Rising Ad Costs, Increased Competition, and More Complexity:
Updated: Apr 19, 2022
How Amazon Advertising has changed over the last year (and will continue to through 2022)
But first, a dad joke…
Where’s the best place to hide a dead body?
Answer: The second page of an Amazon search.
What does our dad Joke have to do with the rising cost of Amazon advertising? Nothing. And everything.
Let’s play a game. Picture for a moment that millions of brand owners are all fighting to sell their products on the same Walmart shelf. Not the same shelf across all Walmarts, but the same shelf at one single Walmart store in the entire World. Can you see it? Good. Because that’s pretty well what’s happening on Amazon. Millions of sellers, one store.
Think about it. When a customer enters a search for say, toothpaste, it doesn’t matter where they are in the World, what time of day it is, or what their demographic is; there are only four products that will reach that highly coveted top-row placement of an Amazon search. 30 toothpaste brands? 4 top row placements. 3,000 toothpaste brands? Yep. Still just 4 top row placements.
What about the other 2,996 toothpaste products that don’t show up in the top row of a search? Well, they come up somewhere. It’s just not somewhere good. The most skillful of those will come up on the second row, maybe the third. But many brands are coming up on the 2nd, 3rd, or 20th page of an Amazon search for important customer searches. Who shops on page 3 of that toothpaste search? No one. …at least in a relative sense.
The data is incontrovertible. Customers - at least for the most part – choose most of their purchases from the top two rows of most Amazon searches. And they certainly don’t go beyond page 2 except on excruciatingly rare occasions. And most brands now realize that.
To make matters worse, an average of 2 to 3 of those 4 top row placements – depending on the search term, time of day, etc. – are paid Ad positions. In fact, a significant portion of the entire first page now consists of Sponsored Video Ads, Whole Foods offers, Sponsored Product Ads, and other non-organic placements.
Organic search placement has been virtually cut in half over the past year.
Why is this happening?
Amazon search is real estate. …digital real estate. It’s the digital equivalent of beachfront property in Southern California, vs. a plot of desert in the Mojave. So consider…
…if there are only about 42 placements on the first page of an Amazon search…
…and there are more and more sellers on Amazon every month…
…then it stands to reason that the demand for those coveted placements is going to rise.
The Bad News First.
By almost every measure, Amazon continues to monetize more and more first page product placements as time goes on. That is, they replace more and more organic placements with pay-to-play ad placements.
That means that paid spots are rising, and organic placements are disappearing. In fact, many experts and analysts believe that an average of 50% of organic product placements have disappeared from first page search results over the past year or so.
Our prediction? Within a year or two, the entire first page of some (if not most) of Amazon search results will consist of paid spots. Data suggests that Amazon shoppers are becoming more and more savvy about what is, and is not, a product Ad. Yet they click and purchase anyway. So, one might ask why Amazon would continue to give real estate away for free, when they can get paid for it?
Fact: Organic placements have decreased significantly over the last year.
Smart money says this trend continues.
Now for the Good News.
This is not the end of the Amazon Seller Universe as we know it. Dry those eyes, put the tequila down, and put that ice cream back in the fridge. Take a deep breathe. There’s hope.
There is not an unlimited threshold for Ad expense. There is a maximum Market tolerance for everything, and Amazon advertising is no exception. And so, if brands are going to be pushed off of Page 1 search results, yours does not need to be among them.
Rising costs or not, someone is going to end up on top.
Now we know what you’re thinking: “The brands with the biggest budgets are going to win.” We’re going to politely disagree. We’ve been beating the incumbent brands for our clients for years, and we don’t plan to stop. Smart wordplay, not necessarily deep pockets, is what has allowed independent brands to win on Amazon so far, and that doesn’t need to change now.
Check out these four things every Brand must do to win in an environment of rising ad costs:
1. Fortune Favors the Premium. Ever met a brand owner who has pined to become the Walmart of their product niche? Neither have we. Brand owners are a proud bunch. Most are hell bent on having products that are best in class. Yet when they go to Market, they compete on price. Big mistake. Can you imagine Jaguar competing on price with Hyundai? On the contrary, they compete on performance, or comfort, or status. Never price.
Here’s where premium positioning gets interesting. Remember that Amazon search for toothpaste? Well, it costs $2 per click for customer searches for “natural toothpaste”. It costs that for toothpastes that sell at $2.99, and it costs that for toothpastes that sell at $14.99. The cost of advertising may be the same for both – give or take – but the return is dramatically different.
Moral of the story? Be the expensive toothpaste.
2. Get Technical. The days of winging it with Amazon PPC are over. While it was once good enough to run a few Auto Campaigns, then dump a bunch of keywords into some Manual Campaigns, that time has come and gone. From here on out, the devil is in the details.
Winning brands are using Adjust by Placement, Dynamic Bidding, Day-parting, and testing various Match Types. If you aren’t partnering with someone who is savvy, or you aren’t building your in-house expertise, you need to be.
3. Build the Brand. This may seem cliché, but brand-building is winning on Amazon. What do A+ Content, curated Amazon storefronts, and Sponsored Brand advertising all have in common? They’re all Amazon brand-building tools, and they all increase customer conversion. In other words, they help turn clicks to sales.
Now if you’re wondering what that has to do with the rising cost of advertising, plenty. First, if you’re going to pay for a click, it sure helps when the customer opts to go on and buy your product, rather than moving on to one of your competitors. That’s the magic of increased conversion – which can be achieved by focusing on building that brand. Same clicks, more buys.
And if you hang in there long enough, if you put your brand in front of enough shoppers, there are some serious efficiencies. Some of the biggest household names are NOT selling on top keywords. They’re selling on searches for their brand names. We have been seeing this played out in data for a decade. And so, brands that stay the course experience other kinds of organic sales, like sales from brand specific searches, Subscribe n’ Save, etc.
4. Test, test, test. Then when you get done testing, test some more. Did we mention testing?
We know, for most brand owners, Amazon is a love-hate relationship. But you can’t argue the fact that Amazon offers sellers an unprecedented amount of data. Everything from customer conversion, to return on ad spend, to orders per sale, to click-through-rate is measured with exactness and offered to the seller.
There is no excuse to not be testing your PPC strategies right now.
What do you need to test? Everything. Test match types. Test ad types. Test bid thresholds. Test which variations you run ads for, what percentage you allocate to Dynamic bidding, and what keywords you rank for.
All of the above will have measurable impacts on CTR, ACOS, ROAS, TOS, etc. Test one campaign, get it right, then implement across your campaigns.
It Ain’t Over. You’re just getting warmed up.
Amazon advertising costs are rising. You won’t change that. But with every challenge comes an opportunity. As the advertising landscape becomes more complex, it will continue to screen out the weak and lazy. But you’re different. You’re a problem-solver.
So hire in. Hire out. Train your staff. Outsource. It doesn’t matter. Pick one and run with it. Brands that want to continue to win on Amazon are going to have to start paying attention.
The time to get savvy is now.
Message us at firstname.lastname@example.org, or DM us on Instagram or Facebook, to find out what we’re doing to help our brand partners win on Amazon and other digital Marketplaces.