Over the next five years, retailers will prioritize their spending to focus on online paid search advertising and their Amazon businesses, according to a survey from search marketing firm NetElixir.
60% of small and midsized businesses surveyed said acquiring new customers was their biggest challenge. Therefore, NetElixir asked how companies are looking to effectively gain new customers in the next several years. 27% of small and midsized businesses plan to invest the most in paid search within the next five years, and 25% say they will spend the most via Amazon, the study shows. Spending on user experience on the company’s own website came in third, followed by search engine optimization.
NetElixir in May surveyed 503 U.S. business owners and managers of companies that sell products through Amazon as wholesalers or marketplace sellers.
“Interestingly, Amazon is the No. 1 planned investment for 25% of the businesses, coming in right after paid search. From this we can infer that 25% of businesses are actively seeing more return on investment in Amazon than elsewhere,” NetElixir says.
While Amazon is a top priority for many brands and retailers in the coming years, NetElixir’s survey shows many Amazon sellers are not participating in some of Amazon’s advertising services or haven’t yet figured out how to get the most effective results from them. For instance, 68% of respondents say they are not running paid ads on Amazon. Of the 28% that are running such ads, 40% say those ads have not been effective.
Sellers point to “lack of know-how” as the top reason Amazon ads are not effective. Having a low budget dedicated to Amazon came in second, followed by 21% of respondents saying ineffective ads may be a result of Amazon not being the right channel for their businesses.
Still, 27% of companies get half of their sales from marketplaces (including Amazon and other marketplaces such as Jet and eBay Inc.) and 50% from their own e-commerce sites. Only 8% of respondents say they get 100% of their sales on their own website. Among the 8% of companies currently not selling on marketplaces, 40% plan to invest in Amazon over the next five years.
Of the retailers that sell on Amazon, 52% say increased sales volume potential is the biggest benefit. The biggest downside is lower margins, the survey shows.
NetElixir’s clients that succeed on Amazon offset margins with lower overhead, such as using Fulfillment by Amazon and embracing Amazon’s custom programs like enhanced brand content, the search marketing firm says. Enhanced brand content is a tool that lets sellers add such rich content as images and formatted text to product descriptions.
15% of survey respondents said converting customers is their biggest challenge. To combat the challenge of converting consumers to buyers, retailers’ top planned investment over the next five years is to create a better user experience on their own e-commerce sites.