via brokers like Guidester) to the highest bidder, you could easily get completely random stuff showing up instead of the products you were looking for (see screenshot above).What will keep this from getting out of control is the same thing that motivates Google - when you only get paid for click-through, you care whether see things they’re interested in. The same thing keeps retailers honest with co-op and slotting fees, the product does have to sell for them to make money, so they won’t put just anything on the shelves. And if they play their cards right, e-retailers can get some extra cash for selling stuff they would have sold anyway.
The real losers are smaller manufacturers - for a while it looked like e-commerce would level the playing field by making more obscure products readily accessible to consumers. But if e-retail search results are sold to the highest bidder, consumers will have a hard time finding smaller manufacturer’s products even if they’re looking for them. It’ll be interesting to see whether e-retail goes all the way and mirrors the physical world, or whether some new twist will throw everyone for yet another loop.
Sphere: Related Content» Filed Under Content Driven Commerce
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