By Amadeusz Bathelt (Dealavo)

TABLE OF CONTENTS

• Theoretical Introduction
• How to Improve Conversion Rates?
• Price-Based Segmentation
• Extracting Data from Dealavo
• Combining Promotion with Repricing
• Margin-Based Segmentation
• Combining Price and Margin Segmentation
• Budget Allocation Strategy
• Price Levels
• Excel File with Integrated Segmentation
• Instruction for Data Updates
• Import to Google Merchant Center

Theoretical Introduction

One of the key strategies for driving customers to an online store is advertising the products. Currently, the most popular online advertising platform is Google Ads. In Google Ads, businesses pay for each click on their advertisement (CPC - Cost Per Click), regardless of whether the customer makes a purchase.

How can we determine whether our ads are successful? Simply observing an increase in traffic to the online store is a start, but more precise success metrics are needed—ideally, measured per product or product category. One of the key parameters in Google Ads is ROAS.

ROAS (Return on Ad Spend) represents the ratio of revenue generated from ads to the advertising cost:

ROAS = Sales Revenue from Ads / Advertising Costs

This means that while businesses pay for potential customers to visit their store, they also track the sales generated by those visits. The key to success lies in achieving a high conversion rate—meaning a high percentage of visitors who click on an ad and proceed to purchase the product.

Conversion is calculated as follows:

Conversion Rate = Completed Transactions / Product Page Visits

For example, if five users visit a product page and one makes a purchase, the conversion rate is 1/5 = 20%. The goal is to ensure that a high percentage of users who click on an ad ultimately buy the product.

How to Improve Conversion Rates?

Numerous guides discuss best practices for e-commerce sites, such as UX design, product descriptions, and images. Assuming these aspects are already optimized, what else can be done?

Pricing is one of the most critical factors influencing purchasing decisions. If a price is attractive to the customer, they are more likely to buy. If it is too high, they will seek alternatives. Since price comparisons are effortless online, customers can easily determine whether an offer is competitive.

A more attractive price generally leads to higher conversion rates, which in turn increases ROAS. However, the definition of an attractive price varies depending on customer price sensitivity, brand reputation, and the product type.

• Well-established brands can afford to set prices slightly higher.

• Some industries demand the lowest prices to remain competitive.

• In other cases, customers may tolerate a price difference of up to 10% or even 20% for trusted retailers.

• However, if a store's price is significantly higher than the market average (e.g., double the lowest available price), the likelihood of making a sale is minimal.

Price-Based Segmentation

To achieve a high ROAS, the focus should be on increasing conversion rates through competitive pricing. However, maintaining attractive prices for all products is impractical. If an advertising campaign includes all products, both high- and low-ROAS items will be promoted.

A solution is product segmentation based on price attractiveness:

• Attractive: Products priced up to 10% higher than the lowest market offer.

• Moderately Attractive: Products priced between 10% and 20% above the lowest market offer.

• Unattractive: Products priced more than 20% above the lowest market offer.

Using this segmentation, Google Ads budgets should be allocated strategically:

• The largest budget share should go to advertising Attractive products.

• A smaller budget should be allocated to Moderately Attractive products.

• Unattractive products should receive minimal or no advertising budget.

A gradual shift in budget allocation allows businesses to maximize ROAS while maintaining an appropriate traffic volume.

Extracting Data from Dealavo

In Dealavo, under the Products tab, there is a column labeled “% to the lowest offer”.

We can export the current view from the application to Excel and then match the ID column with the percentage difference column.

A simple formula can be written in the next column to categorize products into the previously defined segments.

In newer versions of Excel or Google Sheets, the IFS formula can be used.
For compatibility with Google Merchant Center, where the data will be integrated later, it is recommended to use Google Sheets.

The formula will be as follows:

=IFS(C3<=0.1, "Attractive", C3<=0.2, "Moderately Attractive", C3>0.2, "Unattractive")

To ensure international usability, the segment names are in English, but custom names can be applied.

For the dataset shown in the screenshot, the segmentation will be as follows:

These tags can then be uploaded to Google Merchant Center, as described in a separate section.

Combining Promotion with Repricing

Another way to optimize ROAS is through repricing strategies. By dynamically adjusting prices to remain attractive, businesses can ensure that promoted products yield better returns.

Margin-Based Segmentation

As previously mentioned, advertising increases costs. Even a product with a great ROAS will have a higher selling cost than one purchased through organic traffic. Additionally, ROAS does not account for profit margins. A worst-case scenario is selling a product below its purchase cost, making it highly attractive to buyers, generating an excellent ROAS, but resulting in a loss on every sale.

Therefore, it is crucial to determine which margin levels are profitable, moderately profitable, and unprofitable for the business.

Similar to price-based segmentation, Dealavo allows exporting a column containing profit margin data. By applying a simple formula, products can be segmented instantly.

Assuming the following margin segmentation:

• Profitable: Margin above 20%

• Moderately Profitable: Margin between 10% and 20%

• Unprofitable: Margin below 10%

The formula in Google Sheets will be:

=IFS(C3>=0.2, "Profitable", C3>=0.1, "Moderately Profitable", C3<0.1, "Unprofitable")

This data can also be uploaded to Google Merchant Center.

Just like price segmentation, setting a repricing rule that ensures a minimum margin limit protects businesses from selling products below cost. By implementing this structured approach, businesses can significantly enhance their Google Ads performance while maintaining profitability.

Combining Price and Margin Segmentation

Having both segments in Google Merchant Center, we could set product campaign inclusion criteria based on attractive price and high margin. However, a better approach is to combine these two segments into a single classification, resulting in the following structure:

On the X-axis, we see the price level—the further left, the higher and less attractive the price. The further right, the lower and more attractive the price for customers.

On the Y-axis, we see the margin level—higher up indicates a higher margin, while lower down indicates a lower margin.

By plotting products on this graph, we divide them into four segments, depending on which quadrant they fall into. The following principles apply:

• If a product has an attractive price and a good margin, it belongs to the segment we want to promote.

• If a product has a high price compared to the market and a low margin, it belongs to the segment we do not want to promote.

• If a product has a good margin but a high price, we might consider promoting it. The promotion costs will be higher, but if it sells, the high margin may justify the expense.

• If a product has an attractive price and a low margin, it is likely a traffic builder—a product intended to attract visitors to our store. We can still promote it, expecting that customers will purchase other, higher-margin products.

Budget Allocation Strategy

Most of the advertising budget should be allocated to products with a good margin and an attractive price, as well as traffic builders (attractive price, low margin). Less budget should go to products with a good margin and a high price, while the least (or none at all) should go to products with a high price and low margin. Even if such a product sells, the high promotion cost and minimal profit may result in a loss.

A good starting point is to allocate 50%-70% of the budget to high-margin and attractive-price products, then monitor budget usage.

• If the budget is fully utilized and the ROAS is strong, consider increasing the budget.

• If the budget is not fully utilized, decrease the allocation and redirect funds to other product segments.

Price Levels

An additional complexity arises when considering price levels. A 10% difference from the lowest market offer or a 10% margin has significantly different implications for a product priced at $10 versus one priced at $1,000. The impact on profitability and pricing strategy varies accordingly.

To address this, it is recommended to differentiate strategies based on price brackets to optimize both margin and conversion potential.

Excel File with Integrated Segmentation

To simplify segmentation, we have created a Google Sheets template, allowing users to input their parameters for price difference from the lowest market offer and profit margins. The file will then generate a profitability tag for each product.

• Make a copy of this file and enter custom settings before linking it to Google Merchant Center.

• The profitability tag can be uploaded as a custom_label in GMC.

Template File: Google Ads Optimization - Example File

• Modify only the data in the Configuration tab.

• Edit only gray-colored cells.

• In Cell C1, enter the price range for product segmentation (default: €1000).

• Define the maximum acceptable price difference for a product to be considered Profitable (Cell C3) and Semi-Profitable (Cell C4). Beyond this value, the product will be considered Unprofitable.

• In Column E, specify the minimum margin threshold for selling products (Cell E3) and the acceptable margin (Cell E4). Products below this margin will not be recommended for promotion.

• Similarly, complete Cells C12, C13, E12, and E13 for products priced above the value set in Cell C1.

• The Summary tab provides an overview of product segmentation.

• The Sheet1 tab is where data from Dealavo’s Products tab should be entered.

Instruction for Data Updates

Data should be updated in the file weekly. Updating more frequently will not cause any issues, but it is unnecessary since Google Merchant Center requires at least a week to process data changes, and adjustments in Google's algorithms take time to apply.

1. Create a copy of the Google Ads Optimization - Example File. If a copy already exists, open it.

2. Log into your Dealavo account.

3. Navigate to the Products tab.

4. Select the following columns for display:

   • ID

   • Product Name

   • Ranking

   • Price

   • To Min

   • To Min (%)

   • EAN

   • Group

5. Once these steps are completed, export the view to Excel and follow the standard segmentation process.

6. Open the Excel file and click Enable Editing.

7. Ensure the Price column is formatted as a number. Sometimes, formatting may change, affecting calculations.

8. Select columns A-I from row 3 downward (use CTRL + SHIFT + Down Arrow to select quickly).

9. Copy the selected range into the Google Sheet created in Step 1.

10. If updating data, check whether the last product in the dataset matches the last product in Google Sheets. Sometimes, fewer products are available in the application than in the sample file, leading to discrepancies.

11. Profitability tags should automatically recalculate.

12. Verify the total number of products matches the application and exported view. If they match, skip this step. If there is a significant difference, review the previous steps.

13. Proceed only if the product count aligns with Step 11.

14. If too few tags are generated, check that the formula in column J is copied for all products.

15. If the product count still does not match, ensure that old products were removed when copying data from Excel to Google Sheets.

16. If the segmentation is incorrect, adjust the settings in the Configuration tab.

By following these steps, you ensure that your Google Merchant Center and advertising campaigns remain optimized and up-to-date.

Ensure that product IDs in Dealavo match those in Google Merchant Center to maintain data consistency and accurate performance tracking.

Import to Google Merchant Center

Instructions for Adding Profitability Tags in Google Merchant Center

• Instruction for adding a supplemental product feed in GMC and Google Ads.pdf

• Anleitung zum Hinzufügen eines zusätzlichen Produkt-Feeds in GMC und Google Ads.pdf

Allow approximately 2-3 weeks for ROAS results to reflect changes in campaign performance.