After months of planning, the all-important holiday season is tantalizingly close.
But while much (if not all) of your company’s holiday strategy is likely set up, in the context of Amazon, it’s worth underscoring some of the more tactical levers and measures you should be thinking about in the lead-up to the busiest shopping days of the year.
Amazon ads in particular can help take your business to new heights, but it’s worth considering a different approach to ROI measurement and budgeting to maximize your revenue during the holidays. This is supported by several analyses of the Amazon marketplace, along with actual advertiser performance data collected by Teikametrics.
Let’s address these topics through the lens of a couple FAQs about Amazon advertising overall.
Why do I need to advertise on Amazon?
While there are important nuances to note, the short answer is: advertising on Amazon is becoming ever more important, especially on high-volume search terms related to your products
Currently, the first page of results on Amazon is dominated by ads above the fold. Buyers are also inclined to trust what Amazon serves to them at the top of the search results page. In fact, when you look at the 1 million most popular search terms on Amazon, more than 60% of conversions occur within the top three organic results.
This behavior acts as a proxy for how you should value a paid placement. Across a large percentage of popular search terms, most consumers aren’t researching or comparing items farther down the search page—let alone getting past the first three results. To avoid getting short-changed during the holidays, you need a way to get to the top of search results (and fast).
Another thing to consider is the nature of the 'flywheel effect’ on Amazon. Conversion rate is of utmost importance to Amazon’s A9 algorithm, which associates a high conversion rate with high relevance. By boosting conversions with paid ads, you can drive higher organic rankings and sales, and kick that ‘flywheel effect’ into action.
How should your ad strategy change as the holidays near?
To fully address this question, it’s helpful to pull back a bit to outline what happens on Amazon during high-traffic events, like Black Friday, Cyber Monday and late Q4. Teikametrics recently studied this in the context of Prime Day(s), which many sellers use as testing grounds for the holidays.
After analyzing over 1,100 products, Teikametrics found that two-day combined ad-derived and organic revenue jumped by 602% during Prime Day ‘19 compared to the same two-day window across the prior four weeks.
The same study found that while discounted products drove more sales revenue overall, products that sold at the same, or even higher prices, still saw revenue rises of +496%.
This shows how substantially more consumers are spending money on Amazon, so your ability to capture those sales is critical. And lucky for you, these buyers aren’t just deal hunting. They’re looking for the right products to suit their needs.
On another interesting note: the influx of buyers during Prime Day ‘19 didn’t necessarily correspond with a large influx of advertisers. Though Prime Day drove triple-digit revenue increases across multiple categories, ad cost-per-click (CPC) rates either stayed the same or rose only moderately from pre-Prime Day levels. Below is one example from the ‘Clothing, Shoes & Jewelry’ category:
Clearly, there’s still plenty of opportunity for your brand to capitalize on holiday traffic. In our experience, the best way to do this is by moving away from a strict budget and instead focus on bidding to value on Amazon.
The most successful brands that work with Teikametrics are dedicated to this approach. They essentially have ‘uncapped budgets’ for bidding on relevant terms whenever a click is expected to deliver desired margins. By focusing on bidding to value, they avoid instances in which they’re left sitting on the sidelines (having profitably blown through their budgets) while competitors capture remaining sales. To be fair, it helps that they have a technology partner that can update bids constantly to maximize margins on each individual sale.
How do I measure the true ROI of my ads?
One of the most common ROI metrics for Amazon advertising is advertising cost of sale (ACOS). This is calculated by dividing ad sales by ad cost. The problem with this figure is that it doesn’t provide a complete picture. Your ROI calculation needs to factor in both organic and paid sales activity, since ad-derived sales meaningfully impact your organic ranking on Amazon.
At Teikametrics, we encourage our clients to instead focus on total advertising cost of sale (TACOS). The formula for this is (ad sales + organic sales) / ad cost. Measuring ROI with this metric accounts for the flywheel effect within Amazon’s marketplace, and allows you to make better decisions when it comes to measuring the true incremental impact of your advertisements.
While you may spend slightly more on a per-click basis on Amazon during the holidays, being aggressive with your advertising is generally a good attitude for brands to take.
But doing so effectively within the Amazon marketplace means more than just increasing ad budgets or promotions. It means being smarter about how and when you deploy your advertising spend on the platform. This means being laser-focused on relevant, popular search terms, and always bidding to value, rather than based on budget constraints.
By consistently taking this approach, your brand will be in the best position possible to maximize sales during the holiday season. Additionally, by tracking changes to both ad-derived and organic sales over time, your brand will be able to better account for the total impact of advertising on Amazon and grow your market share over time.
This blog post is written by Teikametrics, an official partner of Zentail.