Conversion rates vs. co-op dollars: mass merchants struggle to find balance with video commerce


I’ve noticed an emerging trend over the last six to twelve months among specialty and mass merchants with regard to manufacturer video.  The discussion over whether video “works” as a product merchandising tool began to shift away from one centered entirely on improving conversion rates.  In fact, as more retailers discovered manufacturer video content available in relative abundance, they began to view video as more than a simple conversion enhancing tool.  Now, some retailers see video as a new source of revenue unto itself.  What’s behind this behavior change?  Nothing other than the almighty co-op dollar.

Manufacturers have long paid retailers for prominent product placement in the offline world (think: supermarket shelves), and the trend certainly extends to the web.  Merchants routinely pay online retailers to run special promotions highlighting their products. Some retailers even have full-time staffers devoted to “vendor marketing.”  The advantage to retailers, of course, is that product sales subsidized through vendor promotional dollars enable the retailer to either slash costs to become more competitive,  boost margins, or both.  It’s all Retail 101.

Enter video commerce.  With the growing interest in e-commerce video among retailers, online retail marketers are now beginning to change their behavior and attitudes toward manufacturer video content in meaningful ways.  No longer is video perceived to be as difficult to produce or acquire as it once was. Those problems still exist to be sure, but in the desire to make video scale more effectively retailers are now figuring out new ways around old problems. In addition to the growing trend toward self-production of retail video content, many retailers have taken a second look at the way they acquire manufacturer video content in an effort to broaden their video libraries.

Historically, retailers acquired manufacturer videos through “syndication networks” – companies that distributed video on behalf of manufacturers to several retail sites.  So, for example, Sony might partner with a company to distribute their video to both Best Buy and CompUSA.  It’s a “win-win-win” for the manufacturer, retailer, and syndication company:

1.  The manufacturer gets to distribute their high-quality video assets to many retail sites – close to the point of sale.  This helps drive demand for the manufacturer’s products while gaining an opportunity to differentiate from competitive products.

2.  The retailer benefits from higher conversion rates on-site from the manufacturer video assets, usually placed on product detail pages or in a “brand store” on the retail site.  Plus, the retailer gets the content for free.  That saves the retailer from having to produce the content on its own.

3.  In the process, the company that syndicates the manufacturer’s video content to the retail site gets a nice chunk of change from the product manufacturer.  The more retailers that work with the syndication service, the fatter this company’s paycheck.

As I’ve mentioned in previous posts and in a whitepaper, the new “law of abundance” w/regard to video in e-commerce is driven by the new, lower costs of producing and distributing video online.  This is a significant new market force reflected in the rise of YouTube. It’s the same force currently disrupting the video commerce world.

For example, retailers can now simply log onto YouTube to discover new manufacturer video content.  Video search engines like Blinkx are another resource online retailers can use to discover relevant product videos instantly.  ExpoTV is an interesting example of a company that built a community of consumers who can rapidly produce product video content at very low cost.  In short, video can now be discovered more easily online in more places.  With each passing day, the volume of online product video content grows.

This newly discovered “abundance of video” has placed retailers in an interesting situation.  On the one hand, retailers are excited to acquire more video content from manufacturers in an effort to drive conversion rates on-site while also scaling video so the overall revenue impact is more broadly felt across the business.  On the other hand, retailers discovered some product manufacturers were willing to pay more to place their video content.  Smelling opportunity, some retailers began entering a “new” market – one formerly occupied solely by the syndication network companies.  In effect, retailers started to act more like a regular web publisher – negotiating video placement deals with manufacturers like a publisher sales rep might sell ad inventory on a prominent news site.

One of the problems with this approach, of course, is that B2B sales is rarely as easy as it might sound.  It could involve educating the retailer’s buyers about the opportunity, some of whom might be reluctant to damage their relationship with key vendors in exchange for a few more dollars.  The other problem is that most retailers aren’t used to amount of work required to close a B2B sale. Despite a retailer’s relatively attractive position in the video syndication market (since the retailer is the manufacturer’s customer), the sheer volume of email, phone, and in-person “follow-up” work, couples with management of the ‘deal pipeline’ could easily be someone’s full time job – something few retailers that view video as a pure co-op opportunity plan ahead for.

The other problem with a co-op heavy approach is that while it may work in some cases, at other times product manufacturers simply aren’t willing to pay the retailer to use their video content.  In other words, retailers that rely exclusively on co-op to drive manufacturer video placement run into the same wall that a sales rep working for a syndication network runs into.  There is a limited universe of product manufacturers that value retail video syndication opportunities enough that they’re willing to pay.

If you’re currently using or planning to rely on vendor dollars to fund your video commerce program in whole or in part, consider the following advice.

Takeaways:

1.  Co-op can be a useful tool to help fund video, but it should be used wisely.  Overuse of this approach could limit the ability of video to impact the online retail business in any kind of meaningful way  (e.g represent a site sales revenue contribution the CEO would notice if missing) since since some manufacturers aren’t going to be willing to pay you for the “privilege” of placing their content on your site.

2. Consider whether the video distribution you’re asking the manufacturer to pay for is already available through a syndication network partner your company works with.  If so, manufacturers may feel like they’re having to ‘double-dip’ since they’re already paying the syndication network to syndicate their content.

3. Consider how receptive your buyers or merchants will be to engaging manufacturers for additional dollars in exchange for video syndication.  Strong buyer or merchant resistance could signal a rough road ahead for your program.  It could also signal a greater need for you (as the program champion) to remain more involved on an ongoing basis, acting in more of a B2B sales role than you may have anticipated.

4.  Before deciding to embark on a heavy co-op approach, consider where your bread and butter lies.  Run an ROI analysis of the expected impact of acquiring new product videos from a conversion rate and sales perspective.  Weigh the expected revenue your business could achieve if it had access to the “entire universe” of vendor video content, rather than just the universe you’ll be able to access if vendors are forced to pay for placement.

5.  Don’t forget the law of abundance which states the cost of distributing video online is low.  If you’re not willing to use vendor video content due to a vendor’s reluctance to pay, remember that your competitor might be. Not only could you lose the video placement revenue, but you could also lose the marketing & merchandising revenue you would have gained for your site as well.  Failing to acquire enough video assets also places additional pressure on the assets you do have to fund your video commerce program.  Having too few video assets could lead to video remaining a low visibility initiative and cause program funding difficulties down the road.

Until next time – Happy Selling!

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