Risk Management in Amazon Advertising

Amazon has solidified its position as one of the largest online marketplaces, boasting over 150 million Prime members worldwide. As more brands flock to Amazon to leverage this massive audience, Amazon Advertising has become an essential tool to drive product visibility and sales.

But as with any form of advertising, there are inherent risks. This article delves into the importance of risk management in Amazon Advertising and offers strategies to mitigate potential pitfalls.

But First, What’s the Risk?

Risk Management is a term normally used in financial services but from my perspective, PPC Management is fundamentally a financial service (which is why we also offer financial reporting services with our PPC Management).

We are handling large amounts of money that belong to our clients and we are promising to invest it in a way that gives them the best chance at a positive return. One of the most important aspects of this is limiting downside risk. Amazon makes it easy to spend a lot of money very fast. It is very easy to make thousands of dollars disappear overnight due to poor decision-making and not understanding the risks.

Key Risks in Amazon Advertising

1. Wasted Ad Spend: This is the simplest but hardest to catch. The more you spend the harder it is to see where the waste is. If you’re spending a million dollars a year on ads, then tens of thousands of dollars could easily get lost.

2. Not Understanding Profitability: Amazon does not make understanding its fee structures easy. There are endless reports hidden all over the place that are not really that easy to understand. This can make it difficult to know if your ads are actually profitable or not (no matter the ACOS). You want to have a system in place to put all this data together so you can see the full financial picture to make sure your advertising strategy is financially viable.

3. Running Out of Inventory: There’s nothing like spending a bunch of money to get sales, only to run out of inventory. Amazon cares about momentum and there’s no point running a bunch of ads if your inventory and lead times can’t support it.

4. Automation Gone Wild: It can be easy to think that automation should be hands-off. Unfortunately, it’s not. Automation saves time but it still needs to be managed and the more aggressive the automation the more watching over it needs as it is almost impossible to get automation to work perfectly in every scenario.

5. Trusting AI Too Much: AI has potential… but it’s only as good as the data that goes into it. Be sure you understand the limitations of any AI that you are using because if it can’t see or understand everything that’s important to you then it’s not going to make good decisions. Simply optimizing for ACOS can be helpful for saving ad managers time but the target ACOS needs to be based on strategic goals and shouldn’t be the same for every campaign.

6. Not understanding the data: ACOS, TaCOS, Clicks, Impressions, NTB Sales… There are a ton of acronyms and industry-specific terms that make it confusing for anyone who isn’t deep into the Amazon world.

7. Losing Customers: There’s a lot of contention around running “Brand Protection” ads. Lots of brands will, understandably, start to question the idea of why they’re advertising for their own branded terms when a shopper indicates that they’re looking for them. Isn’t this just “wasted ad spend”? The answer, in short, is no. Not advertising on your brand will result in competitors stealing a percentage of customers away. Customers you paid to acquire. This affects your CLV (customer lifetime value) and ultimately compounds issues of not understanding the data.

Amazon Advertising is becoming increasingly complex

Amazon’s advertising platform provides sellers with several tools and ad formats, including Sponsored Products, Sponsored Brands, and Display Ads. These tools are incredible for driving traffic and awareness to Amazon’s massive customer base. However, the effectiveness of these campaigns largely depends on understanding the platform’s nuances and continuously adapting to its ever-evolving landscape.

And there are a myriad of nuances that need to be understood about how all of these different ad types behave:

• Some ad types spend more than others (and more quickly)
• Some ads – such as Sponsored Display – won’t have accurate data for longer periods of time (compared to Sponsored Brands and Sponsored Products) which means spending more money for longer without knowing the results
• Some ads are deceptive in their attribution such as vCPM campaigns which have very little barrier to having a sale attributed to them and can be double-counted with other ad types
• Different match types behave differently
• Different match types behave differently in different ad types (such as broad match in Sponsored brands vs Sponsored Products)

This is why it pays to have professionals like us to help you manage your risk while growing your brand through Amazon Advertising. If you want to go it on your own, though, below is a list of things you’ll want to do to help with risk mangement.

12 Ways to Mitigate Amazon Advertising Risks

There are numerous areas where we can implement systems and train managers to minimize downside risk.

1. Strategic Planning: Overspending without a clear ROI can drain marketing budgets. If you do not know why you are advertising and have a clear plan as to how you are going to be profitable in the long run then you are probably just wasting money. Amazon’s marketplace is simply too competitive and expensive now not to have a plan.

2. Reporting (Know Your Numbers): How are you going to understand if your plan is working without KPIs and reports to measure progress over time? Reporting on both the financial and ad performance levels is critical to reducing mistakes and improving performance. Have reports that allow you to see trends and catch things before they get bad.

3. Budget Management: One of the primary risks is overspending. To mitigate this, you have several options to set budgets. These are available on the campaign, portfolio or account (currently only SP) level. These tools will help you control how much you spend and where you spend it. You’ll want to adjust these on a regular basis depending on performance, goals and other factors like inventory & cash flow.

4. Regular Bid Management: In order to reduce risk you’re going to want to make sure you’re checking in at regular intervals based on your spending (anywhere from 2-3 times/week to 2-3 times/day). This is based on sample sizes. More ad spend equals more data which equals faster decisions.

5. If it ain’t broke, don’t fix it: Over-optimization can be as big of a problem as ignoring your ads altogether. Amazon likes consistency and depending on the ad you’re running, your ad could behave incredibly differently simply by changing the variables such as the bid, bid strategy or placement modifiers.

6. Seek Incremental Progress: Unless you know what you’re doing or the numbers are incredibly good, it’s better to improve things steadily over time. That way you minimize the risk of losing good performance, running out of inventory and wasting time and money. Automation is great for this.

7. Don’t Overreact: You need to give the data time to settle and understand that sometimes it’s just a bad day. We won’t ever truly know why the ups and downs happen but it’s important not to overreact. Manage based on trends, not fluctuations and know when data delays are affecting your ad performance.

8. Set Guardrails with Automation: One of our favorite ways to use automation is to set “guardrails”. These can be alerts when something goes wrong (like spend significantly changing) or rules that stop ads when ad spend goes up significantly.

9. Set Up Alerts: A lot of software these days can help with setting up alerts when things go wrong, your inventory is low or you get a bad review. Our favorite is Sellerise for its low cost but Helium10 is great too if it’s in your budget.

10. Stay Updated: Amazon frequently updates its advertising policies and algorithms. Watch for news from Amazon or subscribe to our newsletter to get the latest changes straight to your inbox.

11. Improve Your Conversion Rate: Amazon’s algorithms ultimately reward sales and your product listing’s conversion rate will have a big impact on whether or not your ads will be financially sustainable.

12. Work with Experts: If you’re unsure about navigating Amazon Advertising, consider partnering with an Amazon advertising Agency (like us) or consultant. We can offer expertise, tools, and insights that can help minimize risks.

Conclusion

Amazon Advertising is a potent tool for brands looking to tap into Amazon’s vast customer base. However, like any advertising platform, it comes with its set of challenges and risks. Through diligent risk management practices like continuous monitoring, A/B testing, budget management, and staying updated with Amazon’s changes, advertisers can effectively mitigate these risks, ensuring profitable campaigns and a strong brand presence on this influential platform.