Shopping comparison questions answered

I recently received a couple inquiries from people interested in the shopping comparison industry for academic studies as well as new business development. I decided to make the answers to some questions and the discussion around the industry an open conversation not constrained to e-mail. I hope you find the information below useful insight into the shopping comparison industry. The text in blockquotes contains questions sent to me via e-mail from a MBA student at the University of Maryland regarding large shopping comparison sites, PriceGrabber, and NexTag and the industry as a whole.

Competitive advantage: My observation is, to a large extent, most comparison shopping bots provide similar information. How do the different players develop competitive advantage over others?

The first metric is the breadth of merchants offered at each site. Is a visitor confident their purchase is at a low price from a reputable merchant? In the early days, 1998-2000, shopping comparison sites competed against sites such as PriceWatch that searched all merchants regardless of reputation and the ability to deliver on an advertised price. This frustration led to the introduction of such shopping comparison features as tax and shipping calculations on the product page, and merchant review pages to report companies that would advertise $5 shipping for a stick of RAM and charge $20.

Even if every shopping comparison site was a white-label of the exact same backend with the same features they would be able to differentiate themselves based on their approach to search results, inbound traffic acquisition, cobrands, and targeting audiences of lifestyle sites.

Service offering: Comparison shopping bots are making choices in presentation of information. For example: PriceGrabber shows all the merchants that provide the product and their prices while shows only a few - Is this for differentiation?

Each site varies their search results based on a number of criteria such as cost-per-click or cost-per-lead paid by the merchant, premium merchant programs such as a logo or premiums such as a site certification, and user-contributed data such as reviews, click-through rates, and completed purchases.

A shopping comparison site is a targeted advertising platform for participating merchants. The goal of the comparison site is simply arbitrage: receive a higher average payment for each outbound than your cost for an inbound. Reducing the number of merchants displayed on a page and selling that placement for 4 times the cost-per-click of a full offering allows for higher profits and/or more effort applied to inbound traffic for the comparison site.

Service offering: On several occasions, PriceGrabber lists coupons along with other information while NexTag and do not. Why is PriceGrabber able to provide such valuable information while others are not? Can they not replicate it as it is difficult or are there other reasons.

PriceGrabber has offered rebate information on product pages for over 5 years. We found that rebate information would circulate on message boards and coupon sites and were a main driver of product popularity and increased completed sales from merchants. Rebates come with a lot of conditions such as date ranges, and in some cases are restricted to only authorized brand resellers and can be a customer service pain for many sites. You also need strong database normalization to achieve good matches between your own database and an external data provider such as a rebate company. Most buyers will factor a rebate’s savings into the total cost of the item but I remember reading statistics years ago that only 10% of all rebates involving cutting a UPC are ever redeemed, but the rate increases to about 30% when an item is free after rebate. If the buyer does not receive their rebate will they feel deceived by the manufacturer or the shopping comparison site that heavily influenced their shopping decision?

Industry evolution: PriceGrabber recently introduced travel service while NexTag introduced mortgage. Do you think this is a classic struggle between more generalization versus specialization? What are your thoughts on how the industry and services are evolving.

Mortgage and travel categories are two examples of shopping comparison sites offering both product and service shopping comparison in an attempt to be a one stop shop for buyers. Mortgage and travel are search verticals with an extremely high payment for every lead. Advertisers are currently paying Google an average cost per click of $36 to advertise on search result pages for the term “refinance.” Imagine how that number increases when you provide an advertiser with additional information such as property location, loan amount, yearly income, property value, and an e-mail address. The average $36 a lender is paying to Google for a user clicking on a text ad is worth a lot more to a lender with this additional information and NexTag submits a loan lead to 4 lenders at once. Lead generation in the service sector is definitely a lucrative business.

The service industry requires licenses in each state before a site such as NexTag or PriceGrabber can offer comparison services. These legal hurdles take some time to get right, and I expect many shopping comparison sites are simply waiting for the right paperwork to be approved before introducing their services.

Ultimately these sites will follow sectors with the highest payment per lead with minimal costs in their attempt to optimize the arbitrage game of comparison shopping.

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