Amazon advertising: What brands need to know

Apple threw a wrench into digital marketing playbooks last year, when it implemented changes that allow users to opt out of tracking by mobile apps. The privacy changes affected third-party applications’ ability to obtain user data for remarketing and retargeting. Now, brands are acclimating to a post-Apple iOS14 world and grappling with a loss of signal that’s only expected to further deteriorate in the coming years.

As this change disrupts their digital marketing playbook, savvy brands are pursuing incremental volume in new channels like marketplaces. Amazon advertising stands out as a growth opportunity, but there are some things to know before investing in it.

Beyond Facebook & Instagram

Virtue Labs, an organic haircare and beauty brand saw a significant impact on its digital marketing efforts after Apple’s privacy changes, most notably in the form of signal loss on digital channels like Facebook and Instagram.

By December 2021, 89% of all Apple devices in the US were already on version 14.5 or later, leaving brands like Virtue Labs wondering how to reach their consumers.

With frequent changes in data privacy, marketers must focus on channel diversification. Consumers are rapidly shifting how, when, and where they buy. A Forrester Consulting survey in partnership with Criteo found that 76% of US-based consumer product marketers and 92% in the EU say their growth depends on retail media advertising.

An ongoing reassessment of how and where brands show up is becoming more important by the day. Marketplaces increasingly play a more significant role in the e-commerce channel mix.

Benefits of Amazon advertising

In the retail media space, Amazon stands out, capturing nearly 80% of all U.S. retail media ad spend in 2021. There are a few reasons for this. One is that more shoppers are turning to Amazon for their pre-purchase research.

The online retail giant is now the third-largest search platform, representing a sizeable customer acquisition opportunity for brands experiencing signal loss on other digital channels.

Listing your products on Amazon connects brands with an extremely active segment of shoppers, enhancing longer-term brand awareness.

Amazon’s closed-loop shopping ecosystem also provides unique visibility into online shopper behaviors and insights.

Beware these Amazon gotchas

While Amazon offers a major opportunity for revenue growth for e-commerce brands, there are a few factors to remember for this critical channel investment:

1. Rising listing costs on Amazon. Amazon ad costs have steadily risen. Throughout last year, the average cost-per-click hovered right around $1.16 to $1.20, a 30% lift from $0.76 at the start of 2021, making it complicated for smaller brands with lower budgets.
2. Referral fees. To list on Amazon, brands must also pay referral fees. These fees vary per product category, but they range from 8% to 20% of the total sale price.
3. Customer insights are less straightforward. Brands don’t have access to Amazon buyers as they do with customers they acquire directly through their own website.
4. Lack of brand control. With less control over branding elements within Amazon’s platform, some e-commerce marketers share concerns about a cheapened brand experience due to the limitations of Amazon Ads’ user interface. For instance, brands can’t customize ad experiences as they can on other ad platforms, which could hurt  ad performance.

While these barriers have discouraged some brands from embracing Amazon in the past, investments in new ad formats and features, combined with loss of performance across other digital channels are changing that calculus, and making Amazon an indispensable platform for incremental growth.

Amazon advertising trends to watch

The shift to Amazon certainly worked for Virtue Labs. They invested more efficient ad spending into alternate channels to help diversify their media mix and hit their growth and revenue targets. Now, they’re pushing new ad types and investing more into programmatic ads, with Amazon surpassing Facebook as their highest-performing channel.

Here are some trends that brands should keep an eye on when advertising on Amazon:

A shift towards upper-funnel ad formats. Video advertising is growing fast. The two most popular posts on Amazon Ads’ blog focus on emerging ad formats and are related to video ads and programmatic Digital Signal Processing (DSP) solutions. This effort by Amazon to reach outside of their platform to attract buyers from other platforms shows that their marketplace is addressing brand control concerns through an elevated customer experience. Brands can now tell a more compelling product story.

Accelerated digital ad revenue. Before the pandemic, Amazon made aggressive moves to grow net ad revenues at a fast rate—leading Google and Facebook by more than 10%, according to eMarketer. This growth increased through 2020-21 and is expected to accelerate through this year—reaching $40 billion by 2023.

Most ad revenue comes from Amazon’s two search ad products. Sponsored Product Ads (product listings alongside organic search results), and Sponsored Brand Ads (keyword-targeted ads appearing above organic results that include visual brand creative) today create the biggest source of ad revenue. As sponsored posts become a bigger priority for search results pages and organic listings continue to lose importance, Amazon’s investment in improved consumer ads will prove critical for brands.