Every year, e-commerce brands sell billions of products to more than 300 million customers through Amazon's marketplace. On peak days, Amazon shoppers buy as many as 11,500 items per minute. Data like this clearly illustrates why Amazon remains one of the most valuable marketplaces for brands to invest in.
And they're definitely investing: Three-quarters of Amazon brands spend time and money advertising on the platform. While once-insurmountable leaders such as Facebook and Google have lost their share of digital ad revenue in the U.S. , Amazon's revenue share is still growing; by 2023, it is expected to nearly double what it was four years ago .
In this land of e-commerce opportunities, however, nothing is gold. While there is no shortage of brand advertising on Amazon, the ROI many people are seeing on the platform has been declining. From 2020 to 2021, the average return on ad spend for campaigns promoting products in various price ranges on Amazon decreased by at least 10% and as much as 36% year over year. The challenge is even more urgent as brands end market unpredictability for the third year in a row and look to a new year with tighter budgets.
In recent years, the entire e-commerce industry has been affected by unpredictable events, from global pandemics to supply chain issues. Today, other factors are exacerbating these challenges.
In the U.S., 84% of consumers say their spending has changed due to rising inflation, and how shoppers save money has a major impact on brands. Nearly 50% are switching brands to save money, and nearly 40% are buying less or not using certain products at all.
Data from the Consumer Trends Report Q3 2022
As a result, brands lose a degree of strategic predictability. Consumers who might have bought from your brand even a few months ago might not buy your product today, and once-loyal customers might turn to other brands when faced with price increases. This creates a higher risk for your brand to see a drop in conversion rates on Amazon, ultimately resulting in a lower ROI.
However, as consumers combat inflation by giving up brand loyalty in favor of lower prices , there is also an opportunity to grab the attention of shoppers who may have previously excluded your brand. But as consumers diversify the channels through which consumers find and buy products, brands are also faced with diversifying advertising — which could mean more costly testing campaigns for new channels and fewer frozen budgets.
While 63% of consumers start their online product searches on Amazon, social media is growing in popularity in e-commerce. When researching products, 32% of consumers now start with YouTube, 27% on Facebook, 21% on TikTok, and 20% on Instagram. Even when looking for items and discounts related to sales events in specific markets, such as Amazon Prime Day , it's often social media that directs consumers to listings. The Consumer Trends report clearly demonstrates the growing role that social media is playing in shopper buying behavior:
From Q2 to Q3 2022, all channels included in the Consumer Trends Survey: YOUTUBE, FACEBOOK, INSTAGRAM, TIKTOK, TWITTER, and LINKEDIN have increased the likelihood that consumers will buy directly from social media .
As the e-commerce channels consumers use to shop continue to expand, so must brands. In less than a decade, the change has transformed the ad mix , opened up access to new audiences, and encouraged marketplaces like Amazon to roll out shoppable content like livestreaming.
At the same time, this expansion means brands are managing more channels, budgets, campaigns and reports. It also means that as social platforms emerge, rise, and sometimes fall, more agility is required to focus on the jobs with the highest ROI. And, as giants like Apple roll out new consumer privacy policies, social media is becoming a channel , advertising is increasingly necessary, and achieving RoAS goals is increasingly difficult.
In April 2021, Apple's App Tracking Transparency (ATT) went into effect, providing users of its devices with the ability to opt out of third-party tracking. For many social platforms that rely heavily on third-party data for ad targeting, the benefits of consumer privacy protection are being hit.
Just two months after AT&T launched, social media advertisers saw their revenue drop by 15-20% as advertising became less effective. In the second half of 2021, YouTube, Snap, Facebook and Twitter all reported revenue losses as businesses moved ad dollars away from the platform. The change is estimated to cost Facebook $12 billion by the end of the year.
First-party data is collected by tracking activity within the collection platform's application; third-party data is collected by tracking activity outside the collection platform's application .
However, for a channel like Amazon that relies on first-party data, positioning is largely unaffected by the AT&T rollout. This fact makes Amazon a popular destination for brands to divert their advertising budgets from social media. But, in turn, increased Amazon ad spending means more competition on an already crowded platform. It’s easy to see why 59% of Amazon brands say increased advertising costs are a major concern: More bids from new advertisers, combined with higher bids from existing advertisers, may equal increased costs for all, resulting in Return on investment declines.
5 Tips for Maximizing ROI on Amazon
Brands face more time and cost to manage and analyze their e-commerce performance with less certainty about potential returns. This makes budgeting, planning keywords, forecasting trends, retargeting customers, and optimizing campaigns more difficult. When this happens, brands find themselves facing three questions that may be harder to answer now than at any time in e-commerce history:
How do I determine the most effective advertising dollars to invest?
How do I balance the ROI of channels with lower returns but more popular among consumers?
How can I ensure that the tools and processes I invest in will have the greatest long-term impact on my brand ?
1. Analyze the price point of your lead product
With many consumers actively switching brands to save money, product pricing will greatly impact the ROI of your organic and paid promotions. Additionally, lower prices have been one of the top three reasons consumers shop online instead of in-store.
Monitor the price points of the current top-performing products. You may find that previously top sellers with a higher average selling price (ASP) are now being surpassed by products in a lower price range.
Shifting your budget from promoting high-priced products to promoting low-priced products can help improve your Amazon ROI. Whether or not you shift ad spend toward lower-priced products, your competitors are likely to be: Early 2022 data shows a significant increase in ad spend on products in the $21-30 and $31-40 price ranges, while the overall share of 50 Ad spend on products of USD and above declined.
2. Promotional discounts
Consumers are very interested in deals and discounts and looking for them. Earlier this year, 76% of consumers said they were actively looking for deals when shopping, and 52% said they only buy on sale.
On Amazon in the last 90 days:
3,672% increase in searches for “Best sellers” 424% increase in searches for “Deals on Amazon today” 328% increase in searches for “Lightning deals today” 160% increase in searches for “Bad deals” “Coupons and 120% increase in searches for "promo codes"
Research competitor pricing on products similar to yours to gauge the price points shoppers are comparing. You can use market insight tools to track your competitors' ASINs, so you can constantly measure the strategies you're facing and can monitor when your brand is at risk of losing sales to lower-priced competitors (and facing lower outcomes) ROI). Where possible, combine ad campaigns with discounts on products you promote to increase the chances of conversions.
3. Try new ad products and targeting strategies
In 2021, returns on Amazon advertising campaigns have generally been on a downward trend — but one ad format isn’t following suit. RoAS for Sponsored Brands and Sponsored Products fell 41% and 18% year over year, respectively, while RoAS for Display rose 68% .
Returns for all ad targeting types were trending lower over the same period, with the exception of complementary ads, which saw a 12% increase in RoAS. Research has also found that the creatives used in your Amazon ads can have a significant impact on CTR, CPC, and ACoS.
With the ability to promote your products on and off Amazon, Sponsored Display ads can be a worthwhile investment in advertising dollars your brand is looking to divert from social channels. To maximize ROI on all campaigns and help your brand compete with other advertisers switching from social to Amazon, also consider experimenting with various PPC targeting types and integrating video into your ads whenever possible creative.
4. Reallocate social media investments
While consumer privacy is a growing concern, consumers are not entirely opposed to targeted advertising. In fact, 42% said being "followed" on the internet through brand or product advertising actually helps.
Even with restrictions on the targeting of ads, social media is still an important part of the e-commerce mix. More and more people are discovering and researching products on social channels — but many are still re-navigating to Amazon to actually buy.
Key consumer behaviors after finding a desired product on social media:
Found a product on Amazon and bought it Visit the product/brand's website to learn more Found a similar product on Amazon and bought it
The time and budget spent talking to audiences who don’t buy your product can eat into your ROI like an ice axe. Since you can use less precise targeting, review your brand’s social media strategy to make sure you’re spending the most on the channels that are most likely to convert for your audience.
Data from the Consumer Trends Report Q3 2022
5. Calculate your ecommerce tool investment
Your brand also needs to: 1) invest in tools to help maximize the ROI of your Amazon strategy; 2) tighten your budget and it becomes even more important to ensure that your tools themselves have a consistent ROI.
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