Bidding Strategies for Advertising on Amazon
- February 4, 2016 | Marcus DeHart
A lot of advertising we see these days uses what I call a scatter-gun approach to targeting. We see it on TV, we see it in apps, and we see it online.
Online, it’s that annoying pop-up window I see when I follow a link to a website. For a moment, I think I’ve landed on the wrong website -- after all, I clicked on a link to find out how to replace my kitchen sink; I wasn’t looking for a fool-proof diet to shed 20 pounds in 20 days. And then I notice the tiny “x” in the upper corner to close the pop-up and go to the information I really want.
The ad didn’t show up for me based on my browsing history. It wasn’t triggered by terms I entered into a search database. It was randomly selected from one of many ads in order to give the advertiser more impressions so they can justify selling the ad space on their website. I don’t know how many times I’ve accidentally clicked one of those ads before realizing what it was. Then I quickly hit the back key and return to the page I wanted to see.
The scenario above begs the question: How much is that click worth to the advertiser? I’m not interested in the product, so I’m unlikely to purchase what they’re selling. But what if, instead, the ad popped up based of search terms I had typed in like “weight loss,” “diet,” or “healthy living”? Finding a weight-loss ad might be more appealing to me and that click could result in a sale. Then how much is that click worth?
That’s the question you need to address when advertising on Amazon. To answer it you need to consider three components: campaign targeting, net profit, and performance over time.
Amazon Sponsored Products offers two different targeting types when you set up a campaign. The first leans more toward the scatter-gun approach above, but still connects the shopper to the product using search terms entered by the shopper.
For a campaign with automatic targeting, Amazon uses every possible word it can find to associate with your ads. Some will be great for driving clicks and sales of your products. Others could generate unwanted clicks due to ambiguity. For instance, if I search for the word “bit” on Amazon, I see three product ads on the right column: One for exercise cards, one for an ice auger, and one for a leather bit for horses. Each of those ads could be what I’m looking for depending what I mean by the word “bit.”
With manual targeting, you can weed out many of the ambiguous words that don’t produce many clicks or sales. Manual targeting narrows the focus of the ads, so that impressions are more relevant to the search terms than with automatic targeting. So bidding on ad groups with automatic targeting would be lower than campaigns with manual targeting.
In my last article, “Budgeting Strategies for Advertising on Amazon," I suggested using your net profit as a way to create ad groups in campaigns. This ensures that your bidding is in line with how much you can earn in profit on any product in the ad group. For instance, you might group your products by net profit tiers, such as $1.00 to $5.00, $5.01 to $10.00, $10.01 to $20.00, and so on.
The ad groups that contain low net-profit products will bid much more conservatively than other tiers because you could end up spending more on clicks than you will make in net profit. As your tiers increase, so should your bidding to ensure that your products win keyword auctions.
Performance Over Time
In “Discover Effective Keywords for Advertising on Amazon,” I introduced the concept of fine-tuning your targeting in order to improve your keyword performance. This involves a routine of monitoring your keywords on campaigns.
You can quickly do this for campaigns with manual targeting by drilling down from the campaign, to the individual ad groups, and then selecting the Keywords tab. This will provide a list of your keywords and how many impressions and clicks they receive, plus the cost per click, how much you spent on each keyword, how much you earned in sales (the price of the product, not the net profit), and the advertising cost of sales (ACoS). ACoS is a quick summary dividing the spend by the sales, so the lower the percentage, the better the performance.
The Value of a Click
Precise keywords are always more valuable than vague or ambiguous keywords. Targeting the right shoppers through keywords can improve your advertising on Amazon and boost your sales. Keep in mind that the more data (impressions and clicks) you have, the more accurately you will be able to evaluate ad performance.
In upcoming articles, I’ll explore advanced match types for keywords and why and how to use negative keywords to improve ad performance.