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BusinessWeek Online - November 22, 2006
For Shopping Sites, Buyer Be Wary
Web services that offer price comparisons for popular items may accept pay for prime placement in the results rundown.
By Catherine Holahan
Online shopping offers the prospect of tracking down a great gift without the hassle of crazy crowds, pushy sales staff, and assorted mall madness. Nearly half of American consumers plan to make at least one holiday purchase online this year, according to the National Retail Foundation. That’s up from 36% three years ago.
But for all its hassle-free potential, online shopping has its share of confusions. Aside from the sheer number of online stores, there are many Internet-only shops run by untested merchants offering unbelievable—and sometimes unclear—deals. What’s more, the online comparison tools that purport to show you the best products for the lowest price are often fueled by pay-per-click advertising.
How can a consumer know which sites and shopping tools to trust? One way is to follow the money and determine whether ads or customer purchases are funding the site. The online arms of many brick-and-mortar stores exist primarily to increase sales and move their merchandise, says Scott Silverman, executive director of Shop.org, a division of the National Retail Foundation. For example, Gap (GPS) wants you to buy Gap clothing when you visit its site. It doesn’t want to direct you to clothing from Abercrombie & Fitch (ANF), or promote one designer or product over another (though it may highlight that certain items are on sale).
Dollar Determinations
As a result, such merchants have no incentive to accept advertising dollars. “Their sites are strictly about the merchandise that they’re selling,” says Silverman. “They recognize that people are going on their site to buy products that they sell, and retailers take that to heart.”
On the other hand, comparison shopping sites, product search tools, and online department stores often have advertiser relationships and sell a variety of brands (see BusinessWeek.com, 12/08/04, “Easier Shopping Around—Online”). As a result, the ways products are shown or ranked to consumers are often influenced by advertisers—if not determined outright by an advertiser bidding process. The extent to which advertisers influence results on such sites varies according to the company and its business model.
Take Guidester, for example. The company provides free comparison shopping and search tools for online retailers such as Circuit City Stores (CC) and CompUSA. When a consumer is looking for a product, say a digital camera, Guidester has a “need help deciding” button offering to help consumers choose from among all the store’s offerings. Clicking on digital cameras brings up a short, multiple-choice questionnaire to help the customer narrow the selections by such features as price, size, and megapixels.
Marked Results
When the consumer submits the results of the questionnaire, Guidester retrieves all such cameras. However, the order it displays them is decided by how much manufacturers with matching products have bid to be listed. Those bidding the most are listed first. Guidester CEO and co-founder Joe Chin says the company is enticing for advertisers because they can pitch their product at the moment when the consumer is actually looking to buy just such an item. “We’re really providing the most targeted marketing available, because customers are right there at the point of purchase,” Chin says.
That doesn’t mean Guidester’s results can’t be trusted. Though it may make its money from advertisers, Guidester also has an interest in ensuring that customers and stores receive a benefit from its tools. Otherwise, customers won’t use them, and the stores won’t allow them on the site. “We have three different customers: the end user, the retailer, and the manufacturer,” says Chin, adding that every advertiser-supported item is marked as a “sponsored match.”
Still, Guidester banks on the fact that consumers tend to believe the first listed results are the best. So do advertisers, who pay to be listed first in hopes that consumers will choose the first item they see and not look further down the list for the best deals or click to re-rank the results according to some other relevant criteria, such as price.
Plugging Partners
Other advertiser-supported sites draw a clearer line between editorial content and ads. Microsoft’s (MSFT) MSN Shopping network—a site with 8,000 merchants and more than 30 million products—sells advertising on its site but not within its search results. Thus, an advertiser can buy prominent spaces on pages having to do with holiday decorations, for example, but they cannot pay to be the first listed in a search for holiday decorations. “The editorial content is pure editorial,” says Paul Dillon, product manager at MSN Shopping.
Buy.com, a self-described “Internet superstore” with more than 2 million products, is awash in ads all over the site (see BusinessWeek.com, 1/26/05, “If at First You Don’t Succeed, Buy.com Again,”). However, most of its ads are banners or clearly labeled sponsored links located at the bottom of the page. Its products are ranked by category and popularity. “We have redesigned our site to auto-populate products based on sales of those products,” Buy.com’s CEO and President, Neel Grover, said in an e-mail. “The vast majority of our site is designed around sales rank of products.”
Still other sites and product-search tools draw no distinction at all, existing primarily to alert customers to products and deals from their partners. Vendio, the company behind the Dealio toolbar, lets customers about to make a purchase know when the same item is available for less through one of its partners, says Vendio CEO Rodrigo Sales. Partner items are ranked from cheapest to most expensive. Sales says the tool “prevents you from actively having to go out and hunt these deals down.” However, customers who want to ensure they have the absolute cheapest price may want to do more digging, since Dealio’s toolbar doesn’t scan the Web for deals it isn’t being paid to tell you about.
Traffic Zones
The same can be said about the site CyberMonday.com. Mall Networks and Shop.org launched the site to feature deals from prominent partner stores such as Nordstrom (JWN), JC Penney (JCP), and Barnes & Noble (BKS). CyberMonday, which calls itself an online mall, features the stores according to how much they paid for prominence, not who’s offering consumers the best deal. “If JC Penney has reserved that spot [on the site], they buy that spot for a set period of time,” says Kimathi Marangu, cofounder of Mall Networks. The company receives a commission on every customer who buys something from their partner stores.
Paying for prominence isn’t too different from what happens in a real mall, where companies pay premiums for prime real estate, such as a location near the parking garage or other heavily trafficked areas. In fact, many of the strategies advertisers use online are similar to the tactics used in brick-and-mortar stores. After all, many stores that sell merchandise from multiple sources decide what’s displayed out front based, in part, on who paid for the spot.
Buyers should be aware, however, that searching for the best deal isn’t as simple as typing a search term into a comparison shopping site. In many cases, it still pays to shop around.
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