Advertising Costs On the Rise
March 14, 2022
Across Amazon, sellers and consumers alike are being hit with substantial price increases in Prime membership fees, Fulfillment by Amazon (FBA) expenses, and Amazon advertising costs. Extenuating circumstances continue to affect Amazon FBA rates. Namely, a dramatic increase in sellers on Amazon has led to supply chain bottlenecks, labor shortages, wage increases, logistical nightmares, warehousing shortages – and more. A jump in sellers has also driven up advertising costs as a result of increased competition.
Though Amazon states advertising is optional, advertising on Amazon is an essential aspect of business. Without effective advertising campaigns, product listings can quickly become lost in an ever-deepening sea of competition.
Amazon’s pay-to-play advertising model can be challenging for small- and medium-sized businesses that struggle to remain relevant in their target market, even if they have the best product at the best price. This issue is largely attributed to ad campaigns segmenting potential consumers based on interests, preferences, search results and product view history, and then providing targeted ads that drive click-through and conversion rates.
In February 2022, Amazon reported the company earned $31.2 billion from ads in 2021, which is higher than ad revenue generated by YouTube and Snap, Inc. Amazon’s ad business is one of the company’s fastest-growing revenue streams and expanded 32% in 2021 Q4.
The sheer number of sellers on Amazon leads to higher advertising costs as the competition for market share becomes increasingly fierce. Amazon uses an auction model when determining the price of ads; the more sellers are willing to pay for ad space, the higher spend climbs. Companies are reevaluating product offerings as a result of this dynamic due to the high cost of advertising, low product rank, and increased product density.
On the consumer side, shoppers are likely to continue experiencing rising costs as sellers pass along higher expenses associated with advertising, FBA fees and supply chain shortages. Amazon is also well-known for penalizing sellers for offering products via other online retailers for lower prices. This practice reduces product price variance and diminishes the likelihood of shoppers being able to find better deals elsewhere.
Amazon is a money-making machine focused on engaging the right customers at the right time for the right product at the right price. This focus drives revenue, and Amazon is constantly improving their ad capabilities, both through ad types and customer-centric data that details customer purchasing habits. While these two aspects of Amazon advertising add value to both sellers and consumers alike, this value comes at a steep price. Though sellers can’t control most changes within the Amazon marketplace, they can optimize advertising campaigns by developing strategies and managing spend to drive maximum value.
The ZQUARED Advantage
ZQUARED collaborates with our Brand Partners to develop big picture plans, including advanced advertising strategies. We work together to set and assess key performance indicators (KPIs) that drive campaign measurement and optimization. Our primary goals are to provide better understanding of target markets, increase brand and product awareness, and, ultimately, grow sales and revenue.
Strengthening all aspects of the Amazon platform for brands is a top priority. We work with our Brand Partners to develop end-to-end solutions that focus on growing sales through advanced brand optimization and marketing, strategy execution, proprietary technology, forecasting tools, logistical support, product distribution and more.
To learn how ZQUARED can help you stay ahead in the Amazon game, request a comprehensive assessment of your Amazon channel from our Amazon Investment Partnership Team. You will receive audit results focused on your listings, category, competitors, reseller landscape and more with an individually-tailored strategic plan designed to capitalize on opportunities.