Assessing The Market Size/Potential For An Ecommerce Website Product/Service
If you run (or are thinking about running) an eCommerce website that has the option of offering new products, there is always the question of which ones will sell and which won't. And it's not just an academic one. Even if you don't explicitly support that product with direct, paid promotion (like pay per click ads), the products you choose to add to your site still take resources if you are serious about making money from them such as:
- Inventory costs (if you choose to stock the item)
- Drafting/testing effective product descriptions (since using the manufacturers/wholesalers description will be considered duplicate content by Google, MSN and Yahoo and not likely indexed highly in the search engines)
- Acquiring, formatting and posting product photographs
- Price maintenance (making sure your pricing is at parity with the market requires research doesn't it?)
- Communication with the manufacturer/wholesaler/distributor for product changes, updates, etc.
- Return management and claims etc.
So if wasting your time on poor product choises is wasting your money, how do you tell the winners from the losers beforehand? Like most things in life, there aren't any guarantees but there are some tips and tricks that successful online ecommerce website marketers use to "look before they leap."
Gauging The Market For A Particular eCommerce Website's Product
The first step is to do a little rough calculations as to how much effort you should put into the actual evaluation. This includes both the cost and potential of the product. For instance, smaller, lower cost items have less risk involved but typically also more competition and less profit potential. You'd probably do a little more work evaluating 100" plasma TV's selling for $10,000 each than putting on a line of $9.99 photograph frames for people's desks. Speaking of potential profit, that's a pretty good place to start the evaluation. Typically, items that you sell take about the same amount of effort to process, so a higher profit item generally is also less expensive to fulfill. Figuring gross profit is fairly straightforward since you (like your consumers) can check prices on line and presumably you already have quotes from your suppliers. You also should have a reasonable idea of your inventory, order processing and shipping costs on a unit basis. Demand and competition for a potential eCommerce website product are a bit harder to gage, but here are some starting places:
First, you can always use Google’s Adwords Keyword Tool in the “traffic estimator ” mode to see how much demand there is for keywords describing the product, which you can get from using the same tool in “keyword tool” research mode. This will give you an estimate (and only an estimate, not actual results) from Google’s assay of searches for these items and also what the cost and level of competition for pay per click traffic for this term (later on how to go a step further with this later). (If you want, you can go a step further and look at the trend for the term in Google Insights For Search, which shows how much searching for it has occurred over time and in what parts of the country or world. It can also be set to reveal certain time frames, so you can get a sense of any changes in demand by month or season.)
A good step to insert is to actually take those same keywords and do some searches in Google and MSN for the product. Be a bit suspicious if you do not see other competitors like yourself or the original supplier or distributor advertising for it. (Generic ads that look like they are using keyword substitution for the product don't count since they indicate a keyword level buy, not necessarily for that specific product. These are usually from larger online buyers like the price comparison sites or larger marketplaces like Amazon.)
These techniques admittedly work a bit better for more generic search term descriptions of the product you are interested in because the market will be much smaller (and less viable data) for a particular product. (Office chair will get much more search results than the "model x41 Ergonomic Plus, etc.)
Looking Into Ebay's Recent Past For eCommerce Website Product Data
Another source of sales unit potential for your eCommerce website new products is eBay's history link in the "Other Item Info" box (see illustration below). If you click on it, it will actually give you the price that the item was sold for (useful mainly for auction items), but also the date or frequency. If you search for the same item, you can get a sense of how many competitors are offering it and if you add all of their sales together, a sense of the total market, at least on eBay. While other marketplaces like Amazon.com, don't have this same sales history (well Amazon gives you a "remaining stock" indicator which if accurate could give you a sense of velocity if you checked it daily), you should read product reviews to see how satisfied customers are with the product to avoid any pitfalls.
Mining eCommerce Website Product Performance From Affiliate Network's, Other Tools, And Your Own Distributor
And if you product happens to be one sold via affiliate networks like Clickbank, you can get sometimes get the affiliate performance, which again is a bit of an estimate, although Clickbank does offer the number of products sold. (Unfortunately, Clickbank is more intangible product than physical ones, but a little searching and inquiry may reveal more data.) (You could also try some of the purported “keyword research” tools like Market Samurai, Micro Niche Finder and Keyword Elite to get a sense of the competitive levels for a keyword, but this information is often derived from other sources for particular competitor’s websites that you could collect on your own such as looking at a competitive website’s visitor volume through compete.com, quantcast.com, semrush.com and alexa.com, or by determining the number of pages indexed by the site in Google, the number of backlinks to the site, etc. (If you want to look up competitive information and link depth for a number of competitors simultaneously, you can also use backlink research tools like SEO Power Suite’s Link Assistant or Caphyon’s Advanced Link Manager.)
If you purchase through a distributor, wholesaler or buying group, most will give you a sense of product velocity and target pricing. Some may offer additional merchandising support like cooperative style merchandising aids such as AB tested banner ads for your site (or downstream affiliates), high producing keywords and promotions they have or are willing to run on the item.
Getting Serious With An eCommerce Website New Product Market Test
While using pay per click advertising to test a given product may not seem warranted if the profit or volume potential per unit is low, if you want to take the evaluation process a step further, creating a separate campaign and doing some initial ad and keyword testing will tell you a lot about the longer term potential of the product, even if you don't spend a lot doing it. The good thing about Adwords is that at the campaign level, they will tell you the "impression share" for that particular Campaign. If you structure a campaign with only one adgroup and a limited number of keyword search terms, then you can get a sense of the total number of impressions (or searches) for that product by looking at the percentage your ads have garnered. Some caveats in doing this type of test:
- Try to use exact matches for keywords being tested, particularly if they are product specific or brand specific to get as accurate a market potential measurement as possible
- Run the keyword test as long as possible to get a better sense of total market since click volume does vary by day, week, month and year
- If you are going to do any type of AB ad testing or even some keyword testing by using different ad groups, set your ads to rotate more evenly since Google will “stack the deck” a bit in their favor by looking for the highest click through ads (this approach may be able to tell you a bit more about what searchers want since you can test different attributes of the product, to see what’s more popular by actually seeing the click through, not just the overall impressions)
- You’ll be seeing an “impression share” which is just a percentage of what your campaign is garnering and to convert this to actual numbers of searches (or impressions) you’ll have to do a bit of math using your impressions and the percent of the market (impression share) you have received
- If you wanted to go a step further and test potential sales, you’ll have to advertise enough to get enough conversions to be a valid test, which of course is much more expensive (statistically approximately 30 conversions would be needed to gain much meaningful data about longer term sales patterns)
- Since you are running an actual pay per click test, you’ll see the cost for the click which indicates the competition level for the keyword, something that will also help you with any organic campaigns, at least indirectly