Amazon Advertising: An Overview of the New Gatekeepers
Adverts on Amazon have become more prevalent in recent times. Some may argue that they disrupt the online shopping experience, while others may view them as an essential marketing strategy. This article explores the role of advertising on Amazon and how it affects sellers and buyers alike.
Price Discrimination or Auction Model?
It’s tricky to differentiate between advertising and marketing. Google’s search ads raise similar questions. Is the practice of paying for top placement considered an advertisement, trade dollars, end caps, or a slotting fee? Therefore, does the distinction really matter?
On the other hand, some may perceive the existence of multiple ads as an example of price discrimination. Which product brands have the profit margin to afford it? And how does Amazon determine their financial ability? It would be counterintuitive and impractical to do this manually while maintaining the Amazon way of one-at-a-time tactic. Thus, sellers can bid on top ad placement. This approach promotes scalable bargaining, allowing different brands to compete on ROI.
Marketplace: The Solution for Infinite Scaling
Amazon Marketplace enables infinite scaling without requiring the hiring of buying teams. It opens up APIs for teams to operate remotely without being employed by Amazon. Sellers can now consider selling ad placements as not only price discrimination but also a filter. With millions of SKUs available, it’s difficult to surface what people are interested in purchasing and identify the right vendors. Thus, a signal is seen through which vendors are willing to invest. Amazon Marketplace is not only a two-sided market but also a one-sided market in which Amazon is the buyer, and vendors compete through bids to be ranged.
The Pros and Cons of Amazon Advertising
Amazon ads have both positive and negative aspects. We’ll explore both perspectives below:
1. Profitability: Ads drive traffic to promotions, sales and even products that aren’t ranked high. Thus, sellers make more sales and revenue than relying solely on organic traffic.
2. Targeted Ads: Amazon’s data on customers enables sellers to place ads in front of a target audience most likely to buy their products. This way, sellers avoid spending unnecessary amounts on advertising.
3. Brand Awareness: Advertising on Amazon connects new and existing customers to the brand’s products, thus increasing market visibility.
4. Sponsored Product Ads: These are those that appear on product pages alongside organic listings and help increase visibility and sales of related products.
1. Buyer Habits: Ads may act as a distraction to buyers disrupting their trust for the site and its products.
2. Cost: Advertising on Amazon is not cheap. Amazon charges a range of fees, with an average cost per click of $0.97, making it difficult for small businesses to compete.
3. Lack of Customization: Amazon has a range of pre-set ad templates that limit the creativity of advertisers. They also have a set of guidelines for products eligible for ads, limiting creativity further.
Amazon’s ads, as previously stated, have both advantages and disadvantages. While they serve as a profitable approach by promoting scalability and competition, they also pose certain hindrances for small businesses. They help surface appropriate vendors and products for customers to purchase on Amazon, but they may also disrupt user experience. However, as long as brands exercise caution and strategy, advertising on Amazon could provide a boost to product visibility and sales.