One question I love asking marketers on Amazon is what they are trying to achieve by advertising on Amazon, particularly through sponsored ads. Most mature marketers will say something along the lines of:
- Grow incremental sales
- Grow market share
- Grow page one share of voice
Then I ask what metrics they use to track, optimize or measure performance. Almost invariably they say – ACoS (Advertising Cost of Sales). For those unfamiliar with the term, it refers to how much money was spent for every $1 in ad attributed sales or ad spend divided by paid sales. The lower the ACoS, the better the performance of an advertising campaign.
Hmm…this makes me scratch my head. How does optimizing on ACoS drive the three objectives listed above? Remember ACoS = ad spend divided by paid sales. How does that formula take into consideration the below:
- Growing incremental sales – ACoS only measures paid sales not total sales
- Growing market share – ACoS doesn’t measure performance relative to the market
- Growing page-one share of voice (SOV)– ACoS doesn’t measure the number of placements resulting from important search terms compared to the competition
Clearly, there seems to be a misalignment between what marketers are optimizing for and their objectives. This reminds me of a conversation I had with a large brand selling on Amazon. They hired an agency that promised them a 10% point improvement in ACoS within a month. Lo and behold, after a month they drove a 12% point improvement. But, when the brand looked under the hood, they found the agency moved a large portion of their budget from generic keywords to branded keywords. For those not familiar with keyword types: On Amazon sellers bid on keywords to show their ads, and it could be a generic keyword like diapers or a branded keyword like “pampers diapers”]. On branded keywords, an ACoS metric will generally be better given consumers are already looking for a seller’s products compared to generic or category keywords where consumers have not yet made up their mind.
In the above-mentioned example, by shifting budget to branded keywords the agency cannibalized organic sales because a significant portion of people clicking on ads would have bought the products anyways. When the marketers finally looked at total sales, it actually declined by 4% in that period. Note: this does not mean you should not bid on branded keywords, it is about picking the right ones and ensuring that a disproportionate amount of budget doesn’t go to less incremental branded campaigns, more on this in another post.
So why does this misalignment happen?
At the most basic level, misalignment occurs when one or all four of these things are missing: Data, Strategy, Reporting and Automation.
- Data: It all starts with lack of access to the right data. Most ad tech tools and agencies just rely on campaign metrics provided through AMS portal/APIs (particularly on the vendor side). They don’t integrate retail operations data from Amazon Vendor Central (total sales, inventory, promotions etc.) and do not have the technology to perform competitive intelligence or understand share of voice.
- Strategy playbook: Having a strategy playbook tied to business goals is of utmost importance because it’s easy to get lost in tactical details and lose focus on larger objectives. Equally important is having the right metrics in place to measure goals. For example, when launching a new product, if the objective is to drive brand awareness then the metric that should be tracked is impressions growth. If the goal is to drive incremental growth, tracking page-one SOV and incremental ROI or true ROI (more on this in the next post) and having strategies to target high volume keywords where SOV is low are key. Having the right strategies, metric and feedback loop is critical to meeting business objectives
- Holistic Reporting: Amazon works as a flywheel where everything is interconnected. Looking at advertising metrics in isolation and making decisions doesn’t work. To succeed, brands need a holistic picture of sales operations, advertising, supply chain, share of voice and competitor metrics in one central hub to align business goals with the Amazon flywheel. For example, if sales starts running a promotion or deal, advertising needs to create demand with traffic through AMS and operations must ensure there are enough PO’s in place to prevent stock shortages. Typically, organizations work in silos, and while it might make individual functional metrics look good the overall business suffers.
- Automation: Campaign management is becoming more and more like algorithmic stock trading. Things move on a minute by minute basis on Amazon, and having end to end automation to capture data, find patterns, generate recommendations and instantly take actions to avoid risk and take advantage of fleeting opportunities cannot be overstated. For example, being able to immediately target a highly rated competitor ASIN as soon as it goes low on inventory or out of stock to capture share from competitors is of paramount importance.
At CommerceIQ, we are solving these problems with a laser focus on driving incremental top line growth and share of voice using paid marketing dollars. We want our brand partners to drive growth with the same amount of ad spend while building a sustainable, high growth business.