Crealytics published its 1H24 Sponsored Products Benchmarks Report, offering insights into the success of Amazon’s sponsored products or cost-per-click (CPC) ads. Amazon’s (and Google’s) success in the retail media market provides essential lessons for the growing retail media networks, including their sponsored ads.
According to the report, Amazon holds 38% of the U.S. e-commerce market but astonishingly controls 75% of the U.S. retail media market, equivalent to US $34 billion. This highlights a missed opportunity for Amazon’s U.S. rivals, who could be generating an additional $43 billion.
What can we learn from Amazon’s domination? Sponsored products account for 75% of Amazon’s advertising revenue, generating US $26 billion in the U.S. alone. However, Amazon did not invent this model; it adopted it from Google.
“Sponsored products account for 75% of Amazon’s advertising revenue, generating US$ 26 billion in the U.S. alone. However, Amazon did not invent this model; it adopted it from Google.”
Google pioneered making ads as relevant as organic content, gradually expanding its advertising space. This approach has resulted in exponential growth in Google’s advertising revenue over the past 10 years, highlighting the importance of relevance and proper inventory for the success of sponsored products.
Key #1: Amazon and Walmart Show Sponsored Ads on Nearly Every Page
Sponsored products are very common on major retail media networks (RMNs). Amazon and Walmart display sponsored ads on almost every page, while others are not maximizing their coverage. According to Crealytics’ Q1 2024 report, compiled between Q4 2023 and Q1 2024, the data shows that in the U.S., Amazon and Walmart not only cover more searches but also show more ads within the results grid, with 11 and 8 ads respectively. Other retailers typically fill between 2 and 5 spaces in the grid per page load. This suggests that Amazon and Walmart can display a considerable number of ads without affecting the customer experience, thanks to a sophisticated approach that prioritizes relevance in the decision of which ads to show.
“Amazon and Walmart can display a considerable number of ads without affecting the customer experience, thanks to a sophisticated approach that prioritizes relevance in the decision of which ads to show.”
Key #2: How Do Retail Media Networks (RMNs) Fill Their Ad Inventory? How Do They Balance Visibility and Relevance?
Ad placement strategies vary by retailer, but ads at the bottom of the page tend to be less relevant. Walmart, Amazon, and Best Buy use a carousel of brands or products at the top of the page to show sponsored products, while The Home Depot, Macy’s, Walmart, and Amazon also place sponsored carousels with up to 20 products at the bottom of the page.
The most interesting aspect of these ad units is what happens when ad coverage is compared with and without these units. While Amazon’s ad coverage is nearly 100% regardless of ad location, other retailers using ads at the bottom of the page generally do not have as strong coverage when those ads are excluded.
In summary:
Grid placement is where high relevance counts the most. Major RMNs treat grid placements as the most valuable space, where relevant ads generate the highest returns.
Many also complement the grid with ad units at the top and bottom of the page to increase the visibility of less relevant brands to the search.
Retailers like Macy’s, Home Depot, and even Walmart use a carousel at the bottom of the page to increase coverage with related but less directly relevant products.
Key #3: Retail Media Networks (RMNs) Are Using Technology to Improve Ad Performance in Various Ways
Retailers’ strategies vary in ad placement within the grid, from classic fixed placements to dynamic placement decisions. Some innovative RMNs dynamically place ads with each page load, meaning ads do not always appear in the same positions. Thanks to a more sophisticated ad decision mechanism, these retailers tend to have more ad locations available and greater coverage.
Amazon makes almost all grid spaces available for sponsorship, except for a few spaces near the top that always show organic listings. The ability to place ads dynamically indicates the incorporation of relevance criteria in placement decisions. This allows RMNs to show ads as relevant as organic listings and provides more flexibility to open more inventory in the future.
Some RMNs still use traditional fixed placements for sponsored products, which may indicate a disconnect between ad decision systems and organic ones. Leaders in this space manage the complexity of searches and ad placement with a more sophisticated approach, leveraging relevance criteria to go beyond the traditional reliance on manual keywords.
In summary, the leaders in using technology to drive ad performance are those who can handle the complexity of searches, dynamically place ads, and ensure ad relevance to improve the customer experience and maximize the available ad inventory.
Key #4: The Most Competitive Product Categories
The most competitive category is food and groceries, with the highest coverage of sponsored ads, while other categories are still less developed. Key observations include
- The food and grocery category is the most competitive, with nearly 75% of searches returning sponsored products. This is due to significant innovation occurring in retail within this category and fast-moving consumer goods (FMCG) brands.
- The beauty category is the second most competitive, as many FMCG brands also participate in the beauty sector. However, other categories have a clear opportunity to increase their coverage and competitiveness.
- There is a considerable drop in the furniture category, which has only about 50% coverage of sponsored products.
Regarding sponsored product opportunities by subcategory:
- Accessories, jewelry, and home decor categories present the largest coverage gaps.
- While there have been improvements in the percentage of subcategories without sponsored products in searches over the past few quarters, even the subcategories with fewer sponsored products show more coverage than six months ago.
- During the Black Friday to Christmas season, competition in categories increases significantly, with sponsored product coverage rising. Subcategories like fragrances saw an increase in investment in sponsored products during the gift-giving season, indicating higher competition during those times.
Key #5: Brands Are Primarily Investing with Amazon and Walmart, Which Continue to Dominate and Attract Budgets from Brands of All Kinds
Amazon and Walmart lead in the number of food and beauty brands investing in their platforms, followed by other retailers like Kroger, Albertsons, and Target. These top RMNs attract brands of all sizes by offering multiple forms of advertising on their platforms, connecting multiple sources of demand, and providing both self-service and managed service options for their advertisers.
L’Oréal and its brands (Garnier, NYX, Maybelline) dominate advertising in the beauty category, while brands like Bens Original stand out in the food category with an unusual use of sponsored spaces to promote their own high-margin private brands.
In summary, both large and small brands are drawn to work with leading RMNs like Amazon and Walmart, which lead in attracting advertising budgets and offer opportunities to promote both well-known brands and high-margin private label products.
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