Megan Harbold, head of ecommerce consulting group, Kenshoo
There’s a reason only 12% of Fortune 500 companies from 1955 still exist today. Nearly 90% of those companies didn’t make it, often because of failing to address intense market change.
Amazon has of course disrupted retail and now is on the precipice of disrupting digital advertising. For retailers to succeed with Amazon Advertising, their organizations need to play by its rules and manage it as a complex marketplace with a myopic focus on the customer experience.
Amazon rewards companies that play by its rules and meet consumer expectations—and penalizes companies that do not.
Four important steps for advertisers
Brands and advertisers can set the stage for success by completing four important steps:
- Define and align organizational structure
- Align advertising strategies to Amazon’s way of thinking
- Ensure agile decision making
- Meet profitability expectations
Define and align organizational structure
At Amazon, an army of algorithms runs the show. There are no buyers to schmooze and no one to walk you through the gates. These algorithms don’t care about your title or what company you work for. If you want to win with Amazon, your organization has to be aligned.
Traditional retail infrastructure—budgeting decisions, assortment alignment, and old school buyer relationships—must evolve to meet these changing dynamics for success with Amazon, and with other retailers following its pioneering path. With a growing opportunity on the horizon, aligning with Amazon today positions advertisers for future success.
Even modern advertising practices need to be reevaluated to work within Amazon’s unique marketplace. Most digital marketing ROI models focus on short-term, click-to-conversion tracking, which can be limiting. Amazon is a place to build brands, create customer loyalty, offer detailed product information, and sell goods. Sellers must keep products in stock, have great reviews, generate an increasing velocity of product page views, etc. Success metrics must be expanded beyond classic marketing metrics to include operations and bridging the gaps between retailers, channels and tactics to excel.
To succeed, a cross-functional approach that integrates all key brand functions must be closely coordinated to include sales, marketing and supply chain. Goals and objectives should align with budgets across these departments to work within Amazon’s model to keep the customer experience at the highest level. Establishing a dedicated, cross-department Amazon team generally works better than attempting to integrate a set of siloed functions.
Adapt advertising strategies to the Amazon way of thinking
Often a surprise to marketers not yet working with Amazon Advertising is that it doesn’t simply allow every brand to advertise. Brands must first meet consumer demand and Amazon eligibility thresholds. When an advertiser goes out of stock on an item, Amazon algorithms behind the scenes might begin to lower its eligibility and relevancy, resulting in higher costs and potentially delisted products.
These algorithms are in place to safeguard the consumer experience and penalized advertisers quickly discover that increasing relevancy again is not so easy. Amazon advertisers are evaluated algorithmically based on many factors such as in-stock rates, prices, profit margins, sell-through velocity, seller ratings, customer reviews, content quality, and conversion rates.
A brand doing everything else right from an advertising perspective that fails to keep up with Amazon’s rigorous fulfillment expectations can find it takes months to get relevancy back on track. Unlike other marketing channels where the worst outcome is wasted budget, making mistakes with Amazon can have a lasting negative impact on businesses.
Think about it this way: Google and Facebook optimize their platforms and bidding algorithms in support of whatever will drive the most ad clicks—which is how they generate most of their revenue. By design, advertising on Amazon stimulates commerce within the store—it’s not just a way (like most channels) to transport shoppers from one part of the internet to another.
Amazon prefers to focus on sales to drive more profit and lifetime value.
New ROI models that calculate lifetime value (LTV) or New to Brand (NTB) must be taken into account for these new realities. For example, a customer’s first few orders might not drive much revenue. In a standard marketing view, this means you are failing. But with Amazon, if customers continue to buy from you, they will generate positive LTV ROI in the long run. That’s not how marketing goals are usually set, but in an Amazon-world, it’s a different game.
Ensure agile decision making
Many brands have worked hard and invested resources to perfect their data-driven approach to decision making; so this can be a massive challenge.
Each step of the standard marketing campaign process—research, plan, target, buy, measure, optimize—requires strong data signals to understand how much to spend, where to spend and what creative works. This has helped advertisers to scale budgets because they have the information they need to continually optimize campaign performance and justify their investments.
In Amazon, this type of clarity is missing; this can lead to bad decisions or no decisions being made. Adopting new Amazon-specific data points can help:
- Organic versus ad-driven sales
- Search ranking
- Bestseller ranking
- Competitor prices
- Quantity of sellers
- Inventory levels
- Quality/quantity of ratings and reviews
- Days to purchase
- Ad placement
Search result placement, in particular, is key. More than two-thirds of product clicks happen on the first page of Amazon’s search results, with one-third occurring on the first two rows displayed.
If an advertiser’s product listings fall just off of the first page and it is aware of that, the advertiser could optimize those products to dramatically increase page views and sales. Lacking that awareness, advertisers miss the boat, trying instead to optimize the newest products or historical best sellers.
Advertisers must be much more enterprising when assembling a data practice for Amazon than other ad channels require. This means working with new partners, new technologies, and new business practices.
Meet profitability expectations
Profitability is key for all advertisers. With Amazon, advertisers also have to keep its profitability in mind, because its algorithms are vigilantly at work 24/7 to manage profitability.
By maximizing profitability—even in tiny incremental lifts—at scale across its entire marketplace, Amazon has built an incredibly efficient retail machine and one of the most valuable businesses in history. It rewards sellers that keep prices low, keep shipping times minimal, earn great reviews, and of course, provide Amazon with the most profitable return.
Amazon even appears to be getting stricter with its profitability thresholds. Brands that don’t play this game correctly can find themselves out in the cold; denied the ability to advertise or even have their products shown. Ineligibility can happen swiftly and without warning, making it hard to pace properly to budget and creating a severely negative lost sales opportunity.
Brands have begun to factor these Amazon expectations into products launches. Insights into profitability and contribution margin on Amazon, for example, may dictate new product line directions and assortment strategies in order to stand out in the crowd so that a brand can offer something slightly different than what most competitors offer. It may drive new, creative packaging solutions to speed up or lower the cost of shipping and storage.
Understanding this complex, algorithmically-driven world is difficult for most organizations, in which marketers know how to market, sellers know how to sell, and operations pros know how to operate. To align with Amazon, all three disciplines— Marketing, Sales, Operations—must get it right.
Brands—especially ones with large product catalogs—must track and monitor their activity to make sense of what’s happening behind the scenes. Doing so can unlock powerful insights to keep agile organizations ahead of the pack.
Kenshoo is a provider of digital advertising technology.