Amazon Prime Days and Sponsored Ads: Is It Worth It?
This year has been a whirlwind for eCommerce. Global factors such as inflation and supply chain disruption have impacted the industry in more ways than one. As shoppers cut back online spending on nonessential products, eCommerce sellers are having an increasingly challenging time selling their products online. Recent findings reveal that the result of Amazon’s second Prime Day event this year is a sign that consumers are spending less on Amazon. This reality raises the question many sellers have been asking themselves, is it still an effective tactic to increase Amazon Sponsored Ad spending during Prime Days with the rising advertising cost of sale?
This article seeks to answer whether Amazon sellers should continue spending what they typically spend on Amazon Sponsored Ads during major online shopping events, like Prime Day, now that the world economy has affected consumers’ online shopping behavior. To reach a conclusion, the article will reference Amazon Sponsored Ads data that compares advertising KPIs across this year’s July Prime Day and Amazon’s first-ever October Prime Day.
The State of Amazon and Advertising
According to SimilarWeb, an analytics company specializing in web traffic, Amazon.com has lost 300 million hits in the last three months (desktop). What’s more, Wall Street is expressing concerns about consumer spending veering away from online and that Amazon’s second Prime Day event is a sign that the eCommerce giant is dealing with issues regarding clearing inventory.
However, despite speculations, a decrease in traffic, and the disruption due to supply chain issues, Amazon still shows signs of profitability for its sellers. For example, a July study found that sales during this year’s Prime Day reached a record new high, totaling $12 billion, most of which came from the US. It was also reported that in North America, roughly 30 percent of shoppers bought household essentials during Prime Day, which confirms the earlier claim that online shopping behavior has shifted to spending less on nonessential products.
But what about competition? There is indeed a power disparity between Amazon itself and its third-party sellers when it comes to selling products on the marketplace since Amazon is both their digital landlord and direct competitor. A recent report by Statista found that in 2022, “third-party vendors accounted for approximately 37 percent of Amazon Prime Day sales, down from 45.5 percent in 2015.” Given this, is it even worth it for third-party Amazon sellers to invest in advertising?
Amazon Sponsored Ads on Prime Days
First, one must reference the data to determine whether it’s worth it for third-party sellers to increase Amazon Sponsored Ad spending during major online shopping events like Prime Day. This section of the article will assess how advertising KPIs during both Prime Days this year, July and October, changed or stayed the same compared to earlier dates.
The study is based on data pulled from 753 US-based DataHawk accounts active during both case studies. The figures in the graphs represent a median across all accounts, which depict the “average advertiser.” The phrase “non-Prime Day” describes the aggregation of the 14 days before and the 14 days after the respective Prime Day. The two case studies covered include: Prime Day July 12th to the 13th, 2022, along with the 14 days prior and the 14 days after and Prime Day October 11th to the 12th, 2022, along with the 14 days prior and the 14 days after.
When comparing the two Prime Day events, sellers are spending more on Amazon Sponsored Ads during the traditional Prime Day in July, increasing their ad spend by 67.1% compared to the 14 days before and after. Whereas during the October Prime Day event, ad spend increased merely by 39.47%. With this, it appears that Amazon sellers are more confident that their ads will yield higher returns during the July Prime Day event and therefore increase their ad spend more substantially on those two days and scale back shortly thereafter.
With respect to ad efficacy for the two Prime Day events, the ad sales data seems to follow the same pattern as ad spend. Amazon Sponsored Ads generated more sales during the July Prime Day event than they did for the October one, yielding a 82.14% increase in ad sales.
Interestingly, the CTR for Amazon Sponsored Ads decreased during both Prime Day events. During the July Prime days, the CTR dropped by almost 22%, and during the October Prime Day, it fell by 11.62%. However, it appears that shoppers clicked on more Sponsored Ads during the October Prime Days than during the July ones. The low CTR could indicate that advertisers were targeting the wrong audience or that there is simply more competition.
Conversion rates for Amazon Sponsored Ads were more or less the same during both Prime Day events, although conversion rates remained relatively high during the 14 days leading up to the July Prime Day and the 14 days that followed. Following July, conversion rates for Amazon Sponsored Ads began to decrease incrementally and rose back to pre-July Prime Day rates again during the October event.
The ACoS of Sponsored Ads begins to increase towards the end of the year, which is roughly on par with traditional ad behavior. However, the rate at which it is rising is not a trend that was observed last year. According to data, the ACoS spiked in October, which coincides with Amazon’s Early Access Prime Day. However, the ACoS for Sponsored Ads before, during, and after the October Prime Day event did not fluctuate significantly, as it only rose 0.16%. This may indicate that the ads launched during the October Prime Days may have garnered more visibility than the ones launched earlier in July.
Despite an increase in conversion rates on Amazon Sponsored Ads, the return on ad spend for such ads followed a similar pattern as that of CTR, although at a less significant rate. The RoAS for Sponsored Ads during the July Prime Day event was down by 3.94%. This indicates that even though sellers increase ad spending during major online shopping events like Prime Day, it does not necessarily mean such an effort will yield a high return.
Competition on Amazon has undoubtedly increased in recent years, causing advertising costs to rise alongside it. Additionally, global challenges, such as the rising costs of goods and services, shipping issues, and inventory constraints, can also help explain the increase in ACoS.
The average Amazon seller spent less on advertising during the October Prime Day event than in July and scaled up to a lesser extent. This is perhaps because they are budgeting for more “sure thing” events such as Black Friday, Cyber Monday, and the December holidays. Or, Amazon sellers are simply becoming more reserved with their advertising budgets, which could explain why they wanted to avoid increasing ad spending on the first-ever October Prime Day after having just boosted ad spend in July.
Despite the increase in ACoS and decrease in CTR, augmenting Amazon Sponsored Ad spending during Prime Days is just as vital as effective. As shown in the graphs above, ad sales and other KPIs such as impressions, clicks, orders, and conversion rates still increase.
To get back to the nitty-gritty, should Amazon sellers continue spending what they typically spend on Amazon Sponsored Ads during major online shopping events? In short, yes. Today, if sellers don’t allocate a portion of their budget to advertising, it won’t matter how great their product is and how much of a deal their pricing strategy is because no one will buy it if no one sees it.