With the trend in retail toward ecommerce accelerating in 2020, retailers from major brands to single-SKU startups are flocking to Amazon as a sales channel, and as a result, it’s more competitive than ever. One area where strategy is becoming especially difficult for brands to navigate is around promotions. Sure, promotions have always been important on Amazon, but we anticipate in 2021 that promotions strategy will dictate your success like no year prior.

Advanced Amazon sellers participate in a range of promotions that not only includes discounts, but also coupons, best deals, lightning deals, BOGO, and more. At Metric Theory, we hear three main questions from brands about promotion strategy: How do we plan for promotions on Amazon? What are the options and implications for advertising strategy in 2021? What can we do to launch promotions without sacrificing our profitability?

How does a brand plan for promotions on Amazon?

Promotion strategy on Amazon goes well beyond simply prepping for Prime Day and Black Friday/Cyber Monday, so the planning process needs to start now. To maximize sales, brands should be considering promotions for Valentine’s Day, Mother’s Day, Memorial Day, Father’s Day, Labor Day, and other shopping holidays that brick-and-mortar retail have established for decades prior to the rise of ecommerce. With eMarketer projecting that the share of ecommerce gained during the COVID-19 pandemic will sustain next year and continue eating away brick-and-mortar through 2024, more common shopping holidays will be increasingly reliant on digital retail. Your promotions calendar should now always include related deals for the Amazon audience.

So, how much of a discount is enough to be competitive? The holiday period is still the time to pull out the stops on deals, but for other holidays, you can gain sales without having to sacrifice as much margin. For example, while running a 25% off discount/coupon during Prime Day and BFCM is common, on other holidays, our clients have seen promotions succeed at driving incremental sales between 10% and 25%, though some level of discount is advised.

It’s also important to add a promotion to your products before and after shopping holidays, not only to reap more sales, but also improve their products’ organic ranking. The A9 algorithm prioritizes products that have active promotions like coupons, lightning deals, and best deals. By having one of these deals 2-3 weeks before a major holiday (during the research phase) and 1-3 weeks post-holiday, that prioritized placement and the resulting sales can create a flywheel effect. For example, one client brand that activated this strategy in 2020 improved their organic ranking by 87%. With this strategy, it’s important to note that it doesn’t have to be a large discount. Even discounting from 5-10% would help your brand to stand out against competitors that usually turn their promotions off as soon as a holiday has passed.

How will promotions impact my advertising strategy for 2021?

Amazon promotions have proven not only to be effective with increasing organic sales, but also ad KPIs. By having promotions tied to your ads, there is a higher chance the ad will be placed near or at the top of search results. Coupons, best deals, and lightning deals all appear on Sponsored Product and Sponsored Brand ads, making your ad stand out compared even to other ads. And for ads with coupons, we’ve seen not only better efficiency, but improvements also in other KPIs that generate scale, like ad impressions, CTR, and perhaps most important, New-To-File customers.

With that sort of change in efficiency and scale, it may be necessary to update bid and budgeting tactics to fully capitalize on more holidays throughout the year. Take into account the promotion as part of your cost and ROAS/profitability goals, but budget for more spend and monitor results to be ready to push bids as ROAS grows. Exactly how much is going to depend on the holiday fit of your product, the promotion you’re running, and of course, your business goals. But a good way to gauge it would be to test a promotion on a limited budget basis using the before and after approach described above, monitor when your budget maxed out, and perform a lookback to adjust for the next holiday period. You can tweak elements like the promotion each time to start to learn more about the right promotion mix (Coupons, Lightning Deals, Best Deals, etc.) and campaign settings, and build an aggregate knowledge of rough expectations for the coming holiday.

Holiday advertising is always an exercise in willpower. You need to take a calculated risk that advertising more in the research phase will pay off with sales during the purchase phase, and keep in mind that it’s the result of the entirety of the holiday period that matters, not the specific gains/losses of a given day or week. Of course, the more you test the research phase and the period post-holiday, the more calculated that risk becomes. But these tests don’t need to be strictly incremental budget if you’re unsure or even skeptical of the outcome. Find other times when sales are naturally softer to consider down-shifting your budget so that you can apply it to these tests.

What other areas of their business do brands need to explore to increase their margins on Amazon to launch promotions?

As most brands know, Amazon not only has fees that come out of a product’s price on Amazon but also charges fees for promotions like coupons, lightning deals, and others. If a brand has tight margins on Amazon, it’s best practice to focus promotions on your highest margin products rather than the entire line of products. If a brand is on Vendor Central, there are negotiating tactics to reduce the fees in your contract. For Seller Central brands, it is more difficult to negotiate fees due to the standard FBA and/or referral fees. This doesn’t mean that a brand shouldn’t utilize promotions in some way. In addition to focusing on your highest margin products, it’s important to also analyze your competitive space to determine how much market share you want to take from your competitors.

If your goal is to be in the top 10, 20, or 50 products in your category, then it’s time to look at other factors outside of Amazon fees impacting your margins on Amazon. Are there ways to improve your sourcing? Manufacturing? Is it time to negotiate your carrier fees and logistical costs? These are all questions that not only apply to Amazon, but all other sales channels. You may find options that reduce your overall costs and allow room for more competitive discounting without sacrificing margin or risking profitability. This could in turn help increase your margins on Amazon to allow for more frequent and larger promotions. Any changes to overhead costs don’t happen overnight, but by evaluating these areas in the slower times of the year, it can help you prepare before the large shopping holidays that happen in the summer and fall.

In conclusion, we know there are many factors that contribute to your decision on if you want to run promotions on Amazon. But, we do know promotions on Amazon play a significant part in the A9 algorithm and your ad placements. Even if your promotion is as low as 5% or $1 off, it can help you stand out more on Amazon. Testing when to launch evergreen promotions and on-holiday promotions will be an important part of your Amazon 2021 strategy to see what works best for your brand.

Contact us to learn more about Amazon strategies.