Why can’t low-priced products ultimately rely on advertising?

I went to Foshan to visit a friend's factory on the weekend. I met a brother who worked for Amazon. We chatted and found that their factory specializes in low-priced products. Because the products are made in their own factory, there are many styles and the differentiation is more prominent. But he told me that their low-priced products are generally 2-3 US dollars more expensive than others, and all their products are driven by advertising. It is very clear, I expected one thing.

1. Most of his products are not selling well.

2. Products with good sales are those with strong seasonal non-standard attributes

3. Once the advertising stops, sales will plummet. He also agreed with what I said and asked me how to solve the problem. Then I will analyze the problems one by one.

Is there a problem with using advertising to drive low-priced products? He told me that all his products are high-priced + highly advertised. If you know about low-priced products, 99% of sales come from page searches. In simple terms, for low-priced products, people buy from whoever they see without thinking. In other words, it doesn't matter if your product is good or not, as long as it is ranked at the front. However, there may be problems if you put advertising on the homepage. If the advertising is on the homepage, the CPC cost will inevitably be very high, and the ACOs of low-priced products will be very ugly.

The ACOs of low-priced products will inevitably be very bad, with high CPC, low profits, and low average order value, resulting in a very poor overall input-output ratio. In this case, if the advertisement is placed on the homepage, the conversion rate will be very good, but there is a problem that the natural position cannot be taken up, because low-priced products are basically sold on the homepage. If the advertisement has been sold, it is highly likely that the subsequent natural position will be difficult to take up. This is why there are basically no orders once the advertisement stops.

So why is it that low-priced products cannot get promoted to the natural position if their advertisements are placed on the homepage? This is the characteristic of low-priced products. As we just said, 99% of the transactions of low-priced products are due to keyword searches, and the browsing time and purchase decision time of low-priced products are much lower than those of products with medium and high unit prices. Therefore, people will hardly turn to the second page, resulting in almost all transactions of our products coming from advertisements. Naturally, there will be no transactions and the position will definitely not get promoted. This will lead to a vicious cycle and we can only continue to put advertisements on the homepage.

Therefore, it is more difficult to sell low-priced products by relying on advertising on the homepage, and they are basically on the edge of profit and loss, unless the category has a particularly large order volume.

The core of low-priced products is low price. Price-sensitive customers, anyone who buys low-priced products, considers price as the first priority. Therefore, the practice of high price + high advertising is difficult to do in the category of low-priced products, or it is not the first choice. This brother who does low-priced products has a soul-searching question, that is, do you think low prices should be used to drive volume or profit? For low-priced products, if you drive profit, the maximum profit is 3-5 US dollars. Even if you make all the money, it is only 5 US dollars. It makes no sense to sell 3-5 a day, and the sales volume is also very unstable.

Therefore, when we make low-priced products, we need to use low-price spiral + low advertising. As for how to use low price + low advertising to drive product sales, and how to make profits in the later stage, it is not just a matter of raising prices.

During the discussion with this brother, he also had a soul-searching question: for low-priced products, my price is 2-3 US dollars higher than others, but my products are differentiated, and Amazon is unique, so can’t I sell them at a higher price?

The price is determined by supply and demand. When supply exceeds demand, there will be a collective involution. When supply is less than demand, there will be a collective price increase. Therefore, what determines the price of a product is the supply and demand of the market. When a market is relatively saturated, differentiated products can only extend its life cycle and avoid falling into a bottom-line price war, but cannot increase the profit margin of the product.

The soul-searching question comes again: Isn’t differentiation a new market and a new product? Why can’t the price be raised?

90% of differentiation is not a new product or a new market, but an innovation of the old market. The sign of a new market is the emergence of new keywords. So you will find that usually when a new Apple series appears, the price of accessories will be more expensive, but when the accessory has been sold for a while and a new model is released, the price will remain the same. Finally, when everyone reduces the price of the same model collectively, differentiated products can maintain a certain profit on liting.

The most important aspect of operating low-priced products is not advertising, but low prices. However, how to make profits from low prices is a key.