Andrew Altersohn, general manager of enterprise brands at Feedvisor
If you’re not advertising on Amazon today, you are in a rapidly shrinking minority.
According to Feedvisor’s recent survey of more than 1,000 U.S. brands, 88% of respondents actively leveraged Amazon Advertising to drive growth in their ecommerce business—a sizable 21% increase from 2019. Additionally, 41% of brands saw the need during the pandemic to craft an Amazon advertising strategy, seeing it as a critical gap in their go-to-market plans.
Why are more brands jumping on the Amazon advertising bandwagon? Why are so many shifting budgets to Amazon, away from Google and Facebook? It’s because advertising on Amazon works.
More important, if you are selling on Amazon but not advertising on the platform, you may see the impact on your bottom line, as evidenced by the following trends.
1. Brands report strong returns from Amazon advertising
More brands embrace Amazon advertising because of the platform’s ability to generate strong returns. Specifically, our survey revealed that 51% of brands saw a return of seven times or more on their Amazon Advertising initiatives in 2020, up from 47% the previous year. Additionally, 39% of brands saw returns of four to six times on their Amazon ad spend.
2. Increased competition is driving greater spend on Amazon advertising
Amazon advertising is becoming an increasingly competitive playing field due to the influx of new brands adopting the platform and existing advertisers expanding their usage of Amazon Advertising this past year.
This rapidly growing competition—coupled with the substantial ROI opportunity—pushes businesses to up their Amazon ad spending. According to our study, brands allocated 28% of their 2020 digital media budgets to Amazon, up from 25% in 2019, while allocating less to Google and paid social—22% and 23%, respectively—marking a substantive shift in brands’ media spend towards Amazon.
As a result of these shifts, Amazon’s ad revenues grew to over $15.7 billion last year, according to eMarketer, increasing its market share of U.S. digital advertising to over 10%. We expect to see brands continue to expand their ad spend on Amazon in 2021 as the company continues to build out its ad offerings and brands continue to see tangible ROI from their investments.
3. Brands see value in Amazon’s pay-to-play advertising model
Each year, ads take up greater real estate on Amazon’s marketplace, increasingly replacing product recommendations and search results. Advertising is now an essential component of an Amazon strategy, and brands are willing to invest in strategies that generate results.
Given Amazon’s pay-to-play model, 64% of brands on Amazon said their Amazon customer acquisition cost (CAC) is higher than that on other platforms, up from 55% in 2019. However, 27% said their Amazon CAC is the same as other channels, while 10% said it is lower.
Despite the higher CAC, 100% of brands said they see value in Amazon Advertising, up from 98% from 2019. This demonstrates the benefits and opportunities of pay-to-play strategies when operating in a hyper-competitive environment.
4. More brands incorporate Amazon DSP into their mix of ads
In 2020, more brands began using the Amazon DSP (demand-side platform) as a complementary Amazon resource to maximize their advertising performance. Amazon DSP is a demand-side platform that enables ad buyers to programmatically buy display, video and audio ads on Amazon and other platforms.
Overall, 26% more brands leveraged the Amazon DSP in 2020 compared to the previous year. In addition, 51% of brands on Amazon cited the DSP as producing their greatest return on ad spend (RoAS).
Although Amazon DSP receives less click attribution, brands increasingly recognize its pivotal role in the customer journey. Expect brands to continue exploring Amazon DSP’s capabilities, integrating DSP strategies with Sponsored ads, and experimenting with new ad types to reach shoppers throughout the funnel as Amazon expands its suite of ad offerings, both on and off-platform.
5. Sponsored products generate the greatest RoAS
While brands find great value with each of Amazon’s ad types, Sponsored Products was the standout among those surveyed in our report. Over half (56%) of brands said Sponsored Products generate the greatest RoAS, with Sponsored Brands and Sponsored Display coming in second and third on the list, respectively. Amazon’s advancements in boosting Sponsored Ads’ targeting capabilities, the addition of new features like Sponsored Brands Video, and the introduction of Amazon Attribution have been important. They have opened new doors for brands to elevate their ad strategy and broaden their full-funnel reach in personalized ways.
As Amazon Advertising becomes increasingly complex, brands must leverage strategic technology partners to optimize their ads to reach their target audience, maximize their spending, and increase conversions. For example, a combination of manual and automatic Sponsored Products campaigns will best optimize keyword harvesting for ads and will ensure comprehensive coverage on relevant search queries.
As well, structuring products into proper ad groups can have a substantial impact on the campaign performance. This allows brands to execute more precise and granular bidding while accounting for differences in pricing and conversion rates between various products.
New advertising strategies are a must
The past year has led to significant changes in the way retailers engage customers on platforms like Amazon. Brands are discovering powerful new strategies and better growth opportunities as a result.
As competition and budgets increase, brands realize the importance of taking a strategic approach to advertising on Amazon. What’s more, recent reports also predict Amazon will continue to inch up on the Google-Facebook duopoly. That’s a signal that brands are increasingly turning to the e-commerce giant to help them reach an expanding base of online shoppers directly at their purchase destination.
As brands invest more in the platform, they must ensure their businesses employ the right data-driven strategies to capitalize on these benefits and connect with online shoppers. For example, a custom Amazon Store can create an immersive brand experience that conveys the brand’s story and values to resonate with consumers. Brands can also leverage custom images, videos, headlines, and logos with the new customization capabilities of Sponsored Brands, Sponsored Brands Video and Sponsored Display.
To succeed in this rapidly evolving landscape, brands must have the right strategies and partners in place to optimize advertising on Amazon. This will ensure that every dollar of your budget goes to driving results and the brand doesn’t get left behind by competitors.
Feedvisor is an online marketplace technology vendor.
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