Whether you are very new to using Amazon advertising or you are a well-established seller looking for ways to optimize your strategy, it’s critical to understand how Amazon bidding works. Developing good campaign bidding strategies can have a dramatic impact on your conversion rate, and using dynamic keyword bidding wisely can even reduce your total advertising cost while maintaining or even improving your click-through rate.
Many sellers choose to invest in PPC management services for Amazon for exactly this purpose. Others decide to go it alone. Either way, bidding forms the backbone of pay-per-click advertising on Amazon and many other marketplaces. Knowing how it works is a key component of any selling strategy.
The Basics of Amazon PPC Bidding
Using Amazon’s bidding system, sellers place bids on specific search keywords or on the names of products. When potential buyers search for these products or keywords, Amazon looks up the highest bidders for that keyword and shows those products in the “Sponsored Products” section of the buyer’s search results.
It is important to note that Amazon uses a second-price auction-style keyword bidding system. In this system, the high bidder may not pay the entire amount of the bid. Imagine a scenario where there are exactly two bidders on a keyword, and one bids $1.25 while the other bids $1.50. Under Amazon’s PPC system, the high bidder would pay $1.26 for each click-through.
What Types of Dynamic Keyword Bidding Does Amazon Offer?
In 2020, Amazon introduced three strategies of bidding on keywords. This dynamic bidding system gives sellers maximum control over how much they spend on their advertising campaign bidding strategies, as well as flexibility when it comes to the volatile nature of some product sales.
- Dynamic Bids – Up and Down
When an Amazon seller uses this setting, Amazon can both raise and lower the seller’s total bid by up to 100% based on the likelihood that a searcher will make a purchase. A $1.00 bid may cost the seller up to $2.00 in this scenario, but only when Amazon’s AI determines that a purchase is highly likely.
- Dynamic Bids – Down Only
This dynamic bidding system works much like the Up and Down option, except that it will only reduce the amount of a seller’s bid when a conversion is unlikely (and never increase it in the reverse situation). With either of these settings, Amazon may reduce the bid by up to 100% as well.
- Fixed Bids
With fixed bidding, Amazon does not adjust a seller’s maximum bid. Keep in mind that each bid only represents the maximum amount that a seller is willing to pay for an ad placement, and the actual amount the seller pays depends on the other bids for the keyword.
Get the Most Utility Out of Adjusting Bids by Placement
Amazon also allows sellers to adjust their maximum bids based on the ad’s ultimate placement on the search result page. When combined with the dynamic bidding options, Amazon may increase a seller’s bid by up to 900% for high-demand keyword and placement combinations.
The first rule of real estate — “Location, location, location” — holds equally true on Amazon’s search result pages. Sellers need to examine their Placement Report regularly in order to determine their optimal strategy.
In nearly all cases, the bulk of a company’s click-throughs come from Top-of-Search ads or ads on product pages, but it’s important to also look at the Rest-of-Search results and product pages.
Best Practices for Amazon Bidding
Amazon is one of the most dynamic sales platforms on the Internet, and succeeding on it requires an equally dynamic strategy. Amazon will never have a single one-size-fits-all strategy that allows sellers to set their bids and then forget about them. Nevertheless, there are a few broad guidelines that all sellers should follow when setting their campaign bidding strategies.
The first element that sellers should keep in mind is to choose highly relevant keywords. Amazon’s algorithm uses keyword relevance as one of the main parts of determining a user’s chances of conversion. More specific keywords have much higher conversion rates, so a seller on a limited budget should consider specific keywords before broad ones.
Sellers should also not be afraid to make changes to a strategy that isn’t panning out. An advertising strategy that had amazing results last year may fall completely flat today. The most successful advertisers keep a close eye on their metrics and develop a good sense of which metrics are important.
Finally, look at the big picture. A seller may benefit from implementing a Down Only strategy in one campaign and a Fixed strategy in another, but make sure that these campaigns are not bidding against one another!
Amazon Bidding Strategies to Avoid
As with best practices, a few common Amazon PPC strategies just don’t work well.
- Do not select one strategy and forget about it. Even when using a Fixed strategy, sellers need to adjust their bids whenever market conditions change.
- Avoid focusing entirely on advertising at the expense of having a good product listing. Buyers at the bottom of the funnel are far more likely to make a purchase from a high-quality listing.
- Never run a Down Only and an Up and Down campaign against one another, as these listings will end up making bids against one another and costing the seller needless money.
- Don’t use an Up and Down campaign when imitating an ad campaign that already exists.
How To Optimize Your Amazon Bidding Strategy with Click Fluency
Now that you know how Amazon bidding works, the next step is to implement your strategy. One of the best ways to do this is by working with Amazon marketing experts! At Click Fluency, we’ve been helping brands scale up their Amazon stores for years, and we have results to back up our claims. Read our guide to Amazon retargeting ads next, or schedule a free discovery call with our Amazon marketing team to discover the difference that Click Fluency can make in your company’s sales.