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Originally published on May 19, 2021, updated November 17, 2022
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Whether you're new to Amazon Advertising or just need a refresher, this guide from Kaspien provides examples and ideas to inspire you.
In Q1 2021, Amazon reported that its “Other” segment, which consists largely of Amazon advertising revenue, grew a staggering 73% compared to Q1 2020. This indicates that either more sellers are investing in Amazon advertising, existing advertisers are investing larger budgets or both.
That’s not without cause – Amazon is becoming increasingly competitive, with Marketplace Pulse reporting that, on average, Amazon adds 3,500 new sellers every day!
My colleague, Jeremy Rossow, is the Digital Marketing Manager at Kaspien and oversees millions of dollars in Amazon ad spend every year. This is what he had to say about the state of Amazon advertising for today's sellers:
Having a Sponsored Ads strategy on Amazon has become an absolute necessity for brands to be successful on the platform. Brands should view advertising in the same way they view inventory management and listing optimization: it’s a must for continued sales growth on Amazon.
With that understanding, let’s dive more into how to advertise on Amazon. You'll learn the fundamentals of how Amazon advertising works, the types of ads currently available on Amazon, and how to deploy them to get the most bang for your buck.
Amazon uses a pay-per-click (PPC) model for most of its ad types. This model is also referred to as cost-per-click (CPC), but the two terms largely mean the same thing. As the name suggests, advertisers are charged only when an ad is clicked. If your ad appears on the search results page and no one clicks it, you aren’t charged. Pretty great, huh?
But how does Amazon decide which ads get to appear on the search results page? That takes us into bidding.
Amazon uses an auction model, requiring sellers to bid against each other for their ads to win the placement. Anytime a seller wants to run Amazon ads for a given product, they need two things to participate in the auction: a bid and keywords. This is often one of the most confusing concepts of how to advertise on Amazon.
The bid is the maximum dollar amount a seller is willing to pay for each click on their ad. The keywords dictate when the ad will participate in the auction. You can think of this as, “I am willing to spend up to [bid] for my ad to populate when a shopper enters a search query containing [keyword or key phrase].”
Keywords get more complicated when you consider manual campaigns with three match types and automatic campaigns, but that’s another conversation for another day that also delves into campaign architecture.
Amazon assesses many factors to determine who wins the auction, including product rank, product ratings, customer reviews, if the product offers fast shipping, product relevancy to the search query, seller rank, and more. The bid amount is only part of the equation, albeit an important one.
The last important thing to understand about Amazon’s auction system is that, if you win the auction, Amazon will only charge $0.01 higher than the next highest bid. So, if you bid $2.00 for “red shoes for men” and the next highest bid is $0.75, you’d only be charged $0.76.
After reading that last bit you may be thinking, "Why not set ridiculously high bids to ensure you always win the auction?" Well, this risks burning through an ad budget in a matter of hours that was intended to last for a month. It also risks placing ads in front of unqualified shoppers, so the click isn’t even worth the cost.
The best practice is to set a competitive bid for specific, long-tail search terms and lower but competitive bids for broader, more generic search terms.
This leads to the final key point about understanding Amazon advertising: it is NOT a “set it and forget it” platform. Amazon is a dynamic marketplace that changes rapidly every day. To maximize your advertising profitability, you need to monitor and adjust your bids and search terms multiple times per week. This reality is why there are so many Amazon marketing agencies and Amazon advertising software available, but we’ll explore this more later on.
Sponsored Product Ads are the most common and highest converting ad type on Amazon. These ads blend into the search results page, differentiated only by the text “Sponsored.” There are numerous Sponsored Product placements per page, so you have a decent chance of winning the auction.
If you have a limited ad budget, you should start with Sponsored Product Ads. In one case, Kaspien helped a baby brand launch on Amazon in 2018. After deploying Sponsored Product Ads for them, we saw Amazon sales increase by 40%!
Sponsored Brand Ads are banner ads that appear at the top of the search results page. The prominent placement at the top of the page makes this ad type one of the most competitive on Amazon. To be eligible to run a Sponsored Brand Ad, the seller must be enrolled in Brand Registry. We recommend that you send shoppers who click on this ad straight to your Brand Store.
Sponsored Brand Ads are particularly useful for creating brand awareness, growing market share, and launching new products (you can feature two established products alongside one new product so it can ride their coattails). At Kaspien, our Sponsored Brand Ads have an average conversion rate of 14% and a 7:1 return on ad spend (ROAS).
One useful practice is to set Sponsored Brand Ads to target keywords containing your brand name (so that shoppers seeking you can immediately find your brand) and keywords containing competitor brand names (so you can steal some of their customers). Bidding on competitor brand names will not have the highest conversion rate, as shoppers who are searching for a brand name are more likely to have a higher intent to buy from the given brand. But, the tactic is still useful to erode their market share.
Sponsored Brand Videos are very similar to Sponsored Brand Ads, except that they appear halfway down the search results page and, naturally, include a video. This ad type is relatively new, making it particularly exciting and engaging.
Sponsored Brand Videos are a fantastic resource for any product that is complex or whose value proposition is rooted in nuanced details. Video is on the rise on Amazon, so if you have the budget to create videos for Amazon Sponsored Brand Videos, you should do so. Amazon has reported that some advertisers see 55% lower CPCs for Sponsored Brand Videos compared to Sponsored Brand Ads.
Sponsored Display Ads retarget shoppers based on past shopping and buying behavior and they appear on and off Amazon. This ad type has a lower conversion rate, but they are a powerful tool for growing brand awareness.
If you're selling in a niche sub-category, Sponsored Display Ads can be an effective way to capture shoppers that have browsed competitor listings or previously purchased your or a competitor’s product.
Now that you know a little more about how to advertise on Amazon, you're probably wondering about good strategies to follow. There are four primary ad types, but what’s the best way to use them in coordination with other Amazon efforts?
Amazon ads and Amazon SEO go together like peanut butter and jelly. Amazon’s algorithm uses the terms you include in a product detail page’s title, bullet points, and product description to assess the relevancy of that product to a given search query. By including keywords throughout the product detail page and targeting those same keywords with Amazon ads, you substantially increase your odds of bringing relevant traffic to your product listing for conversion.
You may have noticed that the Sponsored Brand Video image above shows the product is also running an Amazon coupon. By running a coupon for a product for which you are also running an Amazon ad, you add an even greater incentive for shoppers to click and convert.
These are just two of dozens of options for integrating your Amazon ad strategy into your larger marketing strategy, but they are perhaps the most accessible.
Because managing Amazon ad campaigns is an ongoing process, many sellers seek ways to automate it. It began with sellers trying to automate bid optimizations and search term optimizations. As Amazon advertising became more crowded and complex, sellers sought more sophisticated solutions that could dynamically optimize budget and ad scheduling.
My company experienced this firsthand. Kaspien has been running Amazon ad campaigns since its inception for our Retail and Agency partners. As our portfolio grew, it quickly became too much to manage in Seller Central or Excel, so we built our own Amazon ad management software, which we gave the incredibly creative name, AdManager.
Yup.
While the name isn’t extraordinary, the results sure are. In 2020, our Amazon advertising sales grew 55% year-on-year, while our ACOS dropped 41%! Thanks to AdManager, our average ACOS is a jaw-dropping 6%. AdManager has generated nearly $100 million in Amazon ad sales, and on average, it boosts our partners' Amazon sales by 30%.
To learn more about AdManager, request a free 30-day trial.
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