The importance of valuing latent orders to successful Amazon Sponsored Products management

Advertisers must consider the lag time between ad click and conversion as well as historic performance around key days to estimate shift.

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Sponsored Products is the most widely adopted Amazon search ad format, and typically accounts for more than six times as much ad spend as Sponsored Brands ads for the average Tinuiti (my employer) advertiser. As such, it’s incredibly important for advertisers to understand the full value that these ads drive.

Part of this is understanding the click-to-order period between when a user clicks on an ad and when that user ends up converting. Given how Amazon attributes orders and sales, it’s crucial that advertisers have an idea of how quickly users convert in order to value traffic effectively in real time.

Amazon attributes conversions and sales to the date of the last ad click

When assessing performance reports for Sponsored Products, advertisers should know that the orders and sales attributed to a particular day are those that are tied to an ad click that happened on that day. This is to say, the orders and sales reported are not just those that occurred on a particular day.

Advertisers viewing Sponsored Products conversions and sales in the UI are limited to only seeing those orders and sales attributed to the seven days following an ad click. However, marketers pulling performance through the API have greater flexibility and can choose different conversion windows from one to thirty days, which is how the data included in this post was assembled.

In the case of Sponsored Display and Sponsored Brands campaigns, performance can only be viewed using a 14-day conversion window, regardless of whether it is being viewed through the UI or through an API connection.

For marketers who wish to use a thirty-day conversion window in measuring Sponsored Products sales and conversions attributed to advertising, this means that it would take thirty days after the day in question in order to get a full picture of all conversions. Taking a look across Tinuiti advertisers, the first 24 hours after an ad click accounted for 77% of conversions and 78% of sales of all those that occurred within 30 days of the ad click in Q2 2020.

Unsurprisingly, the share of same-SKU conversions that happen in the first 24 hours is even higher, as shoppers are more likely to consider other products the further removed they become from an ad click.

For the average Amazon advertiser, we find that more than 20% of the value that might be attributed to ads happens more than one day after the ad click, meaning advertisers must bake the expected value of latent orders and sales into evaluating the most recent campaign performance. The math of what that latent value looks like varies from advertiser to advertiser.

Factors like price impact the length of consideration cycles

The time it takes for consumers to consider a purchase is naturally tied to the type of product being considered, and price is a huge factor. Taking a look at the share of 30-day conversions that occur more than one day after the click by the average order value (AOV) of the advertiser, this share goes up as AOV goes up. Advertisers with AOV over $50 saw 25% of orders occur more than 24 hours after the ad click in Q2 2020, whereas advertisers with AOV less than $50 saw 22% of orders occur more than 24 hours after the ad click.

Put simply, consumers usually take longer to consider pricier products before purchasing than they take to consider cheaper products, generally speaking. Other factors can also affect how long the average click-to-order cycle is for a particular advertiser.

In addition to latent order value varying by advertiser, there can also be meaningful swings in what latent order value looks like during seasonal shifts in consumer behavior, such as during the winter holiday season and around Prime Day.

Key shopping days speed up conversion process

The chart below depicts the daily share of all conversions attributed within seven days of an ad click that occurred during the first 24 hours. As you can see, one-day order share rose significantly on Black Friday and Cyber Monday as users launched into holiday shopping (and dropped in the days leading into Black Friday).

After these key days, one-day share returned to normal levels before rising in the weeks leading up to Christmas Day before peaking on December 21 at a level surpassing even what was observed on Cyber Monday. December 21 the last day many shoppers could feel confident in placing an order in time to receive it for the Christmas holiday, and it showed in how quickly the click-to-purchase path was for many advertisers.

Of course, Amazon created its own July version of Cyber Monday in the form of Prime Day, and we see a similar trend around one-day conversion share around the summer event as well.

This year’s Prime Day has been postponed, but reports indicate that the new event might take place in October.

As we head into Q4, advertisers should look at how the click-to-order window shifts throughout key times of the year in order to identify periods in which latent order value might meaningfully differ from the average.

Conclusion

Like any platform, advertisers are often interested in recent performance for Amazon Ads to understand how profitable specific days are. This is certainly important in determining shifts and situations in which budgets should be rearranged or optimization efforts undertaken, and that’s even more true now given how quickly performance and life are changing for many advertisers as well as the population at large.

However, in order to do so effectively, advertisers must take into consideration the lag that often occurs between ad click and conversion. Even for a platform widely regarded as the final stop for shoppers such as Amazon, more than 20% of 30-day conversions occur after the first 24 hours of the click, and this share can be much higher for advertisers that sell products with longer consideration cycles.

Further, advertisers should look to historic performance around key days like Cyber Monday and Prime Day to understand how these estimates might shift. Depending on product category, other holidays like Valentine’s Day or Mother’s Day might also cause shifts in latent order value.

Not all advertisers necessarily want to value all orders attributed to an ad over a month-long (or even week-long) attribution window equally, and particularly for products with very quick purchase cycles, it might make sense to use a shorter window. That said, many advertisers do find incremental value from orders that occur days or weeks removed from ad clicks, and putting thought into how these sales should be valued will help ensure your Amazon program is being optimized using the most meaningful performance metrics.

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The data behind incrementality on Amazon

The key to driving incremental sales combines segmented bidding strategies, contextualizing ACoS metrics and proper campaign structure.

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Every marketer worth their salt is concerned about incrementality. Companies have, and should be, reevaluating their budgets, channels and service providers based on the ability to drive sales from advertising that they wouldn’t have captured otherwise.

When it comes to Amazon, this issue is particularly important, because current SERPs can naturally cannibalize an otherwise organic sale with an ad for the same product that shows up prior to the organic result. For marketers, the key to managing this issue and driving incremental sales is through a combination of segmented bidding strategies for brand, category, and competitor key terms, contextualizing Advertising Cost of Sale metrics, and proper campaign structure.

The non-incremental trap of branded keywords

Each of the larger term segments – branded, generic, and competitor – needs to be thought of in terms of the consumer’s place in the purchase funnel:

  • Brand keywords capture shoppers deepest in your purchase funnel
  • Competitor keywords capture shoppers that are deep in someone else’s purchase funnel
  • Category keywords capture shoppers at the top of your purchase funnel 

On Amazon, when a user searches for some variation on a brand name, the A9 algorithm generally does whatever it can to surface as many of those brand’s products as possible on that search page. That includes both top sellers, which will get the top organic placements, along with the long tail, which will occupy spots further down the page. Amazon takes the intent of the user – “I want to see products from this brand” – very seriously. This is borne out in the underlying data – it is much, much harder to rank organically on a category term, as compared to a branded term, as seen in the examples below.

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This shows why it’s a real challenge for your brand’s keywords to be incremental. It’s almost guaranteed that your relevant products will show up organically on the SERP – with your top sellers showing up high in the results. Additionally, consumers are more likely to click on the top few results of a branded search, as compared to generic searches.

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The biggest takeaway here is that advertising your top products on your own branded terms is a particularly bad practice. You’re capturing sales via paid placements you were likely to capture organically anyway. If brand defense is imperative, consider advertising new or longer-tail products on your branded terms instead. That way you’re defending your brand term, but you’re doing so by helping to sell products that aren’t yet ranking well organically, while still not cannibalizing sales of your top products.

Maximizing sales across category and competitor terms

In terms of incrementality, nothing is better than capturing a sale from your competitor. However, you’re likely to find that the ACoS of competitor keywords is significantly worse than that of generic or category keywords, as shown in the example below.

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The best strategy here depends a lot on your competitive landscape. Conquesting your competitor’s terms means having a deep understanding of the terms which you can reasonably bid against successfully. Terms relating to stronger competitors with deeper brand loyalty/recognition may necessitate a less aggressive strategy to control costs, while it may be well worth your while to bid forcefully against terms related to relatively weak competitors where it’s easier to pick off customers with your top products.

As opposed to branded terms, the universe of category keywords is understandably the largest on Amazon, with new relevant terms developing over time. In this larger and more dynamic environment, it’s important that you set bids based on the expected conversion rate of a given term.

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The issue here, which I’ve written about in a previous column, is that over 90% of category keywords do not get more than one click per day, given a constant bid. Additionally, with roughly 80 clicks being necessary to get a confident estimate of the true conversion rate of a given keyword, running this test could take nearly two and half months. Meanwhile, conversion rates change roughly every month – as one extreme example, think of the expected conversion rate for “easter candy” in April versus May or June.

To succeed with category keywords you must have an exploration strategy that values the rate of data acquisition. At my current workplace, we use a probalistic binary search model, that adjusts bids from very high to low in order to more quickly determine the expected conversion rate.

Outside of this more refined statistical method, what marketers can do to better find and exploit meaningful keywords on Amazon is deploy a more granular campaign structure. Because keywords define audience segments, each audience segment needs a different set of considerations in terms of aggressiveness and expectations.

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To spell this out, brand keyword campaigns should have high ROAS expectations, focus on emerging products, and get tested for incrementality. Competitor keyword campaigns should have the lowest ROAS expectations and focus on launching and dominant products. Finally, Category keyword campaigns should be expected to give you a break-even ROAS and must be handled with a strong exploration strategy. These overarching themes are important to keep in mind as you scale your marketing efforts on Amazon because they are critical to driving incremental sales growth.

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