Ad Spending on Amazon Soars as Retailers Tap its Traffic
Specialty retailers and brands that don’t want to sell on Amazon and other third-party e-commerce sites might still want to consider advertising there.
Product advertising on retail sites like Amazon, Sears and Target has surged since the recession, when some companies began selling advertising on their e-commerce sites as a way to earn more revenue. Retailers responded enthusiastically. Ad impressions on Amazon, not including Amazon’s own ads, were up 81 percent in November 2011 from December 2010, according to comScore. Among the outdoor specialty retailers advertising on Amazon last week were Austin Kayak, Backcountry.com, Campsaver.com, 02Gearshop.com, Outfitter Country, Sun and Ski Sports and TravelCountry.com. Massey’s Outfitters is among the specialty shops that have advertised recently on Sears.com.
Specialty retailers have long used pay-per-click (PPC) advertising to place product ads — often an image with price, size and a link to their store — on shopping and price comparison sites like Shopping.com, PriceGrabber.com, Shopzilla.com, NexTag and others. With PPC advertising, retailers bid how much they will pay for each click-through on a particular word. When done correctly, PPC advertising enables retailers to reach consumers at the exact moment they are researching the advertised product, category or brand online. In 2010, more than a quarter of specialty outdoor retailers used comparison-shopping sites like Pricegrabber and NextTag in this way, according to research by Outdoor Industry Association®.
It’s easy to see the attraction of Amazon Product Ads. Amazon drew 111.5 million unique visitors in the fourth quarter of 2011, up 31 percent from a year earlier and more than the combined traffic of the next two busiest sites — Walmart.com and Apple.com. Target and Sears.com were ranked a distant fourth and eighth in terms of unique visitors. What’s important for independent retailers to remember is that even the best e-commerce sites only convert about 3 percent of their visits. The remaining 97 percent end without a purchase. From the consumer’s point of view, in other words, these sites are as much for research as they are for buying.
In the case of Amazon, ads can display in up to four places, although shoppers often have to scroll to the very bottom of the product search results page, where they appear as sponsored links, or the bottom of the product detail page, where they appear in a box marked “Product Ads from External Websites.”
Of course the usual warnings about pay-per-click advertising apply, and — at 45 cents per click for sport apparel priced over $60.01 and 65 cents per click for general sporting goods priced over $100 — Amazon Product Ads don’t come cheap. Still, a survey by CPC Strategy in 2010 found Amazon Product Ads ended up costing its clients about 10 percent of revenue earned, making advertising on Amazon more cost-effective than advertising on seven other paid shopping engines. This implies a conversion rate of 6.5 percent, which is not unheard of but is very difficult to achieve, particularly when Amazon is already selling the advertised product.
“Generally, we haven’t had much success except for product that is not widely available through Amazon,” noted Tim King, president of Backcountry Edge Inc., an online retailer. “Unless we’re running a short-term promotion, Amazon usually offers prices far lower than ours. The clicks we get from the Amazon ads are mostly folks looking for product information they can’t get from Amazon. They come to us for the information and then return to Amazon to buy it at a lower price.”
For this reason, it’s important to set daily spending caps to limit potential losses while testing new ads. Retailers should also frequently monitor ad results from all advertising channels to identify SKUs and categories that are not producing revenue, and remove them from their ad feeds.
“It’s very important to not just test one advertising medium, but to check your on-site conversions from all different traffic sources,” noted Mike Massey, owner of Massey’s Outfitters.
While constant monitoring may seem troublesome, a host of firms has emerged to help retailers automate their data feeds to Amazon, Google, NextTag, Shopzilla and other shopping channels to ensure they reflect the latest pricing and inventory information. Most say that retailers can get all the metrics they will need to monitor ad effectiveness from Google Analytics, which has the added advantages of being free and built into several popular e-commerce platforms.
The big advantage of advertising, rather than selling, on Amazon is that when consumers click on your ad, they are sent to your website to transact business. From that point forward, you — the retailer — gain control of the customer experience and relationship, including access to their email address and other contact information. (See Pros & Cons of Selling on Amazon in this month’s CEO Brief.)