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Amazon Selling sponsored ads

When Using Amazon Sponsored Ads Isn’t a Good Idea

A common mantra among many in the Amazon Sellers community with regard to launching products is to “go all in” on Amazon Sponsored Ads.

It goes something like this:

  1. List your product
  2. Set up an “automatic campaign” and let it run for 4-6 weeks
  3. Pull a report and look at the data
  4. Look at conversions on search terms and add poor converting search terms to a negative keyword list, and add good converting search terms to a manual campaign
  5. Lower bids and budget on Automatic
  6. Start a research  manual campaign using the results from the Automatic campaign
  7. Run for 4-6 weeks
  8. Pull a report and look at the data
  9. Look at conversions on search terms and add poor converting search terms to a negative keywords list and scale up bids on the best converting search terms.
  10. Continually optimize and fine tune every 10-14 days (accounting for reporting lag)

Rinse and repeat.

While this basic ten step strategy can work well for some out of the gate, for most new sellers on Amazon, they will typically see poor results.

It’s important to first highlight what “poor results” means in the context of sponsored advertising.

Poor Sponsored Ads results would mean:

  1. At a minimum,  not breaking even
  2. Low to zero conversions on main search terms related to the product sold
  3. High Ad Spend to Sales (ACoS) ratio (this ties into not breaking even)

Note: “Poor Results” does not necessarily mean “not making a profit” – that is, a profit entirely off of sponsored ads generated sales.

A successful Sponsored Ads campaign would mean:

  1. At the minimum, breaking even.
  2. Converting highly on main search terms related to the product sold
  3. Reducing ad costs to a profitable TACoS (Target Advertising Cost of Sales) while not compromising impressions on ads for the potential of high conversion clicks.

The Amazon Sellers Sunk-Cost Fallacy 

The challenge most sellers have with this rough-outline of a plan, especially for those launching new products into the marketplace, is that they end up wasting a lot of ad spend thinking that the more money they spend on campaigns (increasing budgets, increasing cost-per-click bids) will somehow make things “better” for them in terms of converting a click to a sale.

There is a name for this line of thought, and it’s called the sunk-cost fallacy, which can be translated simply into “throwing good money after bad.”

The reason why sellers do this comes down to not understanding what the primary motivating factors are for converting a shopper’s click on an ad placement to an actual sale.

The “4 P’s” that Influence Your PPC Conversions

To convert on an Amazon Sponsored Ad, there are a number of factors at play here, but I will only focus on what I consider the top three, which I call the “4 P’s”:

  1. Product
  2. Price
  3. Proof
  4. Position

Product

Yep, product selection is crucial.  

If you sourced a product that doesn’t have demand, and did not source it at a cost that yields a net profit of at least 3 times your total cost of goods, then you have just set yourself up for a very tough road for profitable advertising.

In terms of advertising, if you selected a product that very few people are interested in, you won’t receive many impressions.  No impression = no views. No views = no chance for a conversion. Pretty simple.

The flip-side of this is selecting a product that everyone wants, but there are so many different options that shoppers become overwhelmed by the choices. There’s too much competition on the same product.

The way to combat this is to differentiate your product – but don’t differentiate so much to the point where it confuses shoppers as to what you’re actually selling.

So if you’re looking to be different, look at it from the perspective of adding perceived value where others in the marketplace are not.  

Hint:  Differentiation in 2019 (and beyond) does NOT mean just adding a “bonus e-book” to your listing! 
This tactic is “2015” and really doesn’t help with most listings.

What you need is to add a complimentary item to your product or modify it’s core functionality so that it does something different than all the other products.

An example: A garlic press with a garlic press cleaning tool and garlic crusher roller

Price

Amazon favors “comparative-priced products” in its marketplace. 

Notice I used the word comparative  – not competitive

Just because you have the lowest price, doesn’t mean Amazon or shoppers will favor you.  

What the algorithms and shoppers are looking for is a “competitive spread” of different price points.  

So when you first launch your product, you should always be testing price points with your customers and see how slight adjustments (by 10% or so) up or down every couple of weeks, plays a role in your sales and ad placements.  You might be surprised by what you find out!

Proof

Shoppers favor proof that a product is high quality and will perform exactly as they are expecting based on the product’s title and feature bullets.  

Proof on Amazon means one thing and that is reviews, and if you are just launching your product you won’t have any.  

If you are again, selling a product that is attributely the same as another competing product in terms of perceived value and quality, the product with more reviews will typically have better sales conversions.  

 

Position

Position actually is a combination of a few factors.  And by position, I am talking about ranking on main keywords and search phrases.  

The first critical factor is  – how much competition is there in front of you and behind you?  If you’re launching a product in a category that is already saturated with similar items with little to no variation  – you’re already swimming against the current for achieving ranking.

The second factor is  – how much of a parity is there between you and your competition with regard to the pricing and proof as mentioned above?  

It will be much easier for you to compete in advertising and achieve rank through sponsored ads when you are swimming with like-sized fish… in other words, all of you have similar prices, similar number of reviews.  Alternatively, if a few sellers have 1,000 reviews and similar prices – these sellers will receive the lion’s share of sales, while the rest of you fight for the scraps.

The third factor in positioning is conversion itself.  And yes, this is sort of a “chicken and the egg” type of factor because to obtain conversions, you have to get sales, and to get sales, you have to be positioned usually in the top 1 or two pages. But, it’s worth highlighting because it does play a critical role in how you’re positioned from an advertising point of view, because the Amazon algorithms typically favor sellers that can demonstrate they can consistently convert when they are *not* advertising.

Now that you have an idea as to what the “4 P’s” of conversion are, you should now understand what you need to do to create high-converting Sponsored Ads Campaigns.

Three Ways You Can Improve Your Sponsored Ads Campaign Success

1. Optimize your Listing

The absolute “prerequisite” to converting an ad click to a sale is to have an optimized listing.  I cannot emphasize enough the importance of having high quality images, a well-written title, feature bullets, and “optimized” search terms and backend keyword data.  

You can think of “optimized” as meaning “relevant.”  How relevant are your keywords, search terms, and images?  Do your images accurately describe, without saying anything, what the main function and benefits are?  Does your title accurately describe exactly what your product does in the images? Do your feature bullets accurately describe all the benefits that come along with the functions of the product?

2. Test Price Points and Discount Methods

Next, you need to start testing your price points to see where your “sweet-spot” is in terms of achieving the maximum profit margins to sales conversion ratio.  

Start by simply offering a discounted price (not an on page discount or coupon), and use this as the control price.

Test this for 2 weeks.  Pull a detail sales and traffic report at the end to show you what your session to unit sales conversion rate is.

Then, after this test, boost the price and offer an on page coupon or discount.  Run for 2 weeks and then pull a sales report and look at the results.  

Test different ways for 6-8 weeks until you have determined the best pricing strategy for your product and target audience.

3. Get Reviews

No one will deny that it’s becoming increasingly difficult to get verified and “white hat” product reviews on Amazon for private label products.  

That said, obtaining reviews is mostly a numbers game.  A certain percentage of your customers will leave a review.  And a great proportion of them won’t.  

Across all Amazon categories, the average review conversion rate can range between 1% and 10%.  

Ironically, items that are more likely to be expected to FAIL or have a limited lifespan, and then meet or exceed customer expectations, are the items that get higher review rates!  

Think about phone charging cables, electronic devices, and consumable/replenishable products (like food and pet supplies).

Products considered commodity items – those things that we buy once and expect to function as it should out of the box and last a long time – typically won’t get many reviews.  

Knowing what a reasonable review conversion rate should be for your product and category should give you an idea as to what to expect in terms of results and strategy for getting reviews.

Put yourself into the shoes of the customer.  If you bought your product, what would absolutely move you to go through the effort of leaving a review?

If you answered “an outstanding product that performs as stated” – then you need to be sure you’re offering a product that does just that.  

Many sellers who are selling on Amazon right now haven’t even touched the products they are selling to customers!  

Don’t be this kind of seller.  

You need to KNOW your products inside out.  Have a small stock on hand at all times. Know exactly what the customer is going to get and how they get it. 

Alternatively, if your mindset toward reviews is that the only way you would possibly entertain spending time on writing one is if someone offered a discount or free item – then you will need to think outside the box and work within the terms of service of Amazon about asking for reviews without running the risk of offering incentives in exchange for reviews.

So, now that you know what it takes to do well with sponsored ads,  you’re probably wondering – “So when are Sponsored Ads NOT a good idea?”

When Sponsored Ads Aren’t a Good Idea (to start)

Quite simply, if you cannot address the “4 P’s” above, you probably are not in a good position to start up Sponsored Ads in full earnest.

That isn’t to say you shouldn’t start a very modest campaign with a low daily budget (like $10 per day) and low CPC (under $0.75) to start, just to “warm up the algorithms.”

But remember that your conversion rates here will not be very good unless you are selling a product people want, have it set to a price that is comparatively competitive, has enough reviews to add credibility to the offer, and is well-positioned in the marketplace organically.

It is important to understand that while you're selling on Amazon, and Amazon certainly wants you to spend money on their advertising platform, you can drive traffic and get better ROI when you take a pragmatic and holistic approach to driving organic sales.  It goes back to that chicken and the egg paradox of selling on Amazon – you cannot convert highly without organic sales traction.  You cannot get organic sales traction without being seen.  

In my next post, you will learn about ways to get sales traction WITHOUT Sponsored Ads.  

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