Increasing ACOS With Amazon Advertising PPC Platform Impacting Profitability?


01-18-2022

Adam E. Wilkens

The Rising Trend of Cost Per Click on e-Commerce Giant Amazon

We often come across the term Cost Per Click (PPC), especially in Marketing to Marketing Management and several other related fields. It is a common phenomenon and term for marketing, especially about the e-commerce giant Amazon. It denotes how much advertisers need to pay for the ads that they put up on various platforms. The calculation is done based on the number of clicks the ad receives. It is an essential determinant of the price that a particular brand demands for its paid advertising campaign.

Constant Price Rises in Cost Per Click

There have been raising concerns about the increase in cost per click on e-Commerce platforms like Amazon. In such a situation, marketers should aim to reduce the Price Per Click (PPC) without compromising the quality of clicks with customer satisfaction as the ultimate goal. In the case of Price Per Click (PPC), the price received applies to different types of ads—the ones having simple texts, images or even videos.

Ads that appear on the result page of search engines, display ads or ads on social media are all included as part of the CPCs. The average CPC of ads on Amazon has witnessed a growth of almost 52 per cent in a year. In June 2020, the average CPC of ads on Amazon was roughly 0.79 US dollars which have increased to 1.20 US dollars by June 2021.

Reasons & Impact of the Soaring Prices

The price has already started to increase from the beginning of 2021. It went up to 1.20 US dollars by the middle of next year. There is a possibility that it might further increase this year. The marketing experts are planning to deal with the increasing Price Per Click (PPC). A few reasons to cite for this is an increase in large companies migrating to Amazon to sell their products directly to the consumers.

Aggregator firms gradually purchase smaller businesses on Amazon, while the larger firms with an increased budget are getting involved in "direct-to-consumer "sales on the website. The "Average Cost of Sales" on the website has increased over a year at a rate of 22 per cent. But in comparison, the "average conversion rate" has hardly changed.

Moreover, the website's algorithm is such that a product with a poor conversion rate would not be recommended even if the keyword has a high suggested bid. Therefore, one needs to be careful with poor performing keywords and refrain from using them. Amazon has a "suggested bid mechanism." A marketer can put a maximum cost for a particular keyword to deal with the rising competition.

It is crucial because the rising Price Per Click (PPC) would not affect the more significant sellers in the market but the smaller players who may have a limited budget. Although rising costs are a concern, we can say that the cost is not fixed and can be negotiated. For instance, what a seller looks for is an essential determinant of the cost incurred along with their budget. Targeting high end and high performing keywords with a less flexible budget would undoubtedly lead to an increase in Price Per Click (PPC). However, smaller firms may use specific ways to deal with the rising costs.

The question of smaller firms comes in as these are the ones that face the wrath of the rising competition. With a lower Cost Per Click (CPC), one can get more clicks within a limited budget, leading to better leads for the products. Only then can one make better profits and survive in the highly competitive market, especially in the wake of the COVID-19 pandemic.

The Future Prospects in the Wake of the Current Scenario

"Prices will continue to rise over time," said Juozas Kaziukenas, Founder and Chief Executive Officer (CEO) of Marketplace Pulse." The increasing CPC has thus attracted global attention and has become a significant concern for the e-Commerce sector. Major brands would not be much concerned about the rise in CPC, as they would be ready to pay to protect their market share. It would make the e-Commerce platform highly competitive, although this would not affect the demand for advertisements on the forum.

Amazon is one of the best platforms for the advertisement of anyone's brand as compared to other platforms like Meta, Instagram or even Google. Indeed, Amazon helps sellers find consumers who are willing to buy quickly. It is slightly difficult on other platforms as finding buyers directly on these platforms would not be easy. Many Amazon aggregators have found that the e-commerce platform is the best to pull traffic for their products. Many aggregators who aspire to become consumer brand conglomerates are willing to buy popular Amazon brands. Few such companies are eager to undergo debt and investor funding, expand their brands, and use advertising as an essential tool for marketing.

Surge of e-Commerce

On an e-commerce platform like Amazon, ad real estate has remained almost the same, but brand advertising has phenomenally increased. Sellers thus need to keep in mind their return on investment because if the CPC is high, it becomes difficult to achieve a higher return. In the case of an ad campaign, the lesser is the CPC bid on the keyword. The higher are the returns on investment. However, if the CPC bid is more elevated, winning an advertisement is also greater.

The CPC metric is also an excellent way to determine the profitability of an ad campaign. It tremendously helps the marketer to achieve a higher degree of profitability. That way, one can also increase the returns on investment. The general rule is that popular keywords lead to a higher cost per click. Sellers can use the CPC metric to compare one's CPC with their conversion rate, which would give an idea of whether the CPC should be worth the investment.

Sellers can use the metric to have a prior understanding and gain some extra advantage. As an increasing number of consumers' rush to e-Commerce platforms like Amazon to purchase different products, sellers need to make the most of advertising tools to sell their products and overcome the rising CPC.