Three Input Metrics That Are Better Than Market Share In Measuring E-Commerce Success
September 24, 2020
Andrea K Leigh is the Strategy Lead at Ideoclick. A 10 year former Amazon veteran, she is an avid eCommerce enthusiast, writer, and speaker.
A representative of a large global beauty brand recently said to me, “Our strategic goal for Amazon this year is to gain our fair market share.” I’ve written previously about how while market share might work to measure your brick-and-mortar business, it’s a deeply flawed metric on e-commerce sites such as Amazon, Target and Walmart.
Market share is an output metric (often uncontrollable), and you should use input metrics (controllable) to measure your effectiveness. Market share also assumes that customers shop online by aisle, like at a brick-and-mortar grocery store. However, in e-commerce, customers are presented with products across many categories throughout their journey. Lastly, market share assumes a fixed category size, but there are a near-infinite number of products on e-commerce retailer sites.
Market share is a tried-and-true success indicator for many companies with strong brick-and-mortar backgrounds. However, as I learned during my time as a senior executive for Amazon, success in a brick-and-mortar doesn’t translate to success online. Different strategies are necessary, and that means different measurements. If you’re focused on growing an e-commerce business, it’s time to update your key performance indicator toolkit or risk being unsuccessful.
Here are the three components to a healthy e-commerce business and the KPIs you need to measure:
1. Retail Readiness
Retail readiness metrics are the underpinnings of a successful e-commerce business. As the name indicates, they measure your “readiness” for success. There are three main components to retail-readiness: product detail pages, supply chain and pricing.
Product Detail Pages
Unlike brick-and-mortar operations, the details you submit electronically flow through and often become customer-facing. Are your items properly and accurately set up in the retailer’s digital catalog? Do your product detail pages contain the information customers need to make a purchase decision?
Your products also need to be categorized correctly in browse nodes so that customers can find them. On Amazon, categorization drives search suggestions, which are the categories that typically appear when you type in a search term (for example, you type in “colored pencils” and Amazon auto-fills with “colored pencils in Office Supplies, Writing Instruments”). Amazon also often uses product category and corresponding seasonality as an input to demand forecasting.
Sometimes we are too close to our own products to do a good job here, and it’s good to get help. For example, a top pet products manufacturer had its dog harness listed as an “adjustable nylon harness,” and included many images of the harness, details about the adjustability, where it was made, etc., but omitted mentioning it was for a dog.
Specific KPIs could include character counts in titles, bullets and product descriptions, as well as the count of images. However, the quality of pages matters over quantity. So, while it’s worth monitoring these metrics, you’ll need a periodic qualitative assessment, too.
In e-commerce, if you aren’t in stock, you aren’t on the digital shelf. Being in stock in e-commerce is a different process. For example, Amazon will only receive product in its warehouses if it’s the exact stock keeping unit and quantity it ordered — no substitutions. Amazon also places orders differently, and more frequently, than most retailers.
The cost of an e-commerce out-of-stock can be huge. For sites that use relevance algorithms, your out-of-stock products experience deteriorating relevance that you have to work to build back up later. This is often a costly endeavor from an advertising perspective.
Manufacturers should monitor purchase orders and purchase order fill rates. Monitoring defect rates in purchase orders can be useful, too, if the retailer provides this data.
Products need to be priced competitively to sell. However, products also need to be sustainably priced for both retailer profitability (see Amazon’s approach to CRaP, which stands for “can’t realize a profit”)and manufacturer profitability. Gaining access to competitor and browse node pricing data and periodically modeling out retailer profitability can be useful in understanding the position of your products.
2.Share Of Search
In my experience, more than 90% of Amazon customers start their journey in the search bar, and rarely do they navigate past the first page of search results. Therefore, your ability to accurately predict their search and ensure your product shows up on the first page is critical to your brand’s success. A comprehensive understanding of your performance within the search journey is an upstream indicator of what will happen later in conversions and sales.
“Share of search” is a concept we use with our clients to develop comparative analytics. For a given set of search terms, what is the weighted percentage of the first page that you occupy? Who else is there? (Those are your competitors, even if they are nontraditional brands!) How do you compare across price points, content, reviews, etc.? Tracking share of search performance creates an opportunity to develop, execute and measure strategies to move up the page.
3. Category And Competitor Growth Rates
While difficult metrics to come by, understanding your year-over-year, month-over-month and quarter-over-quarter growth rates compared to your peers and the category can be extremely informative.
More than once, clients have come to us with a vastly understated or overstated picture of their performance based on looking at their growth rates in isolation. Sure, a 20% year-over-year growth rate might look great compared to your growth rate at a brick-and-mortar retailer, but what if the category is growing at 90% year over year and some competitors are experiencing triple-digit growth? The picture changes, and so do your strategies.
In conclusion, a strong and comprehensive focus on input-driven metrics, such as retail readiness, share of search, and category and competitor growth rates, as well as abandoning outdated KPIs such as market share, will pave the way for innovative strategies to win in e-commerce and beyond.
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