But the Amazon DSP platform is a mystery to many. Whereas everybody has access to the Amazon Sponsored Ads platform by default: Every seller, every vendor on Amazon, and all the agencies working for them, access to the DSP is gated. Only agencies with a “seat” and Amazon teams delivering « managed services », have access to the tool. Getting the seat requires a capable team in place and a commercial engagement on a minimum level of spend in the platform, and those stakes are getting higher.

But in these days of AI empowerment, why not simply ask ChatGPT, OpenAI’s generative AI chatbot to explain difference between Amazon PPC and Amazon DSP »?

Oh, I am a big fan of ChatGPT, but the answer regarding Amazon DSP is actually pretty far from reality. Maybe the reason for this is that there is not much public information available about the Amazon DSP on the internet. There are probably more people talking about it, who have never actually worked with it, than specialists with an in-depth understanding. Additionally, it is a relatively new and exclusive tool and the chatbot has only been fed data up until 2021. An AI can run really fast, but if you feed it with incomplete or wrongful data, it is not going to correct or improve that. It works by the SISO principle.

Without getting too much into why ChatGPT is wrong, let’s instead look at the two points on which I can’t agree in the description:

1. Amazon DSP Inventory is outside of Amazon
2. The purpose of DSP campaigns is to build brand awareness

Amazon DSP inventory is both inside and outside the marketplaces

Amazon is on a path to conquer more digital advertising budgets. It has a superpower compared to its competitors Meta and Google in the fact that its “media” is growing. This is due to the strong growth of its ecommerce which has had a growth rate of 20-30% before a recent slow down to 8-9% in 2022. What it means for advertising is that its inventory is growing by at least that rate – actually, it’s been growing a bit over double the rate of ecommerce growth in recent years.

One of the big characteristics of the Amazon DSP is indeed its capability to reach outside of the Amazon marketplaces, but its main attraction as a DSP is actually to be able reach open ad exchange like any other DSP, and then also have exclusive access to Amazon marketplaces and Amazon-defined audiences.

The DSP works with 4 levels of inventory

• The marketplaces and marketplace apps
• Other owned and operated (O&O) inventory (ex: Twitch, IMDB)
• Partner publishers with priority-serving deals
• Open ad-exchanges and mobile exchanges

Video inventory will be outside of the marketplaces but all other campaigns will run on the inventory you choose. In a standard European set up, I have often seen around 75% of the inventory delivered on the market places, themselves. Those campaigns were heavy on the platform and could even be restricted to only apply within. The balance between external and internal inventory depends on the audiences you are targeting and the purpose of your campaigns.

The Purpose of a DSP campaign is not just visibility, it is to sell

At the end of the day, or perhaps the end of the financial quarter, any communication campaign an ecommerce player carries out has a sales purpose. It can be a short-term perspective or a long-term perspective but sales are still the end purpose for its advertising. One of the great reasons for the rise of retail media, is the fact that the advertising and the sale are part of the same loop. This means reporting sales related to advertising becomes much more reliable than in settings where the two happen on different platforms.

The Amazon DSP has the capability to reach outside of the user context that the Sponsored Ads platform (the other Amazon Ads platform, also referred to as Amazon PPC) will target. It can reach audiences that are a little further away from the purchase. It is of course nice to build brand awareness along the way, but it is much more compelling to qualify audiences that are likely to be interested in one’s products on Amazon. This is the strongest application I have found of the DSP in conjunction with Amazon PPC. Increase the reach of campaigns, touch people who are a bit further away from the sale and guide them towards the merchants offering.

AMC reporting via Pacvue of overlapping DSP and Sponsored Products.

Source: E-Comas, 2022

As the Amazon DSP is integrated in the entire Amazon universe, it can play that role while maintaining the sales objective in place. Using it to build from the bottom of the funnel and towards higher levels, is one of the most efficient advertising tactics I have been confronted with across all digital advertising channels, and it would not be able to carry that function if its inventory were exclusively outside of Amazon and if its main purpose were to build brand awareness.

Let’s have a look at how performance driven DSP campaigns can be built below.

Media planning for Amazon DSP

The marketing funnel is such an outdated tool for understanding audience engagement and sales enablement, isn’t it? The problem is I’m just not capable of building media plans for performance without that model in mind. I think it is the concept of a hierarchy of decisions or influences a user moves through before a sale can happen. That speaks to behaviour in an online environment where touchpoints are measured and controlled.

Going through the inventory types mentioned above, I immediately qualify them on a scale of “far from conversion” to “close to conversion”. It’s the funnel waking up on me. Sending an Amazon product listing banner through an ad exchange out to some random site on the internet in order to match the right type of audience is bound to be a further fetch than showing the same ad inside the marketplace. So, we already have a hierarchy of inventory we can apply to the media plan. Inventory we expect to former better, and inventory we will test before keeping in the plan.

In my experience with Amazon DSP in the past years, there is a clear difference in direct performance between advertising inventory on the marketplaces themselves and inventory on other Owned & Operated sites, Partner publishers and ad exchanges. Reality is not as linear as shown in the illustration above, but the principle holds. In some cases, certain ad exchanges will perform better than partner publishers or other owned sites. This can depend on the type of product one is promoting and also on the audiences you are targeting on that inventory.

The same funnel-thinking applies to audience targeting. We know that users who have already bought the product, albeit a long time ago, are going to be an easier audience to convert to repurchase. This can be some of the easiest sales you make via your campaign but you always doubt whether these users would have bought the product anyway. That, however, is no reason for not using them as they help build audience data in the system, enabling us to find overlapping audiences which can open for more reach. But let’s put repurchase audiences a side for a moment.

The second-best performing audience type I have used is of course retargeting from product views. If a user has already been to the product detail page or performed a search for the brand or product, we know we are in the consideration phase already.

A little further away from the purchase, we will find users who have searched or visited pages for similar products. They are a bit further up the funnel, a bit further away from the purchase, just like any competitor audiences we are targeting. And finally, also in the consideration phase, we will find the best fitting inmarket audiences, machine-learning generated audiences Amazon has created based on user data and a prediction model for future purchase.

Only outside of these circles do we reach audiences that traditional advertising would target: lifestyle audiences and demographically defined audiences.

The stricter the retargeting, the higher the measurable ROAS – and the higher the risk you are converting the already converted, ie that you are simply tracking a conversion that would have happened anyway.

At the demographic and lifestyle audience level, we are very much in a higher-funnel brand-building exercise, but as we will see in the next section, even these branding efforts can be tied back to sales in a full-scale Amazon advertising operation. And inside a closed system, we can actually guarantee that we are reaching “New-to-brand” audiences by means of exclusions.

Two-phase Amazon DSP campaigns with a tROAS target

“We want to launch Amazon DSP to drive performance”. A classic client statement which is not always easy to work with. One should go on to Amazon DSP with nuanced expectations. The platform is good for reaching people and learning what works, but it can be a long ride and performance is rarely immediate. It is also a higher-volume platform where you can work through budgets very fast.

If the main drive for an Amazon DSP campaign is fast performance, the setup will be biased to retargeting and repurchases, and those are no guarantee that the advertiser will gain market share. They do serve a purpose, though, as they allow you to predefine efficient inventories and identify interesting overlap audiences when the campaign has been running for a while.

The most efficient set-up for exploiting both the conversion capability and reaching new audiences at scale, is probably what we have called the two-phase set-up. A two-phase DSP campaign consists of 2 mutually exclusive campaigns. One to reach audiences that have not been exposed to the brand and drive them to the product pages. And another to target users from the product pages to the conversion.

The platform itself is geared to this setup, as it can help optimize toward those objectives.

Phase 1 in the user journey DPV campaign: objective to generate visitors to product pages

Phase 2 in the user journey RTG campaign: objective to generate conversions

In the two campaigns we are actually targeting the same audiences, but in phase 1 we will exclude audiences which have been exposed to the brand. We can be sure they are “New-to-brand” (NTB). In phase 2, we will only target people who have searched for the product or been to the product pages, and of course, we will exclude users who have purchased the product during the last 30 days (or whatever time frame corresponds to the duration of a product).

One essential thing to keep in mind when running a two-phase campaign like the one described here, is to only consider return on ad spend at the account level. The Phase 1 campaign will have a low ROAS and its target KPI is the DPV rate: the rate at which ads are generating visits to the detailed product pages. It can also generate sales directly, but that function is actually reserved to the Phase 2 campaign which is geared to conversion. A successful campaign is not aiming to generate the best possible ROAS. It is aiming to generate the highest possible revenue at an acceptable ROAS. This guarantees account growth, and, yes, we are getting to it: it actually builds the brand recognition within the Amazon universe. Over time brand searches will increase and perhaps sales velocity too. These are the ingredients for an additional boost in organic sales which you can measure via the Total ROAS of the account (total sales/ad spend).

Amazon DSP is for non-obvious sales

The Amazon DSP is really good at reaching audiences that didn’t already have your products on their mind and drive them on a path to purchase. Perhaps that is what building brand awareness should actually mean: activate sales for audiences that didn’t know the brand before. With what we have called a two-phase setup, you can use the Amazon DSP to do just that. Build sales-enabling brand awareness to new audiences, and you can monitor and improve you process as you go.

The key to successfully marketing on Amazon as a Seller is right there in front of your eyes, haven’t you noticed? It is a bit like the forest you can’t see because the trees are blocking the view. Although we tend to imagine that success is ruled by some algorithm we can’t understand, once you realize where your own objectives actually coincide with Amazon’s and learn to work along some its principles of operational excellence, customer obsession and long-term thinking, you will significantly increase your chances of success on the marketplace.

What Amazon success looks like.

As a merchant having set up your account as a Seller on the marketplace, your main interface with Amazon is “Seller Central”. It is your dashboard and your management interface. Did you realize that the components of the dashboard are direct indications of what Amazon considers the dimensions of your success? Let’s have a look at it in depth.

The seller central interface is directly telling us what is important and what we can work on. The top line dashboard shows the number of orders, sales today, buyer messages, buy box wins, money earned, inventory score, (the IPI: Inventory Performance Index) and the effect of your promotions. To sum it up, Amazon is telling us what matters: sales, customers, competitiveness, balance of earnings (sales minus cost of advertising) and stock.

Rephrasing those provides us with the following 5 key points to Amazon success:

• Maximizing sales
• Winning the buy box
• Minimizing stock (managing the IPI)
• Providing excellent customer service
• Controlling the ACOS (Advertising Cost of Sales)

Most of them are not things you just fix once and for all. The Amazon game is a long-term project where you will have to constantly monitor and maintain your key ratios. A winning Amazon marketing strategy is one in which the ratios are stable and gradually improving all the time.

Flow-and-grow rather than Stop-and-Go

One of the worst things that can happen to your account is if it goes into a stop and go mode. I have seen this way far too often working with Amazon Sellers over the past few years. It goes something like this:

1. Get the product listings up
2. Put some stock in
3. Push promotions and advertising
4. Get sales going
5. Run out of stock
6. Lose the buy box
7. Panic
8. Restock
9. Return to 3)

In a stop and go scenario, the seller needs to restart the marketing machine every time products have run out of stock. Bad for users, bad for Amazon, bad for you.

Let’s embark instead on a flow and grow strategy where the aim is to create continuous improvement by working on each of the 5 success points one by one, as we explore below.

Maximizing sales

Of course, you want to maximize your sales, everybody does. But have you realized that Amazon also wants you to? Sales velocity of a product is one of the key signals Amazon works with. It helps the platform propose the best performing products and thereby maximize its own sales. This also typically has a positive impact on your IPI because your days-in-stock will be lower.

At the level of a merchant, this focus on best-sellers and maximized sales has some concrete implications. Let’s say you have a catalogue of 10 products and one of them has much higher sales than the others. Your best strategy will be to enhance advertising on your best-seller to make it sell even more. On your less performing products you should focus on content optimization and only use advertising defensively until you get some kind of traction.

Bet on your best products.

Winning the buy box

In order to sell your products, they need to appear in the “Buy Box” as often as possible. This is something end-users on Amazon don’t realize: the product page does not belong to the Seller, there can be several different Sellers proposing the exact same products with different prices and delivery settings. At the time of an end-user visit, Amazon will decide which Seller will “win the buy box”. The main determining factor is the price.

The illustration below shows you where to find the buy box on the right-hand side of a product detail page allowing you to buy a product in a single click. Being a marketplace, Amazon can have a number of different sellers distribute the same product. But there is only one product detail page for each ASIN (product code), and on that page, only one of the sellers is put forward in the buy box.

Make that be you!

The buy box is indicated by the red rectangle and the arrow points to the winner of the buy box on this product page.
Source: Amazon.co.uk

Amazon makes the best performing seller appear, so the end-user doesn’t have to make that decision. Amazon’s objective with this exercise is to provide an excellent user experience by selecting the best provider of a product. This arbitrage made in real time is of course executed by an algorithm, and the signals it takes into account are stock level, price ranking, sales history, past user experience, past delivery performance. Obviously, the capability to deliver to your location is the very first filter that is applied. Be in stock, be distributable.

By having the right price, a low return rate and a compelling product listing, you increase your chances of winning the buy box. Optimizing product listings serves more than one purpose: it helps the user in the buying process and it helps the Amazon algorithm understand what keyword searches the product should appear on.

Minimizing stock (but maximizing IPI)

On the Seller Central dashboard, Amazon shows sellers their IPI score, the Inventory Performance Index. This score gauges the way inventory is managed over time by sellers using FBA (Fulfillment by Amazon), and therefore have inventory in Amazon warehouses. Merchants of course pay for the warehouse occupation, so that is an interesting revenue source for Amazon, right?

No, wrong.

Amazon charges for your inventory, but if it could carry stock only on the products which make a margin when you sell, it would earn more. Additionally, Amazon has a huge storage challenge due to the physical and invariable nature of warehouses and its strong growth. It is in both Amazons and your interest to optimize inventory to only occupy space for goods that are sold frequently. To further optimize its warehouse resources, Amazon has even created a new mechanism to put warehouse space on auction.

Amazon describes IPI, the Inventory Performance Index as a metric for how efficient and productively Sellers manage their FBA inventory via a number of factors. The key factors it measures are the following (Source: Amazon):

• Avoiding excess and aged inventory.
• Long-term storage fees.
• Speed at fixing listing problems (that immobilize stock)
• Right levels of stock of popular products

Most sellers on Amazon will appreciate the IPI as a score for how they are doing. A stop-and-go account will have a low IPI and it will take time to rebuild it after having been out of stock. What most sellers don’t realize is, that it is one of the quality signals that Amazon uses. It can influence whether you win the buy box and may even have an impact on your ranking in search results.

Additionally, the IPI can be a cost saver. You pay for the amount of stock and the time it stays in Amazon warehouses. Amazon inventory space is never unlimited and non-moving inventory is not efficient for anybody. Amazon charges for it but also penalizes non-efficient stock management. Your objective is to be lean and efficient. Another objective that serves both you, Amazon and the end-user.

Make your stock management lean.

Providing excellent customer service

Amazon is obsessed with the user experience. It doesn’t do surveys of user satisfaction, though. Instead, it obsessively measures any signal that can be interpreted as a success parameter for the user experience. User reviews and ratings, return rates, customer service requests, speed of dispute resolution.

Source: Amazon DSP training material. https://learningconsole.amazonadvertising.com/

The best way to influence those signals is simply to strive for excellence. But providing excellent customer service is both challenging and costly. It requires preparation, processes for problem resolution, fast intervention and sometimes generous return or refunding conditions.

So, will that investment pay off? Odds are it will help you win the buy box which can contribute to more sales on Amazon. It can also spill-over into your ratings and reviews and help boost conversion. It might even enhance your customer care in other distribution channels. So, don’t neglect or underprioritize customer service, it is one of the keys to success of your business in the long run, both on Amazon and beyond.

Make your clients happy.

Controlling the ACOS

Marketing your products on Amazon is practically impossible without advertising. “Products that sell themselves” is a concept of a distant past, don’t fall for it, however proud you are of your product development or research.

On Amazon, you don’t win if you don’t play the advertising game.

When you are just starting to sell on Amazon, you will need to invest a higher proportion of your sales in advertising. The ACOS at the outset might even be too high for you to turn a profit.

ACOS means Advertising Cost of Sales and is a metric primarily used in Amazon marketing. In other advertising we usually use the inverted value of ACOS, which is the ROAS: Return on Ad Spend. Both metrics score how much value you are getting out of your advertising. The reason for the adoption of ACOS by Amazon is probably found in the way Seller relationships are structured: a merchant sells on the platform and thus earns a balance to be paid by Amazon. The seller can use a proportion of that balance on advertising and will only receive the difference between total sales and advertising and other fees on its bank account.

As you learn from your advertising investment and from the outcomes of your campaigns, you can optimize accordingly to reduce investment for the same result or increase sales with the same budget. This will mean your ACOS goes down, but more importantly, your sales velocity goes up. At this stage, you should experience both an improvement in your buy box ratio and a rise in organic sales. The flow is kicking in. Amazon is more likely to show your product on relevant queries in its search results if you have ramped up your sales.

This mindset of investing to learn what works – making small bets all the time – is a great way to grow your account. You can bet on keyword targeting, on competitive products, on complementary products on past buyers, on non-buying visitors to your product pages. All of these can be performed inside the Amazon Sponsored Ads platform, and if you max out on that platform, there will be plenty more bets to do on the Amazon DSP, where targeting options are supercharged providing almost endless optimization levers.

But before we get carried away with all the potential customers, let’s remember that a high ACOS won’t be sustainable in the long run. In order to earn money a company generates margins on the sale of its products. The margin is the difference between the sales price, the cost of goods sold (COGS) and the costs of marketing. Gradually taking the ACOS down to a sustainable level while maintaining sales growth is the key to growing your account.

In reality, however, a much better measure of success is to take a wider view of your performance by looking at total ACOS (or tACOS/Tacos, as it is often called). Total ACOS better takes the derived benefits from advertising into account (more organic sales) and is a better measure of your success.

Optimize your advertising to reach a sustainable ACOS, then expand.

Position your products, then invest to learn and grow for the long run

As your product flows and your sales grow, you will need to maintain your level of customer service and your control of efficient stock levels. Remember, you are in it for the long haul. Your advertising bets will show you how and where to develop your account further and while this iterative process  can be long, it can also put your business on track to conquering a market at a pace of 10, 15 or even 25% growth per month until you reach you market potential.

Being impeccable on price level, customer service and stock, and having faith in your strategy could steer your business to unprecedented heights. And the dashboard for your performance is right in front of your eyes in Amazon’s Seller central.