AMZ Ads Campaign and Bid Strategy, Part 1 - A Look Behind the Curtains
“Magic is just science that we don’t understand yet” – Arthur C. Clarke
I’m often asked what seems at first to be a fairly simple question…”How much should I bid in my ad campaigns?” Before answering that, we should review (at a high level) the foundational elements of what exactly “bidding" means, what the auctioneer (AMZ itself) is taking into consideration and what it is we’re trying to achieve with our ads. After that, we can look at beginner/intermediate campaign and bid strategies and finally tie things together with some basic management tips and tricks that will ensure you get the most of your listing’s potential through ads.
To keep things neat and tidy, I’ll try my best to cover the above over the course of 3 articles, 1 released each week or so to allow enough time to absorb the information but not so much time that the information fades from memory. For the purposes of these articles, I’ll use the terms “keyword(s)”, “keyword phrase(s)”, “term(s)” and “search term(s)” interchangeably because for the purposes of this article, they all mean essentially the same thing. I hope that all makes sense.
What is a bid and what are we bidding on?
Simply put, AMZ ads work in an auction format. Every time a consumer sits down at their desktop or picks up their mobile device, opens AMZ and enters a keyword, a predetermined number of advertising spots open up to be auctioned off as “sponsored” placements. On a single results page, there’s typically 12-15 spots reserved for sponsored ad placement. Multiply that times the number of results pages a given search term might garner and it’s not difficult to see that there’s hundreds of sponsored placements up for grabs every time a consumer searches a given term. Picture a traditional auction except that since we don’t know when the items will come up for bid (ie. when the consumer will decide to shop), we strategically place our bids in advance similar to a “blind” auction. Sounds promising right?...there should be plenty of opportunity to pick and choose our desired search terms, bid a reasonable amount and be shown to consumers who will most certainly love our listings as much as we do…right!?...not so fast.
What does the auctioneer (ie. Amazon) look at when awarding ad placement?
AMZ doesn’t simply award the top spot to the highest bidder, the next spot to the next highest bidder, and so on. That’s a good thing because if that were so, the deepest pockets would get all the prime spots and everyone else would be buried somewhere off page 1 (more on the importance of page 1 in a moment). Instead, there’s a myriad of factors that are considered by a complex algorithm which ultimately awards placement to the ad that it “feels” is most likely to appeal to the consumer (ie. result in a sale). In addition to the bid, factors such as but not limited to click through rate (CTR), conversion rate (CR), price, ratings/reviews, sales trending, even the specific consumers past shopping history, are all evaluated in an effort to show consumers the listings they’re most likely to find appealing.
Now very little of this is foremost in determining your bid strategy…to the contrary. Most of this is based on historical data specific to your listing or in the case of a new listing, the historical data of others “like'' yours and a healthy dose of “honeymoon period” goodwill. AMZ wants to show consumers the most appealing listing and they could care less if it’s yours or not…nor should they. These “other” factors are the result of the quality of your offering certainly (ie Is it a good book or a good product?), but perhaps to a greater extent and more importantly, they’re the result of the quality of your keyword research/development, integration of that intelligence into the listing itself and the strategic targeting of effective search terms. You may have the greatest offering ever conceived but if it’s not associated with the terms consumers use when shopping, you’ll simply have the greatest offering that no one ever sees. These “other factors” are only worth mentioning here as a reminder that simply being the highest bidder doesn’t ensure your ad gets seen. Bid strategy is extremely important but it can’t override these other factors…if a listing is lacking there, advertising won’t matter.
With that in mind but in the interest of focussing on bid strategy alone, let’s assume all “other factors” are created equal, that your listing enjoys the benefits of those foundational elements outlined above on equal footing with other listings competing for the consumer dollar.
What is it that we’re trying to achieve with our bid strategy?
The answer to this varies depending on where your listing sits in it’s lifecycle. Is it a new listing that needs to grow, or an established listing that needs to be maintained?
In both cases, there should be a focus on getting your ad shown on page 1. The reason for that is fairly simple. Almost 80% of consumers make their buying decision from the results they’re shown on page 1 and of the 20% that venture to page 2 and beyond, ¾ of them eventually return to page 1 to make a purchase. The basic math of that means that somewhere in the neighborhood of 95% of AMZ purchases are made from the results shown to the consumer on page 1. Credit to AMZ, they’re very good and getting better at showing consumers what they’re looking for. If your bid strategy is garnering you mostly page 2 and beyond placements or mostly placement within the detail pages of other listings, your total market potential is about 5% of the total consumer base…and that’s a lot of missed opportunity.
This is where new listings and mature listings part ways…
The primary goal of a new listing’s ad strategy should be to generate data. That data serves to validate or invalidate the assumptions we made during our early keyword research about which terms should form the foundation of our listings. Furthermore, that data may also identify additional valuable keywords missed during our early keyword research. That data is part of what the AMZ algorithm uses to decide when, where and who to show a listing to (both as part of advertising and organic placement) but that data also allows us to make more informed, strategic decisions related to listing modifications and targeted manual ads going forward. Will these ads for new listings generate sales?…of course but that’s not the primary goal and almost never a significant outcome in the beginning. In other words, if you’re focussed primarily on sales and/or return on investment (ACoS/RoAS) during this phase, the “long game” will most likely elude you.
In contrast to that, the primary goal of a mature listing’s ads are to 1, generate “effective sales” and 2, to prop up organic ranking.
By “effective sales”, we mean a balance between return on investment (ROI) and actual sales (units). ROI is measured as either Advertising Return on Investment (ACoS) or Return on Ad Spend (RoAS). Both metrics measure the same thing so there’s no need to track both. ACoS is advertising dollars spent divided by revenue generated directly from those same advertising dollars (organic sales are not included in this figure) and it’s usually expressed as a % (eg. $100 spent on ads divided by $200 of ad revenue equates to an ACoS of 50%). RoAS is the same numbers but with the equation flipped upside down…revenue generated directly from advertising divided by advertising dollars spent and is usually expressed as a ratio (eg. $200 of ad revenue divided by $100 spent on advertising equates to a RoAS of 2.00). Similarly, an ACoS of 25% would equate to a RoAS of 4.00, an ACoS of 67% would equate to a RoAS of 1.50, etc. A target ACoS of between 20-30% is not only good but also achievable. That all said, an excellent ACoS/RoAS with few sales is meaningless. If an ad campaign has an ACoS of 25% over a 30 day period but only sold a couple units over that period…who cares? Simultaneously, a tidal wave of sales accompanied by an astronomical ACoS (eg. 200% or $2 spent for every $1 made) is neither a wise business strategy nor sustainable.
By propping up organic ranking, we mean boosting a listing’s organic ranking for a given search term as a direct result of successfully advertising on that same search term . Essentially the AMZ algorithm sees that when a consumer using a given search term is shown your listing (via ads), they tend to click into the ad and buy a good portion of the time. Because AMZ’s primary goal is to show consumers listings that it “feels” are most likely to appeal to the consumer (ie. result in a sale), the algorithm then assumes (in as much as an algorithm can assume) that by also showing the organic version of that same listing to customers using that search term, more sales will result. For us, that means potentially having our listing shown twice on page 1, which is a good thing…the more a consumer sees your listing, the more likely they are to buy it. In addition, every spot on page 1 that your listing occupies is one less spot for a competing listing to occupy.
Will these targeted ads for mature listings generate new data?…certainly but that’s not the primary goal and will occur less and less frequently with time.
Next time on Purple Patch…Part 2 - Aligning Our Strategy with the Game We’re Playing.
If you’ve got questions about anything outlined above or specific aspects you’d like me to cover in parts 2 and 3, add it in the comments and I’ll do my best to address it. As always, thanks for your time.