Yahoo! Stores

At MEC, we have been testing Yahoo! Stores for the past several years. In a previous report, we identified Yahoo! Shopping as one of our lab’s Top Performers.

In that report, we offered a caveat which seems prophetic in hindsight:

A Yahoo! Store can achieve significant traffic through Yahoo! Shopping and other Yahoo!-based promotional elements, BUT it is dangerous to become too dependant on Yahoo! for your growth.

Recent changes at Yahoo! have given us reason to pause and re-examine Yahoo! Stores as a marketing channel. Is Yahoo! still as effective as it once was?

Findings

Consider Merchant A, who sells small kitchen appliances. This small business was on track to do just under $1 million in sales annually, but wanted to broaden its reach. The company had pushed Google and Overture to their respective limits. On our advice, they decided to test a Yahoo! Store (in addition to their primary website) in an attempt to reach the millions of consumers who use Yahoo! Shopping.

With NO ADDITIONAL MARKETING, we achieved the following results.

Merchant A — Yahoo! Store Results
Test Duration	1 Month
Yahoo! Store Sales	$5,136.23
Net Profit (40% Margin)	$2,054.49
Yahoo! Store Fee	$49.95
Yahoo! 3.5% of Sales	$179.77
Yahoo! $0.10 per Item Fee	$184.30
Total Profit	$1,640.47
ROI	396.23%

What You Need To UNDERSTAND: Merchant A achieved a 396.23% ROI and increased its net sales by nearly 7% with its Yahoo! Store. The fees charged by Yahoo! included a $49.95 monthly fee, 3.5% of all sales, and $0.10 per item listed in the store.

Keep in mind that once this campaign was set up, nothing was done to advertise it in any way. The primary website continued to be run in the same manner, and the net results of setting up this Yahoo! Store were higher sales, higher profitability, and ultimately a larger ROI. We created a revenue projection for one year to estimate the impact of adding the Yahoo! Store.

In the recent past, Yahoo! Stores remained a very effective marketing medium. The listing in Yahoo! Shopping was well worth the fees involved.

However, Yahoo! has recently eliminated “3.5% revenue sharing” Yahoo! Shopping listings for their Yahoo! Store merchants. Instead, they have gone to a pay-per-click model that allows any merchant (including non-Yahoo! Store merchants) to pay a CPC fee to be included in Yahoo! Shopping.

But what about existing Yahoo! Store owners?

Merchant B sells digital camera accessories. Take a look at Merchant B’s projected Yahoo! Store sales for one month under the new CPC system:

Merchant B – Yahoo! Store Results
Test Duration	1 Month
Yahoo! Store Sales	$4,505.85
Net Profit (40% Margin)	$1,802.34
Yahoo! Shopping Clicks	16,619
CPC (with 20% discount)	$0.40
CPC Fees	$6,647.60
Total Profit	– $4,845.26

What You Need To UNDERSTAND: Merchant B would have lost $4,845.26 via the Yahoo! Shopping CPC in one month. The fees charged by Yahoo! were based on a $0.40 (with the 20% discount) cost per click for the category “digital camera accessories”.

Digital camera accessories represent a quite expensive price category on Yahoo! Shopping. The biggest problem here was that this merchant’s average product price in this month was only $16.15, resulting in a loss of over $4800.

At this margin, Merchant B would have had to sell $16,619 worth of product in order to break even with the CPC fees.

KEY POINT: If you plan on utilizing Yahoo! Shopping’s cost per click engine (or any similar engine), make sure that you have a high enough profit margin or enough sales to cover your marketing expenses. Consider both the initial value and the lifetime (or annual) value of the new customers you will be acquiring through this channel.

For existing Yahoo! Store merchants, there are no guarantees that you will not lose your shirt.

A few of the key complaints with Yahoo!’s new set-up include:

1. Rather than open up the Yahoo! Shopping directory to other merchants while allowing Yahoo! Store merchants to continue to be listed on a revenue-sharing basis, Yahoo! opted to REMOVE this benefit from its existing store owners. They too are required to pay CPC fees to be listed in Yahoo! Shopping (although they do receive a 20% discount).
2. You have very little control over your CPC fees. While you can select the categories in which your store is listed, each category has a flat-rate CPC fee rather than a bidding system (which would allow “wiggle room” to balance profitability against cost). Many categories are prohibitively expensive.

   In any other CPC campaign, an individual would not pay 19 cents when it was most profitable to pay 12 or even 24 cents. Yahoo! has made it very difficult to achieve maximum profitability. Typical category prices range from $0.19 to $1.25 per click.

   KEY POINT: Due to the high-priced categories, we recommend the utmost care when evaluating the Yahoo! Shopping pay-per-click.

3. As a CPC engine, Yahoo! Shopping has not proven as effective as PriceGrabber and many other comparison search engines. In a future report, we will compare many of these engines.
4. Now that Yahoo! Shopping listings are CPC and not performance-based (3.5% revenue share), Yahoo! Store owners are subject to potential errors when loading their data feed. This could potentially cost them hundreds of clicks with no sales.

   For example: If a store owner created her data feed incorrectly and moved two decimal places over on the price, every listed price would be 1/100th of the intended price. She would potentially get a flood of clicks but no orders as customers realized the mistake. In either case, the merchant still must pay for the click. In the performance-based model, the merchant would not be as liable.

   One merchant lost over $500 in CPC fees in one day they had a $588.00 digital camera listed for $5.88. However, this is a potential problem with all CPC-based shopping search engines that uses a data feed, not just Yahoo!

One might question, why even continue to use Yahoo! Stores? Here are a few of the (remaining) benefits:

1. A Yahoo! Store is still one of the most effective methods of creating a virtual storefront without investing a lot of time and money in an expensive hosted shopping cart solution.

   However, the greatest benefit of creating a Yahoo! Store has been effectively eliminated by the addition of the CPC system. With the removal of Yahoo! Shopping listings as a pure benefit to Yahoo! Store merchants, the attractiveness that they once had for merchants to maintain a separate standalone Yahoo! Store is all but gone.

2. Yahoo! Store merchants do get a 20% discount on their CPC fees. However, the click-through rates are often still quite expensive for many categories.
3. Yahoo! Store feedback rankings remain an effective credibility indicator for merchants. A five-star Yahoo! feedback rating is perceived by customers as an indicator that they can purchase from you with confidence.
4. The old limit of a Yahoo! Store was 6000 products. The new limit is 50,000 products.
5. Yahoo! Store merchants can still cater to those online shoppers who prefer to use Yahoo! Wallet: http://wallet.yahoo.com/
6. Some merchants have reported speedier and more successful listings with Yahoo! free directory submissions when their site is a Yahoo! Store. Free submissions are done via: http://docs.yahoo.com/info/suggest/

   Yahoo! Express listing is available at: http://smallbusiness.yahoo.com/bzinfo/prod/marketserv/yexpress.php

Yahoo! Stores are still an effective means of getting a retail site up and running on the Web without the hassles of shopping cart software, credit card processing, and the like. But gone are the days of creating a Yahoo! Store (in addition to your primary retail site) as a means of generating extra traffic and sales via Yahoo! Shopping.

Finally, you may still want to consider a Yahoo! Store if:

1. The 20% CPC savings is cost-justified.
2. You are just getting started as an online merchant and don’t want to invest in a costly customized e-commerce solution. The features of a Yahoo! Store will help you develop a “wish list” of the ideal online store features should you choose to expand your venture to a dedicated system in the future.
3. You are attempting to “max out” your traffic and don’t want to miss any potential marketing channels.
4. You want to use Yahoo! to “fragment” your existing product base. 20% of products often account for 80% of sales. If this is true for you, consider creating a dedicated store for your category of products that sell the best.

For information on the “new” Yahoo! Stores, visit:

http://smallbusiness.yahoo.com/merchant/

For more information on getting a non-Yahoo! store listed in Yahoo! Shopping, visit Yahoo Product Submit:

https://productsubmit.adcentral.yahoo.com/sspi/us/index2?SS=3027042

 Credits:

Editor — Flint McGlaughlin
Writer — Brian Alt
Contributor — Jimmy Ellis
Aaron Rosenthal
HTML Designer — Cliff Rainer