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3 Questions You Need to Ask Before Advertising on Amazon

Ellen Harvey

Are you ready to advertise on Amazon? Before jumping in, retail marketers will want to consider a few key factors, including ad eligibility and the cost to participate in the platform.

Unlike Google and Facebook, Amazon requires retailers to sell in its marketplace to advertise. They must also meet other eligibility requirements, such as winning the Buy Box with low prices and high performance metrics. Additional commission fees and other advertising costs can make Amazon prohibitive to some retailers.

Despite these initial challenges, the platform represents a huge financial opportunity. Amazon grew product sales 20% in 2018 to $141.92 billion, making it the largest e-commerce platform on the web.

Before retailers can tap this opportunity, they must first answer these three questions.

What Are Your Margins?

One of the big differences between performance marketing channels like Google is that retailers pay twice on Amazon. Retailers pay to advertise their products, and they also pay Amazon for the sale. Some retailers even pay three times, if they use Fulfillment By Amazon (FBA) to handle shipping. All of these fees ad up and may eat into retailers’ advertising budget.

Here’s a breakdown of the fees retailers should be aware of before they start selling and advertising on Amazon.

If retailers have remaining budget for advertising, these fees may not be an issue. Or, retailers may need to advertise fewer products at lower CPCs to spend budget more strategically. Regardless, all retailers should understand how Amazon’s fees, combined with advertising CPCs, may impact profits.

Are You Live on Amazon?

Retailers who are not currently selling products on Amazon cannot advertise on the platform. Retailers will need to apply for a professional seller account and provide Amazon with information including the company name, tax identity, address, contact information, and credit card and billing information. Once a retailer’s application is in, Amazon will review and grant permission to set up a store.

Retailers can add products to their store through a product feed, which will include all of the product information and inventory levels. Alternatively, retailers can look up product SKUs on Amazon and find their associated Amazon Standard Identification Number (ASIN). If retailers take the feed approach, they should consider separating their Amazon inventory from their e-commerce inventory. Otherwise, they will need to send inventory updates to Amazon every time a sale occurs on their e-commerce site.

Are You Buy Box Eligible?

Once retailers understand their margins and are live on Amazon, they need to be Buy Box eligible in order to advertise their products. The Buy Box is the white box on the right side of the Amazon product detail page, where customers can add items for purchase to their cart. 82% of all purchases occur in the Buy Box, making it a critical part of retailers’ advertising strategies.

Not all sellers are eligible to win the Buy Box. Retailers must have professional sellers accounts, sell new items as opposed to used, and they must have available inventory for their products.

Other factors influence Amazon’s Buy Box algorithm and determine how often a retailer’s product will win the top spot. In order to win, retailers need to offer a combination of low price, fast shipping time, and high performance metrics. Performance metrics include seller ranking, feedback score, customer response time, on-time delivery, and more.

While Amazon favors retailers who offer the lowest price and shipping costs, high performance metrics can actually allow retailers to win the Buy Box with a higher product price. Retailers who use Amazon’s fulfillment service FBA will also receive preference in the Buy Box.

Displaying ads only when they are Buy Box eligible helps Amazon strike the balance of serving customers and advertisers. Customers find low prices and fast shipping options in the Buy Box, while advertisers only pay for product ads that can win the Buy Box.

If Amazon didn’t enforce Buy Box eligibility, retailers could end up paying to advertise other retailers’ products. For example, a retailer advertising  Kleenex tissues via a sponsored product ad may not have the lowest price. Then another retailer selling the same product at a lower price wins the Buy Box. In this case, the first advertiser essentially pays Amazon to sell the other retailer’s less expensive product. Amazon eliminates this issue by not showing ads that don’t win the Buy Box.

Once retailers understand the basic requirements for advertising on Amazon, they need to decide what type of Amazon ads will help them meet their strategic goals and what campaign structure will drive the greatest success. Sidecar will explore these topics more in the coming weeks. Subscribe to Sidecar Discover to get alerts when we release new content and stay up to date on the latest retail marketing news and strategic advice.

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