How Does Amazon PPC Auction Work?

Zeeshan Riaz March 25, 2022

Are you familiar with Amazon PPC auction work and how it can benefit you? Suppose you are a seller new to Ads. In that case, you must be familiar with the terms associated with Amazon PPC because they can easily undermine your marketing budget if you are not knowledgeable.

Let’s talk about what Amazon PPC is all about and how its auction works, and what are good strategies for your PPC campaign.

What is Amazon PPC?

In order to make its third-party sellers more competitive, Amazon provides them with a platform called Amazon PPC. It allows sellers to create advertisements for their products and bill them for each click and view of their advertisements.

It is critical for us to understand Amazon’s key PPC metrics prior to delving into the specifics of PPC. Amazon explains each of them as follows:

  • Advertising Cost of Sales (ACoS). Amount of advertising expenditures attributed to total attributed sales. To calculate this, you divide the total spend on advertising by the number of attributed sales.
  • Attributed Sales. These are the total sales that result from clicks on your advertisements within one week.
  • Impressions. A measure of how many times customers have seen your ads.
  • Clicks. This is the number of times your advertisement was clicked on.

Amazon PPC auction work

How does the Amazon PPC auction work?

Amazon uses real-time CPC auctions to determine which ads to display to consumers looking for products on its site and in what order they should appear.  In most CPC auctions, the highest bidder pays only a fraction of a penny more than the next highest bidder based on Second-Price Auction rules.

As part of the enhanced Second-Price Auction, Amazon compares both the target-level bid and the relevance of the ad to the matched query to select and rank eligible ads. In this regard, the CTR and conversion rates are projected to be measured, although these details remain secret.

Imagine that you are bidding for a keyword at the price of $5.00. In order to compete, the second-highest bidder has a default bid of $3.50. This means that if you are the highest bidder for the ad spot, you will not have to pay $5.00. The amount you pay will only be 0.01 more than the second-highest bidder. It means that instead of paying $5.00, you will have to pay $3.51 instead.

How Does Amazon Paid Search Work?

Every month, millions of searches are conducted on Amazon Marketplace. Several types of keywords range from short terms to long phrases (also known as long-tail keywords). Essentially, these are shoppers who are ready to purchase the product they are searching for.

Recognize that the majority of Amazon customers have no intention of doing window shopping on the site. Their primary purpose is not to discover new products. In fact, their primary purpose is to buy something. To purchase a product on Amazon, customers have to simply go to the Amazon search box and type in the product name they wish to buy. Amazon, in turn, will pull a list of products that it feels will meet the customer’s needs and then display them to the customer. These results are what we commonly call “organic” results on Amazon.

Nevertheless, there is a thing called “paid” search results, and one ought to be aware of them. Paid search results appear above organic results, regardless of the search term used. Despite being placed above the organic search results, they may appear below the organic results, opposite, or in between the organic results.

There is a simple concept behind Amazon’s sponsored advertising program. Amazon vendors and sellers are able to establish a daily advertising budget for each paid search advertising option that they choose. A vendor’s ad will be more likely to be viewed if the price offered for it is high.

Sellers and vendors pay for their advertisements based on click-through rates – this means that each time a buyer clicks on one of their ads, they are charged. A recent report states that Amazon generated over 4 billion dollars in profit from its paid search revenues last year. This demonstrates the importance of such advertising.

What’s the best time to activate Amazon Pay Per Click (PPC)?

As soon as you create a new listing on Amazon, it is recommended that you activate Amazon Pay per Click (PPC). Waiting until your Amazon listing has three to five reviews is best to improve your PPC campaign’s effectiveness.

However, following the listing posting, it is imperative that you start the Amazon Pay Per Click (PPC) campaign. Then you can determine the level of competition for each keyword and identify which keywords are most important.

Additionally, you will better understand the typical expenditures of Pay Per Click (PPC) campaigns. By using the information in this report, you can adjust your prices to ensure that you are achieving a profit.

An overview of the requirements for running a PPC campaign

Prior to running an Amazon PPC campaign, it is vital that you satisfy the following requirements.

  • Seller Account. It is recommended that all advertisers maintain an active seller account.
  • Shipping. In order to serve every advertiser in the United States, products must be able to be shipped anywhere.
  • Buy a Box. The Buy Box eligibility criteria must be met by advertisers who wish to advertise through Sponsored Products. Additionally, you must hold a professional seller account and display metrics such as cancellation rates, order defect rates, late shipments, etc.
  • Amazon Brand Registry. Amazon Brand Registry should be utilized in Sponsored Display advertisements. Amazon’s brand registry serves both as a tool to protect intellectual property and enhance the user experience.

The types of Amazon PPC ads

Let’s examine the most popular types of Amazon PPC ads for third parties.

Sponsored Products ads

In search results and on product listing pages, Sponsored Products ads can appear in the organic results very closely similar to organic results. Among third-party sellers, this type of ad is the most popular. 66% of third-party sellers use this type of ad.

In order to create Sponsored Products ads, sellers have the option of using either automatic or manual keyword targeting strategies.

Automatic targeting

In the automatic strategy, Amazon will target keywords that are likely to be associated with your product listing. Using data Amazon collects from customers’ clicks and purchases, Amazon improves ads over time to increase conversions.

Manual targeting

The manual targeting method involves choosing the keywords you wish to bid on. A manually targeted ad will appear only if a customer’s search terms are compatible with your selected keywords. As a more “hands-on” type of advertisement, it is imperative to keep an eye on changes in costs in order to make necessary adjustments.

Sellers are able to promote more than one product at once with Sponsored Brands, and they’re able to grab shoppers’ attention with richer visuals. Amazon offers 3 formats of Sponsored Brands advertising, which can appear either in the headline banners of search results or as a video further down the page.

Display ads can be sponsored by sellers, which allows them to retarget users who have visited their product detail pages on Amazon and off the platform. Amazon’s Affiliate sites, including Google, Facebook, Netflix, and mobile apps, can display Sponsored Display ads, unlike Sponsored Products and Sponsored Brands ads. Sponsored Brand ads can only be utilized by sellers who have registered their brand.

How does Amazon’s campaign bidding work?

For Sponsored Products and Sponsored Display campaigns, advertisers can choose between three Campaign Bidding Strategies. This is an addition to those for keyword- and product-level bidding.

Dynamic keyword bidding types on Amazon

Dynamic Bids – Down Only. Your bid may be reduced by as much as 100% if the click is unlikely to convert. Depending on the likelihood of a click converting, Amazon may lower the bid by 2as much as 100%. Many experts recommend this strategy for campaign bidding. This ensures that the maximum CPC for the campaign is calculated in accordance with the efficiency target.

Dynamic Bids – Up and Down. When there is a high likelihood that the click will result in a conversion, Amazon will raise the bid by 100%, and if the click is unlikely, Amazon will reduce the bid by 100%. Amazon won’t increase Sponsored Product advertising by more than 100% on search engine ranking and by more than 50% on product pages and other places.

Fixed Bids. Your bid will not be automatically adjusted by Amazon based on the likelihood of conversion while using a fixed bid strategy.

FAQ’s

What is an auction in PPC?

Amazon uses a system known as an auction for advertising. Advertisers can place bids in order to have their ads displayed to shoppers. These bids are paid by the advertisers when shoppers click on their ads. The term “cost-per-click advertising” is used to describe this kind of advertising.

How long does it take for Amazon PPC to work?

The average time it takes for a PPC campaign to work is three months. To begin a PPC campaign, it is important to gather data from your ads for the first three months so that you can refine your keyword selection and target audience.

What Amazon PPC bidding strategies do you use?

You are aware of how Amazon PPC auction work, but do you know you can adjust the bids in your PPC campaign based on relevance by using a bidding strategy. You can choose from three options.

  • Dynamic Bid – Up and Down. 

If your ad is more likely to convert into a sale, Amazon can increase your bid by a maximum of 100 percent in real-time. Meanwhile, Amazon can also lower your bid up to a maximum of 100% in real-time. When ad conversion rates are low, Amazon will lower your bid accordingly.

  • Dynamic Bid – Down Only

Amazon will lower the bid by a maximum of 100%. The system automates this process in real-time whenever an ad campaign is less likely to convert into a sale

  • Fixed Bids

Amazon will use your exact bid along with any adjustments you have made manually. Your bids will not be affected by the likelihood of a sale.

What are the 3 types of Amazon PPC ads?

You have the option of running three different types of ads with Amazon PPC.

  • Sponsored Products.  A keyword and product targeted advertising advertises specific, individual products on the search results page and appears alongside other related products.
  • Sponsored Brands. Keyword-targeted Sponsored Brands ads are also pay-per-click advertisements. A Sponsored Brand ad generally displays a number of different products rather than advertising a single product, similar to a Sponsored Product ad.
  • Product Display Ads. A pay-per-click ad can also lead to a product page that provides more details about the product. Unlike the previous two kinds of advertisements, these ads can only be displayed by vendors and not by consumers. You can’t run these ads if you do not have a registration with Amazon as a vendor.

Conclusion

That covers a comprehensive explanation of what Amazon PPC is all about and how the Amazon PPC Auction Works. New features are continuously being added to Amazon advertising, which is an exciting time to be involved. Keep an eye out for new Amazon PPC features/strategies, and test them out whenever possible to get the best results from your Amazon PPC campaign.

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