Amazon’s advertising business is meeting, and, in some cases, exceeding the early best projections of what it could be. While earnings are now broken out separately, Amazon’s ad business wouldn’t exist in isolation, and it is greasing Amazon’s retail flywheel with high-margin ad revenue.
In 2021, Amazon reported $31.2 billion in standalone revenue from ad services, which allow brands to gain visibility and drive sales. However, advertising on Amazon in 2022 is not without its challenges. Brands need to develop a game plan to manage an advertising strategy and budget, rising PPC costs, and supply chain disruptions.
I’m Connor Folley, co-founder and general manager of Downstream. I worked within the walls of Amazon and have two decades of experience in advertising. These are my top strategies for overcoming challenges and embracing opportunities when advertising on Amazon in 2022 — and my predictions for the future of the platform.
Top challenges for enterprise brands on Amazon in 2022
As we noted in our 2022 Amazon Advertising Report, brands on Amazon face a number of challenges from supply chain issues to inflation and rising costs. Fortunately, there are strategies and solutions to overcome these challenges and take your brand to the next level.
Supply chain disruptions
As many as 93% of ecommerce brands in 2021 lost revenue due to supply chain issues. The latest lockdowns in China have hampered manufacturing in the country, creating disruptions for brands that import goods from the country that are already plagued by increased shipping rates and logistical delays.
Many brands have been pushed to reconsider their advertising strategies as a result. It’s important to plan for these disruptions. You have most likely already identified your hero ASIN for a particular category, tactic, or keyword, but it’s also helpful to know your other top ASINs, so you can pivot when disruptions occur.
Set triggers for when to stop advertising for your hero ASINs and start advertising for your other top ASINs. Determine how many weeks of cover (the number of weeks of on-hand fulfillable inventory based on sales for the past 30 days) you need to have before you decide to pivot your advertising strategies.
If you are running your advertising programmatically through a solution such as Downstream by Jungle Scout, you can use rules to automatically transition to your non-hero ASINs. In either case, you don’t want to be spending money just to run a product out of stock, especially if you are going to have supply and production constraints down the line and not be able to backfill orders anytime soon.
Anything that we do in Downstream could technically be replicated with human beings, but the scale would just be obscene. You’d be talking about millions of people. So I would suggest using technology like Downstream.
Rising PPC costs
59% of brands on Amazon say increasing ad costs are a major concern. Being a 2nd price auction, this is largely a function of supply and demand. While Amazon receives more product-related searches than all other search engines combined, it still has a finite amount of search or digital shelf inventory.
The pandemic, and the resulting mix shift from brick-and-mortar to ecommerce, dramatically increased the value of ecommerce shelf space and decreased the value of brick-and-mortar shelf space. There are simply more advertisers that are willing to pay higher prices for a finite amount of digital shelf space.
As a result, enterprise brands are looking for greater investment efficiencies. They see CPC costs skyrocketing, and they are looking for ways to be smarter about bidding. For example, you might be spending a lot of money at times of the day when you suspect that your customers are not, in fact, shopping.
You can use strategies like dayparting to control your spending with bid multipliers for each day of the week or each hour of the day. This way you are only spending money on advertising at the times of the day when customers are actively looking for your products (e.g., early evening instead of the early hours of the morning).
Ecommerce tools like Downstream allow you to programmatically employ Dayparting instead of manually making changes to the Amazon Ads Console. Downstream’s Advanced Budget Control also enables you to set different campaign budgets for different days and distribute the budget evenly throughout the day.
You can also use Amazon’s Ad console to employ schedule-based rules and performance-based rules. The first tool enables you to set budgets for Prime Day, among other occasions, or specify a custom time frame. And you can use performance-based rules to raise your budget when a certain goal (e.g. ACoS) is met.
Managing an advertising strategy and budget
Nearly half of Amazon sellers say managing their advertising strategy and budget is a challenge. After all, advertising on a retail platform is more complex and dynamic than other performance advertising. Consider these factors which make retail media so complex:
- Scale: A brand like P&G has over 10K SKUs on Amazon alone.
- Amazon is a highly dynamic advertising environment: Promoting each ASIN successfully requires that you account for each product’s constantly changing price and profitability, inventory constraints, ratings and reviews, and many more dynamics unique to ecommerce retail.
- Rapidly expanding ecosystem: Now compound this across Walmart, Instacart, Target and Kroger, and you have a huge opportunity that requires exponentially more operational bandwidth to capitalize on.
Addressing these three pain points is why solutions like Downstream were developed and why this category of technology has been growing so quickly. Automation can help you quickly scale growth while improving ROI, RoAS, and operational efficiency with automation and actionable insights.
Whether you use automation to streamline your ad spend, or you use Amazon’s Ad Console, you can consider dynamics such as RoAS. The Health & Household category yields the lowest average RoAS, while categories with the highest RoAS include electronics and musical instruments.
This trend correlates with the average selling prices: Health & Household products tend to have low prices, but they are also sold by large CPG companies with the largest advertising budgets on earth. By contrast, RoAS in categories like electronics and musical instruments is buoyed by much higher average selling prices.
The road ahead: Amazon advertising predictions
Amazon is going to continue to invest heavily in OTT advertising
Over-the-top (OTT) media opens up a lot more ad inventory for Amazon, which is a top priority for the platform. We are likely going to see a lot more innovation around the live shopping experience, which is just the next evolution of content consumers are accustomed to seeing on QVC. Also, video within search has been very performant, and we’re likely going to see more innovation around that.
Brand investment in brick-and-mortar might not recover
Brands used to justify investments in trade shopper marketing – i.e., shelf slotting fees, end caps, and coupons – with traffic in brick-and-mortar stores. That traffic turned into eyeballs and clicks online during the pandemic, so ad spend moved from in-store to online.
Sometimes big mix shifts are just a justification for moves that brands want to make anyways. Once brands get hooked on the attribution afforded by Amazon, they might not go back to buying shelf slotting at a brick-and-mortar store that is not so tightly attributed to an actual sale.
PPC costs on Amazon will stabilize
PPC costs will probably stabilize for a while. Given the current economic climate, there will likely be some pullback. We’re also seeing a lot of shake-ups around what’s happening in the seller economy. Expect some stabilization for the foreseeable future and PPC cost increases that won’t be as abrupt as we have seen in recent times.
Retail APIs are some of the most valuable innovations by Amazon
Amazon is providing more Vendor Central reporting capabilities. This is valuable because the unique thing about Amazon advertising and retail media is that you need a comprehensive view. You don’t want to be driving traffic to a product detail page if that product is going to be out of stock.
If there’s one thing that’s consistent across my time, both within the walls of Amazon and outside of them, it is that Amazon is going to continue to test, learn, innovate, and iterate. And they’re not afraid to fail.
Amazon is continually enhancing its advertising console and its API capabilities, which thus is providing partners like Downstream with more capabilities and a stronger platform.
Future advertising strategies
Developing and executing an Amazon advertising strategy is a never-ending process. As Amazon evolves its platform, it is critical that brands continue to study the market, build and test new strategies, and reevaluate their game plans with new data. By being agile, brands can position themselves to win on Amazon – and beyond.
About Connor Folley
Connor is the General Manager and Co-founder of Downstream by Jungle Scout. Connor led teams internally at Amazon and on the agency side, and his understanding of Amazon and its unique demands is truly one of a kind. The world’s largest consumer brands have sought Connor’s ability to decode the confounding black box that Amazon represents, and hundreds more use Downstream’s technology to drive share on the platform.
Downstream is the leading automated advertising and analytics solution and is part of Jungle Scout’s suite of ecommerce solutions. Jungle Scout is the leading all-in-one platform for selling on Amazon and beyond. Founded in 2015 as the first Amazon product research tool, Jungle Scout today features a full suite of best-in-class business management solutions and powerful market intelligence resources to help brands, agencies and investors manage their ecommerce businesses.