Advertising on Amazon: Why Vendors Must Think Differently
There are two ways that brands can sell on Amazon: either as Vendors or Sellers. Selling as a Vendor means that Amazon’s retail team buys and resells a brand’s products. In this case, Amazon controls the retail pricing. As a Seller, brands are selling directly to Amazon’s customers and control the pricing. If a brand has a Seller Central account, they are considered marketplaces or third-party sellers. And those with a Vendor Central account are considered first-party sellers, acting as suppliers who sell in bulk to Amazon.
Brands selling on Amazon as Vendors need to be thinking differently about their Amazon advertising investments and optimization strategies compared to the advertising strategies used on their owned direct-to-consumer sites. Vendors should view Amazon as another retail partner and apply the same thinking and knowledge—when their retailers order more stock, they make more money. This shift in mentality means that the most important data points for evaluating the efficacy of Amazon advertising programs are not the traditional digital marketing KPIs (clicks, impressions, and orders), but rather POs (Purchase Orders) and COGS (Cost of Goods Sold). Because of this, Amazon advertising success for Vendors is better measured by the lifts in POs and COGS driven by ad investments. More on this shortly.
Amazon’s advertising platform, however, still speaks to the Amazon marketer using the KPIs that digital advertisers are most familiar with: clicks, impressions, spend, orders, and sales. Amazon provides these metrics so they can speak the traditional digital marketer’s language, but Amazon fails to train marketers how to speak their own language.
As we know, while traditional click, impression, and conversion KPIs can help advertisers understand where their advertising spend is most effective, these metrics by themselves are not enough to maximize overall performance; we have to remember, Amazon is a retailer. And since Amazon is a retailer, relying only on ROAS of advertising on products on Amazon does not prove overall sales incrementality. This means that investing in Amazon Sponsored Ads is even more important in driving product sales and proving to Amazon that they should re-order your products. This also means that to truly understand the ROI of your advertising, you need to be able to connect your ad dollars to your re-order volume.
To understand the impact of Amazon Advertising on total sales, savvy Amazon marketers review two core sales KPIs housed in Vendor Central, an entirely separate Amazon platform:
- Cost of Goods Sold (COGS) answers the question: “Are we moving more product per day than we were before we started advertising?” An increase in COGS signals a higher velocity of product sales. This, in turn, indicates that Amazon will run out of stock faster, and therefore re-order faster.
- Purchase Order volume (POs) answers the question: “Is Amazon ordering more products from me than before I started advertising?”
As marketers examine the efficacy of their Amazon Advertising programs, it is imperative to take a step back from the metrics provided by the advertising platform and take a look at the wider business impacts. Understanding which advertised products are seeing the most COGS/PO growth will help advertisers understand where they should push their next media dollar. These wider business impacts can be measured by using the COGS and PO metrics found within Vendor Central.
To learn more about Rise’s unique approach to using COGS and PO data on Amazon Advertising to drive larger business outcomes, contact us today.