Marginality is a significant factor in creating marketing strategies concerning e-commerce. A difference in profit/margin at the sale of a product undoubtedly affects the weighting of advertising investments and, consequently, the sales pricing concerning the goods being bought and sold.
Not all products can guarantee equally satisfactory margins even at lower quantities: think of the example of very high-quality manufacturing in which the prices of production goods, machinery used, and very high-quality know-how already go a long way toward affecting the total cost of production.
Increasing the margin range as much as possible will be crucial to generate a larger profit.
How do you calculate the marginality of your product?
The focal point of the discussion becomes the calculation of the marginality of our product once it is placed on the market. One could trivialize the concept by identifying marginality as the markup of the selling price added after the sum of the production variables: cost of raw materials, production machinery wear and tear, and know-how of the workers employed in production.
It becomes crucial then to identify a marginality that goes to keep clear market variables and product positioning to avoid slippage of one's product into the "out-of-market" zone.
Marketing approach for low-margin ecommerce
As specified in the first paragraph, it becomes crucial for a company with low margins for its product to identify the strengths of a combined marketing strategy to make each promotional campaign profitable. While it is true that each type of online advertising can be discharged in the final budget at 100 per cent, it is also correct to point out that fundamental KPIs such as ROI (Return on Investment) and Blended ROAS (Return on Advertising Spend) should be contemplated at the basis of each strategic choice.
Blended ROAS - Multichannel Measurement
As mentioned in the previous paragraph, the Blended ROAS strongly emphasises the importance of promotion (advertising) carried out within an online multichannel context. Indeed, we cannot disregard - in promotional logic - different types of ad Formats: search, display, programmatic, video ads, and social ads. The fundamental question becomes where so many companies focus their efforts: can we effectively measure our multichannel promotion?
- With the presence of a defined Advertising plan that perfectly frames the spend and especially the platform used;
- With a defined and unique attribution method that gives proper weight to each step before customer conversion;
- With an interactive and dedicated dashboard, it is easy to identify every detail of the dedicated part of the Ad and its measurement.
Ideal ROAS in a low-margin environment
The million-dollar question is precisely this: what can be considered a satisfactory ROAS in evaluating an online advertising campaign? Giving a clear-cut answer to this question is complex: we are in a field where the variables to be defined for the overall evaluation are so many and varied that it is practically impossible to assign a certain scale of values to these evaluations.
Certainly, based on the experience gained over the years and the know-how achieved, a Blended ROAS of 5 can be considered profitable compared to businesses that precisely fail to generate too high a marginality.
But what does it mean to have a Blended ROAS x5: In a business context, it means multiplying by 5 times the economic effort expended within a defined online advertising strategy.
Useful strategies to increase marginality
A) Reducing shipping costs
In the first scenario, we consider a low-margin environment focused on reducing shipping costs for our product. The ability to choose different players by selecting the best carrier in the competitive logistics world can be an advantageous factor in smoothing down the cost of transportation and delivery of our goods while still maintaining good standards for service quality.
B) Reduction in COGS (Cost of Goods Sold)
Every product we make or buy for later resale has a well-defined cost discussed earlier in the article that can vary according to different logics, from trends in raw material costs to a sudden change in the tax burden associated with the purchase. Being able to optimize this type of initiative by generating new agreements with our stakeholders, establishing lasting partnerships over time that lead to a different amortization of costs up to foreseeing with wise budgeting logic economic setbacks through the creation of dedicated reserves, can bring us a high-level competitive advantage.
C) Customer Acquisition Cost (CAC) Supported on a one-time basis.
The cost of customer acquisition should theoretically be incurred only once. Customer retention leads to a decisive alleviation of business costs by using 0-cost (or at least low-cost) loyalty tools that solidify the company-customer relationship, making the latter "profitable" over time without further affecting the mentioned marginality.
Practical example
A site reselling furniture products needs to increase the markup on the sale, which is currently 25 per cent for each piece resold. In this case, the company is faced with two viable paths:
- Targeting Advertising through remarketing techniques at product repurchase or by offering complementary parts to previously purchased furniture;
- Bring down the CAC dramatically by proposing, in addition to their original purchase, the possibility of matching a high-margin but relatively low-priced product: gadgets.
These initiatives will be a natural consequence for the company to make every customer more profitable by increasing the previous sales margin set at 25 per cent.