June 18, 2019
Prepare for Amazon Prime Day, Whether You Sell on Amazon or Not
With near daily news stories regaling us with Amazon’s incredible ad business growth (129% YoY in Q2 according to Digiday), you’d be hard pressed to avoid it’s growing impact on digital advertising strategy. Many retailers have experienced strong ACoS (Advertising Cost of Sale: Amazon’s inverse ROAS metric) advertising on Amazon’s platform, adding to its allure. Despite the opportunities on Amazon’s platform, you should evaluate Amazon performance differently than other digital media channels as you go about finalizing your holiday budgets.
For a number of reasons (including not owning the customer experience or data), $1 of Amazon revenue is not equal to $1 of revenue from other marketing channels like Google or Facebook. It’s important to weigh the different considerations that should factor in your evaluation of Amazon performance.
Companies need to evaluate the total impact of ad dollars against total digital revenue. When you begin selling/advertising* on Amazon, make sure that holistic evaluations combine both website sales and Amazon sales against total advertising dollars. Once you start selling/advertising on Amazon, don’t be surprised if your overall website sales are down. That’s not necessarily a bad thing if the Amazon revenue increases have outpaced the decreases from your website sales, but Amazon sales are not entirely net-new. They will cannibalize some of your existing website sales.
*Advertising on Amazon and selling on Amazon are nearly the same thing. In many Amazon categories, ads take up 100% of the above-the-fold space and more beyond that. If you want to generate significant sales on Amazon, you have to run ads there.
It is common to see new Amazon revenue come at the expense of your Google Search & Shopping revenue. That cannibalization comes from both Amazon organic listings on Google and Amazon paid ads on Google (text and Shopping ads). If you sell on Amazon, Amazon will show up high in the organic listings on Google for your brand terms and Amazon will often run paid ads on your brand terms.
Independent of any ad dollars spent on Amazon, Amazon is also taking a 6 to 20% “selling fee” on all products you sell on its platform. You should add this directly into your ACoS or ROAS calculations when measuring the performance of your Amazon ads. While other costs (manufacturing, inventory, packaging, etc.) should be relatively consistent regardless of where you are generating your sales, this “selling fee” can make a big difference.
If you are selling clothing on Amazon and starting at a 23% ACoS on Google non-brand search vs. an 18% ACoS on Amazon ads, then Google is almost certainly more profitable. With a 17% Amazon selling fee, your true Amazon ACoS is closer to 35%. Make sure your regular Amazon ad reporting has some way of incorporating this.
When a consumer purchases one of your products on Amazon, you lose the customer relationship, the customer experience, and the data. While those are all difficult to quantify, they are all definitely a net negative compared to the consumer purchasing directly through your site.
Why is that? A consumer buying through Amazon does not experience your website, branding, or messaging. The user experience on Amazon is generally great: easy one-click checkout processes, free two day shipping for Prime members, etc. but it is also Amazon’s experience. When that consumer makes the purchase, Amazon is also the one who gets the customer data and information, as well as any brand loyalty. What is the impact of all this?
For all those reasons, we recommend that you require a lower ACoS on Amazon ads than other channels (put another way: you should demand a higher return on ad spend from Amazon than other channels). If you compare Amazon ads to a social channel like Instagram, for example, you must take into account that the highly visual and brand-aligned Instagram ad will have impact beyond the direct ROAS it drives. It will also positively impact future site visits, remarketing cookie pool growth, brand searches, and other metrics that drive impact revenue growth. You should therefore hold Instagram to a different standard.
Many advertisers should be investing more, not less on Amazon and Amazon Ads, provided it is right for their business. However, it is vital that those decisions weigh Amazon performance and revenue against the reality of selling fees and lost brand experience. Amazon is a high-volume sales and marketing channel. If you have healthy enough margins and the above data/customer concerns are not a roadblock, then you should at least consider selling and advertising a few products on Amazon. Treat it as a marketing expense to generate brand awareness on one of the largest shopping channels. You may even be able to generate more website sales if you are careful with your product choice and make consumers come directly to you for the rest of your products.
Whatever your breakdown in budgets and channels this Q4, make sure your digital media spend and digital sales aren’t evaluated in a silo.
Need help running your Amazon ads? Contact Metric Theory for a growth discussion!