The Price Of Amazon Advertising Success

Author: Lauren Houseman, Amazon Advertising Specialist at Luminary Retailers

In online commerce, Amazon holds a significant sway, excelling in both e-commerce and advertising. This dual role has profoundly reshaped how businesses engage with their audiences, especially within Amazon's ecosystem. As businesses seek to make their mark, Amazon advertising has emerged as a leading platform, providing unparalleled chances to connect with a highly converting audience. Yet, underneath this advertising dominance, a concern looms – the relentless rise in advertising costs on the platform. 

INCREASED SATURATION & RISING AD COSTS

In 2022, Amazon's advertising revenues reached $37.7 billion, marking a shift from historical growth trends. The rise in ad sales from 2021 to 2022 was 20%, notably below the impressive 58% growth in 2021 and the substantial 147% surge in 2020 according to JungleScout. This shift urges brands and sellers to diversify their advertising investments, looking further into holistic efforts of advertising in order to drive success on Amazon. 

While the growth of Amazon as an advertising platform is promising, for small and medium-sized brands, the rising costs of advertising on the marketplace pose steep distinct challenges. Over the last few years, Amazon CPC prices have steadily increased year over year, in more recent years, CPCs have increased by almost 22% from 2022 to 2023 stated in an Add People post. With an average CPC of $1.35 already in March of 2023, the escalating competition on Amazon continues to reflect on these costs creating the need for more adaptation for smaller businesses in order to remain competitive with those with larger advertising budgets. 

HOW ORGANIC IMPACTS PAID

To help achieve sustainable paid advertising efforts on Amazon, striking the right balance between paid advertising efforts and organic search visibility has proven to provide stronger results than relying solely on either approach. Bids alone will not ensure optimal advertising performance, it is also vital for brands to take customer reviews, star ratings, product relevance, and sales history under consideration as all of these can impact how paid advertising performs. Amazon strives to help contribute to a happy overall customer experience meaning, they will select and show the most applicable ad to a customer if it means it will result in a conversion.

For example, when a relatively smaller, lesser-known company enters an ad auction and targets the same audience as a larger, more established brand with better consumer and historical sales performance, Amazon’s algorithm is likely to prioritize displaying the ads from the brand with more sales history associated with the ad target while the lesser known brand with limited sales history for the ad target will likely populate in lower ad placements until it can establish historical data. This is because the algorithm anticipates a higher probability of conversion stemming from the brand with more historical sales data. 

Having said that, smaller brands especially new-to-market brands must invest greater effort in organic support to enhance the desired visibility of their ads. Strategies like PR or influencer collaborations along with product awards, accolades, and even clinical research stand out as essential to enhance platform traffic and boost brand trust and familiarity. Our research indicates that when these strategies operate together, advertisers experience 30% lower advertising customer acquisition costs, with ads converting 28% higher for brands implementing a holistic brand strategy integrated with Amazon. These efforts paired with consistent promotional efforts, well-optimized product listings, evolving SEO strategy, and ongoing customer care efforts contribute to the credibility needed for long-term sustainability. 

ACHIEVING SUSTAINABLE METRICS

Another critical aspect of achieving sustainable advertising performance on Amazon is embracing specialized strategies tailored to the platform and the ideal customer of the brand. These approaches may involve ultra-refined ad objectives and campaign structures to optimally segment data for better insights. This aids in a more comprehensive comprehension of performance metrics, allowing businesses to make accurate adjustments in line with KPIs and ad budgets that cater to both new customer acquisition and the retention of the existing customer base. Other approaches include optimization processes that assist with budget absorption such as day parting, negative keyword refinement, and placing maximum bidding thresholds. 

To accommodate the rise in optimization practices needed for sustainable advertising performance, many third-party PPC software partners have scaled and allowed for the automation of these optimization processes, providing more meaningful ad insights than the native platform itself can give. Many of them also allow for customized metrics utilizing product COGS which provides an essential view when it comes to advertising sustainability. 

Lastly, another tool to consider when achieving sustainable ad practices and overcoming the rising ad costs is  Amazon Marketing Cloud, which is an Amazon tool that provides the opportunity for advertisers to create connective advertising strategies. AMC provides critical high-value consumer metrics, both paid and organic, that are associated with your paid efforts.  Data such as catalog entry points, path to purchase, new-to-brand customers, and customer lifetime value metrics all can be used to identify which ad types, strategies, and products can help bring in new customers and support long-term growth for the brand. 

As the Amazon advertising landscape evolves, these approaches empower businesses to navigate challenges and flourish in the competitive environment. New dynamics on the platform have amplified competition among sellers and brands, driving them to explore innovative stand-out methods. While the rising costs on Amazon may seem daunting, it’s essential to remember that with the right strategies and insights, businesses can not only survive but thrive in this dynamic ecosystem by employing a well-rounded approach that includes both organic and paid methods that brands can use to mitigate the impact of increasing cost and also gain a competitive edge.

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