Sponsored vs. Organic: Interpreting the Performance Dynamics in E-marketplaces

Introduction

Amid the ever-changing dynamics of e-commerce, the role of retail media, particularly sponsored product listings, has become increasingly prominent. This blog post delves into the findings of a significant study that shed light on the impact of sponsored listings within online marketplaces. The researchers explore the performance of sponsored listings compared to organic listings and their influence on user engagement. 

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Understanding Sponsored Listings

Retail media, including sponsored product listings, allows sellers to enhance the visibility of their products in search results by paying a fee to online marketplaces. These sponsored listings appear alongside organic results and are a significant source of revenue for e-marketplaces. The primary motivation behind introducing sponsored listings is to provide sellers with increased visibility while generating additional income for the platforms.

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Performance of Sponsored Listings

The study investigates how sponsored listings perform in terms of clicks and conversions compared to the organic listings they displace. The research considers key questions from the perspective of the marketplace, such as the impact on user engagement and the effectiveness of sponsored listings at prominent slots. The study reveals that the performance of sponsored listings varies across product categories, with notable differences observed in Electronics, Clothing/Footwear, and other major categories.

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Regarding the product category dynamics, the paper highlights that the performance of sponsored listings is influenced by its nature. In the Electronics category, where products are easier to characterize online, sponsored listings have a significant impact on user engagement. Intriguingly, the organic listings surrounding the sponsored ones outperform their absence.

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In stark contrast, the Clothing and Footwear categories exhibit a different trend, where sponsored listings prove more effective than the displaced organic listings. This suggests that sponsored listings might play a pivotal role in identifying high-relevance products, subsequently boosting search rankings in these categories. It emphasizes the importance of information asymmetry between the platform and sellers, particularly in major product categories. The findings suggest that the effectiveness of sponsored listings is closely tied to the platform's ability to generate high-relevance organic results in response to user queries.

Despite the diverse impacts at the category level, the study unveils a surprising finding: increasing the fraction of sponsored listings has no discernible effect on clicks and conversions across all product categories. The researchers conclude by calling for further research to formalize the theories presented, emphasizing the evolving dynamics of retail media in the ever-changing landscape of e-commerce.

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Results

Based on the above mentioned research, we share the following corollaries that compare outcomes when the marketplace allows sponsored listings versus when it does not. 

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Corollary 1:  Clicks and conversions on the first slot. Under high (low) information asymmetry, if the first slot displays a sponsored listing, it gets more (fewer) clicks and conversions than if it displayed an organic listing. 

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Corollary 2: Clicks and conversions on the second slot. Under high (low) information asymmetry, if the first slot displays a sponsored listing, the second slot gets fewer (more) clicks and conversions than if the first slot displayed an organic listing

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Corollary 3: Total effect on clicks and conversions. Under high (low) information asymmetry, if the first slot displays a sponsored listing, the overall click and conversion performance at two positions together increases (decreases). In both cases, the magnitude of the effect becomes smaller as the consumer search costs decrease. 

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In other words, when there is high information asymmetry, the high-relevance listing occupies the sponsored slot, which leads to more clicks and conversions. However, this also lowers the clicks and conversions from the succeeding position, thus nullifying some of the positive effect at the sponsored slot. Conversely, when there is low information asymmetry, the sponsored listing can hurt the search performance due to the selection of the low-relevance listing at the top position. 

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Conclusion

In conclusion, the intricate interplay between sponsored and organic listings in the realm of e-commerce, as elucidated by this study, underscores the multifaceted dynamics that influence user engagement and marketplace revenue. The differential impact across product categories highlights the need for nuanced strategies tailored to each category's unique characteristics. The revelation that increasing the fraction of sponsored listings has no uniform effect across all product categories challenges conventional assumptions, emphasizing the necessity for ongoing research to refine and formalize these theories. As the landscape of retail media undergoes constant transformation in the dynamic realm of e-commerce, solutions like Shalion are urged to harness these insights to refine brand’s strategies, enduring success in the Retail Media. Exploring innovative ways to balance information asymmetry and refine the visibility of sponsored listings holds the key to unlocking the full potential of retail media in the dynamic world of online marketplaces.

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