Should I drop my Amazon ad spend to zero?
A Twitter thread by a leading Amazon Seller this week has sparked significant debate.
Bryan Porter of Simple Modern estimates he has spent over $10 million on Amazon advertising in recent years, but recently he has dropped that to zero. These are some of the explanations for that from Porter’s thread, which can be read in full here: https://twitter.com/jbryanporter/status/1507500277175361538?s=20&t=BEGkoIhHB2rp7MdVC8SehQ.
Porter begins by explaining: “We are Amazon's #1 drinkware supplier. In 2022 we will sell over 4 million tumblers and water bottles. Over the past few years, we have spent over $10 million on Amazon ads. This month our budget went to $0.
“For years we spent 8% of revenue on advertising. This is a standard practice for sellers, it bought top placement, the lift in sales was noticeable and ACOS was below 30%. It seemed like this was driving our business forward… but we were wrong.
“Advertising profitability was inflated by ads not driving sales. In other words, organic customers were using ads to shop when they were going to purchase anyway. These were the specific problems:
“Product Page Ads: Amazon shows ads on product pages from other relevant listings. We spent a lot for customers to click between our different listings. Organic customers would browse our catalogue via similar product advertisements and Amazon ads would attribute it.
“Paying for Organic Purchases: If our ad is #1 and we have the #5 organic placement, many organic customers are now buying through the ad. These sales make the campaign look overly profitable. In reality, they are inflating ACOS and justifying more spend.
“Harm to Organic Placement. We observed organic placement tends to fall when top ad placement is paid for. It makes sense that Amazon doesn't want duplicate listings at the top of a keyword. If this is true, it is a major disincentive to paying for placement.”
Porter then started to look into solutions. He continued: Product Market Fit: Focus on product quality, selection and value has lead to the highest converting listings. Listing struggling with organic placement need improvement.”
Porter then quotes Amazon founder Jeff Bezos - who said: “Advertising is the price you pay for having an unremarkable product or service” - before moving onto brand solutions.
Porter wrote: “Valuing repeat purchases as much as the 1st, leads to customers searching your brand specifically. Placement is easy when customers search “Simple Modern”. Most sales are now from branded searches.
“We let competitors advertise on “Simple Modern” keywords. If we can’t win when a customer searches for us, how can we beat competition on a retail shelf or generic keyword? We embrace competition, it makes us have the best offering.
“Unlike ad spend, deals improve listing conversion rate and placement. This is usually the spark listings need, that convert well at full price. For Vendors, deal funding counts as profit to 1P (ad spend doesn’t).”
Porter finishes his fascinating thread by reaching a number of conclusions. He added: “Our margins are intentionally low, passing incredible value to customers. We don't have much margin for ad dollars, which is partially why we convert so well. Eliminating Amazon Advertising allows us to fuel growth, investing heavily in inventory and new products.
“Embracing Competition - Amazon Advertising is a crutch for listings that don’t merit impressions by the algorithm. As a brand, we will either improve the product in a struggling listing or discontinue it.
“Different strategies - Writing this thread, I understand our strategy is brand building. PPC advertising is a part of most seller's strategies and there is nothing wrong with that. I wanted to explain what our experience and that there is a low ad spend path.”
Porter also looked at the benefits to Amazon of advertising - the principle one being that it is highly profitable but also that it increases competition and dilutes the market share for Sellers, making it more difficult to dominate a category.
What is Your ROI (Return On Investment)? Find out how to calculate your ROI on Amazon marketing spend here
In addition to that, Porter believes that advertising can have a negative impact on the customer, pushing them towards listings that haven’t earned a top placement on merit, which could eventually undermine Amazon’s focus on customer trust.
So should you look to follow the same path as Porter? Thompson and Holt managing partner Stuart White has urged caution. He explained: “There is no doubt that Bryan Porter’s thread is hugely interesting, and has sparked genuine debate on several platforms. He is a highly experienced and successful Amazon Seller, and he makes some really telling points that should make anyone selling on the site think.
“But at Thompson and Holt we would certainly stop short of telling Sellers that we know to simply stop using Amazon ads. We know many companies that have benefitted significantly from using them, and have grown on the back of that.
“Like so many issues on Amazon, your own specific circumstances will be different to anybody else’s, and you need to work out the value of Amazon ads to your own business. But at the very least, Bryan Porter has created a discussion point, and it would be interesting to see what his long-term results are if it becomes a more in-depth case study.”
If you have found yourself suspended while selling on Amazon, contact Thompson and Holt for a free LiveChat to get your Seller business back online as quickly as possible.