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Understanding sponsored ads: A guide to online advertising

Introduction

Whether you're just starting out as a beginner with your first product or a seasoned Amazon seller on your 25th product, Sponsored Products Ads can be a highly effective way to introduce your new products to potential customers. These ads seamlessly blend into Amazon's organic search results, often going unnoticed as ads. In fact, they are the preferred ad format among consumers, as per our 2023 Amazon Advertising Report.

For new product launches, gaining those crucial initial sales to climb the organic search rankings can be challenging. Sponsored Products Ads, by targeting relevant keywords, enable your products to appear at the top of search results from day one. The best part is, setting up these ads is straightforward, even for those with no advertising experience. In this comprehensive guide, we'll delve into what Sponsored Products Ads are, how they function, and how to launch your first campaign.

Understanding Sponsored Products Ads

Sponsored Products Ads are a type of Amazon pay-per-click (PPC) advertising that allows you to bid on specific keywords to maximize your exposure within Amazon's search results from the moment you launch your product. As the name suggests, you pay a small fee for every click on your ad. Sponsored Products Ads are highly prominent on the page and closely resemble organic listings, making them especially enticing to sellers.

One notable advantage of Sponsored Products Ads is that you don't need to be brand registered to use them, unlike other Amazon ad types such as Sponsored Brands, Sponsored Brands Video, or Sponsored Display ads. Consequently, they are the most commonly used ad format on Amazon, with approximately 75% of third-party sellers leveraging Sponsored Products Ads.

While some sellers are exploring other Amazon PPC options, Sponsored Products Ads still account for a substantial 78% of overall Amazon ad spending among sellers.

How Sponsored Products Ads Work

As mentioned earlier, Sponsored Products Ads operate on a PPC model, which means you bid against other sellers for visibility to potential customers. You have control over how much you want to spend per click for each target, giving you significant control over your daily advertising budget.

Here's an overview of how Sponsored Products Ads function:

  1. Keyword or Product Targeting: You begin by defining a set of targeted keywords or products for which you want your ad to appear in Amazon search results. The goal is to make your ad relevant to customer searches.
  2. Bidding: You specify the amount you're willing to spend per click through a process known as bidding. Amazon's algorithm then determines where your ads will be displayed on search results pages.
  3. Ad Placement: Sponsored Products Ads closely resemble organic listing results and can appear at the top of search results, mixed among organic listings further down the page, and even on your competitors' product detail pages.
  4. Winning the Auction: If you bid competitively, you'll secure a top spot in search results, which is the ultimate goal, as it offers the best chance to reach the most customers. Bidding too low may result in your ads not appearing.
  5. Cost Per Click: Once a customer clicks on your ad, you are charged the amount of your keyword bid, regardless of whether the customer makes a purchase.

Targeting Options

Sponsored Products Ads offer two targeting options: automatic targeting and manual targeting.

Automatic Targeting:

With automatic targeting, Amazon takes control over which keywords or products your campaign targets based on your listing information. While it's convenient, it's crucial to conduct thorough keyword research before listing to ensure Amazon selects relevant targets. This option allows for four different keyword match types: close match, loose match, substitutes, and complements.

Automatic campaigns are easy to set up, making them ideal for beginners. Over time, these campaigns accumulate data that can be used to optimize them. They also serve as a way to discover new keywords through Amazon's automatic targeting.

Manual Targeting:

Manual targeting offers greater control over the keywords or products your campaign targets. You can pick targets from Amazon's suggested keywords or come up with your own. Additionally, you can set custom bids per keyword.

Keyword targeting is ideal when you know the specific search terms customers use to find your product. You can identify relevant, high-volume keywords using tools like Keyword Scout. Product targeting allows you to target competitor ASINs, categories, brands, or other product features.

You can even use both keyword and product targeting by creating two separate manual campaigns—one for each targeting option.

Bidding Strategy

Regardless of whether you choose automatic or manual campaigns, you must select a campaign bidding strategy that determines how you'll pay for clicks on your ads. Your bid represents the maximum amount you're willing to pay for a single click.

There are three bidding strategies to choose from:

  1. Dynamic Bid-Down Only: Amazon lowers your bid when they suspect your ad is less likely to convert into a sale. This strategy can save you money per click.
  2. Dynamic Bid-Up and Down: Amazon automatically raises your keyword bid by up to 100% if your ad is more likely to convert into a sale. They also lower your bid if the ad is less likely to convert. This option may not suit strict budget constraints.
  3. Fixed Bids: Amazon doesn't change your bids for you; they remain the same until you modify them. If you have a set maximum you're willing to spend per click, fixed bids or down-only dynamic bids are suitable choices.

Amazon often provides bid suggestions to help you determine how much to bid per keyword. You can also view the estimated PPC bid cost per keyword using Keyword Scout. Additionally, you can adjust your bids by placement.

Setting Up a Sponsored Products Ad

Creating both automatic and manual campaigns is relatively straightforward. In Seller Central, navigate to the "Advertising" tab, then click "Campaign Manager," and select "Create Campaign."

Under "Choose your campaign type," opt for "Sponsored Products." Fill out all necessary information, including your campaign name, date range for the ad, portfolio (optional), daily budget, bidding strategy, keywords, and targeting type.

For instance, if you're setting up a manual targeting campaign, you can specify "Dynamic Bids, down only" as the bidding strategy. This option provides more control over data and bidding for each keyword.

Creating an ad group with a custom name can help you stay organized as you launch more campaigns. For example, if you plan to run broad match, phrase match, and exact match campaigns for your product, name the ad group based on the match type.

Choose the product(s) you want to advertise and select your targeting type: product or keyword. When starting, it's advisable to target keywords. Under keyword targeting, Amazon displays a list of suggested keywords to target, along with options for match types. You can add your own keywords based on your keyword research. Amazon also provides suggested bid amounts per keyword, which you can adjust based on your budget.

You can further refine your campaign by adding negative keywords for which you don't want your ad to appear. This could be because they're not converting or are not relevant to your product. Negative keywords help you avoid paying for clicks that don't lead to sales.

Once you've configured your campaign, click "Launch Campaign," and your Sponsored Products Ad is ready to go.

Optimizing Your Campaigns

It's advisable to allow your campaigns to run for at least two weeks before making any changes or adjustments. While it may seem like you're losing money initially, this is common when launching a new campaign. It's crucial to resist the temptation to tweak your campaign within the first two weeks, allowing Amazon to gather as much data as possible on your campaign's performance. This data will be invaluable for informed decision-making during optimization.

Before you can optimize your campaigns effectively, you need to determine your break-even Advertising Cost of Sales (ACoS). ACoS reflects how many dollars of revenue result from each dollar spent on an ad campaign. It is calculated by dividing total ad spend by total attributed ad sales and expressed as a percentage.

For instance, if you spent $4 on an ad campaign resulting in $20 of revenue, your ACoS would be 20% ($4/$20 = 0.20). Calculating your break-even ACoS involves dividing your profit by your revenue. This provides insight into how much of your sales price you can allocate to PPC before losing money.

Once you know your target ACoS, you can make informed decisions about which keywords to retain in your campaign and which ones to add to your negative keyword list.

The optimization process differs based on whether your campaign uses automatic or manual targeting.

Optimizing an Automatic Targeting Campaign

In your campaign manager, select your automatic targeting campaign. You'll see a summary of your campaign's performance, including spending, sales, ACoS, impressions, clicks, and orders received.

Clicking into your automatic ad group reveals the search terms tab, showing all the search terms Amazon has targeted for your product. Here, you can see details like clicks, spend, sales, and ACoS for each search term.

To optimize, identify your worst-performing keywords those on which you're spending a lot but not generating sales. Sort by clicks or spend in descending order to find keywords with many clicks but no sales. Typically, keywords with 10 or more clicks but no sales are candidates for removal.

Create a list of these keywords, click on negative targeting, and add them to the list. Amazon will stop targeting these keywords. Over the next week or so, you should see your ACoS decrease for your automatic campaign as low-conversion keywords are eliminated.

Additionally, identify your best-performing keywords those with a low ACoS. These keywords should be moved from the automatic targeting campaign to a manual targeting campaign. In manual campaigns, you can fine-tune bids for each keyword.

Optimizing a Manual Targeting Campaign

Optimizing manual campaigns involves a different approach. Begin by transferring high-performing keywords from your automatic campaign to your manual campaign. It's recommended to use exact matching for these keywords since they have already proven effective.

Access your manual campaign, sort by spend, and aim to reduce spending on poorly performing keywords while increasing spending on well-performing ones. Your target ACoS, which you established earlier, serves as a guide.

Here's a breakdown of optimization actions for manual campaigns:

  • Lower bids for keywords with an ACoS over your target ACoS or remove them.
  • Reduce bids for keywords with high impressions and clicks but low sales.
  • Increase bids for keywords with low impressions and low ACoS.
  • Raise bids for keywords with few to no impressions but high relevance to your product. Monitor these keywords over a few weeks.
  • Pause bids on keywords with high clicks and high ACoS.

It's essential to repeat this optimization process every week or so to ensure your campaigns perform at their best. While you might have more work when initially launching your campaign, over time, the process becomes easier. After a few months, you'll find fewer changes to make as your campaigns become more optimized with each iteration.

Are Sponsored Products Ads Worth It?

In short, yes! However, it's crucial to understand that Amazon advertising is not a "set it and forget it" system. Regular monitoring and management of your campaigns are essential to ensure they remain profitable. Neglecting your campaigns or not checking them frequently enough can result in overspending on non-converting clicks.

Sponsored Products Ads yield the second-highest Return on Ad Spend (RoAS) over a 14-day period. They are an incredibly effective way to advertise your products on Amazon, especially if you're not brand registered.

Conclusion:

Sponsored Products Ads offer a potent tool for Amazon sellers to boost visibility and sales. By understanding how these ads work, optimizing your campaigns, and regularly monitoring performance, you can harness the power of Sponsored Products Ads to grow your business on Amazon.

For more insights into the effectiveness of Amazon advertising tools and how brands, agencies, and third-party sellers utilize them, explore our 2023 Amazon Advertising Report. If you have any additional questions regarding Sponsored Products Ads, feel free to ask in the comments!

In summary, Sponsored Products Ads on Amazon are a powerful tool for sellers, whether you're just starting out or a seasoned pro. These ads seamlessly blend into search results, making them preferred by consumers. They're essential for new product launches and offer control over your advertising budget. You can choose between automatic and manual targeting, adjust your bidding strategy, and optimize campaigns over time. Sponsored Products Ads are worth the investment, but they require ongoing management to ensure profitability.

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