How product groups work
A standard Shopping campaign has no keywords. Google matches a search against the products in your Merchant Center feed, so the only real lever you hold is how that feed is divided. Each division is a product group.
Every Shopping ad group begins with one group containing the whole feed. You then subdivide it by an attribute Google can read from the feed — brand, category, product type, item ID, condition, or one of the custom labels you set yourself. Each subdivision reports its own clicks, cost and conversions, and under a manual bid strategy each can carry its own bid.
Subdivisions nest. You can split by brand, then split one of those brands by product type and leave the others whole. Anything you have not explicitly subdivided drops into an Everything else group, which keeps serving quietly until you exclude it.
Why product groups matter
Products in a single feed rarely earn at the same rate. A high-margin line and a thin-margin accessory sit side by side, and an undivided campaign treats them identically, so the cheap item often takes the budget simply because it attracts the clicks. Dividing the feed lets you spend where the return is without touching a single ad.
The structure is also your reporting. A product group is the row you read results on, so the way you cut the feed decides which questions you can answer later. If you never separate clearance stock from full-price stock, no report will tell you which one paid.
Common mistakes with product groups
The most common error is jumping straight to item ID on a large catalogue. Every product then sits alone, most of them gather too little data to be judged, and you have built a maintenance chore rather than a control. Subdivide only to the level where a group sees enough traffic to be assessed honestly.
Forgetting Everything else is the next one. New products added to the feed land there by default, so a group that looks like a leftover quietly becomes the home of your newest stock, inheriting whatever bid was left on it months ago.
Exclusions get treated too casually as well. Excluding a product removes it from the auction completely, not just from a report, and it is easy to shut off a line that was quietly profitable inside a category you had written off.
How to act on it
Start coarse. Split the feed by the distinction that actually changes a spending decision — usually margin, brand or product type — and go deeper only when a group is large enough to justify it. If the feed has no attribute that captures the split you care about, create one: that is what custom labels in the product feed exist for.
Review the shape whenever the catalogue changes. A seasonal range, a price change or a supplier switch can all move a group from earning to losing, and a structure that was right last quarter can quietly stop matching the business. The same segmentation job is done by listing groups in Performance Max, where the tree decides which products are eligible but the campaign target does the bidding, so keep the two consistent if you run Performance Max alongside standard Shopping ads.