#123 - 5 Category Traits to Determine your Amazon Ads Strategy

#123 - 5 Category Traits to Determine your Amazon Ads Strategy Speaker 2: Alexa, play That Amazon Ads Podcast. Speaker 1: Which one would you like to hear? Speaker 2: The best one. Unknown Speaker: Okay, now playing That Amazon Ads Podcast. These gentlemen are completely changing the game. Speaker 3: After listening to That Amazon Ads Podcast, my ads are finally profitable. Speaker 1: I also heard they're pretty cute. Speaker 2: Welcome back, everyone, to another episode of That Amazon Ads Podcast, where today we are diving in to something that I can't believe we've never talked about before, which is optimizing within specific Amazon categories. We have five key types of categories. Sometimes people call them verticals. Some people call them niches. Some people like to say niches. And as Andrew always says, niches get stitches. Andrew, Carly, how are you guys doing? Speaker 3: The riches are in the niches. Unknown Speaker: And I ain't got no stitches. Speaker 3: There we go. Speaker 2: Yeah. Nice. All right. Well, Andrew, why don't you just break down? We'll say really quick, what's the outline of the podcast today? Carly has a call coming up in 30 minutes. So we need to make this a quicker one. So wrap it up. Go, go, go. Speaker 3: Let's bang through it. So really the framework is yes, there are tons of different categories on Amazon. And if you're not careful how you're analyzing and viewing your ad performance data could be very misleading. You could be looking at the wrong things and not actually measuring the right things to gauge whether or not you're going to actually be successful. And how that shows up in different categories is really going to vary, but it really boils down to just five key characteristics or traits that kind of are going to influence what you should be looking at, how aggressive you can be, and just the overall dynamics of your product line whenever you're trying to advertise. So those five core areas that we're going to dive into are the margin profile of a product, the LTV of a customer and their repeat purchase behavior, The customer journey, what that consideration timeframe looks like for a customer that's buying a product, the price point and AOV that you're selling at going to be wildly different if you're selling a high, high price point versus low price point item. And then just the competition levels and what kind of brand loyalty you actually have already built up on other channels, other platforms, and what kind of work you've done to build that trust within the overarching community within, you know, the social media sphere and all of that type of stuff. So those are kind of the key areas that are going to dictate What you're analyzing, what you're looking at within these different categories. So we'll dive into those and kick off with number one, margin profile. Speaker 2: Yeah. And just I'm going to interject one more thing quickly, who this episode is meant for. The whole podcast, everything we've ever said on the past like however many 121 episodes, 122 that it's been, we've always spoken in a kind of a very generalized sense. So the most average brand is spending around $30,000 a month. They're like in the top five sellers of products. They have a tiny bit of brand recognition, not a lot. It makes like their brand defense campaigns probably make up like one or 2% of their ad spend. Um, but like for the most part, it's, it's, uh, yeah, that, that's, that probably describes most people. However, periodically we have, we have alluded to, oh, like this is the strategy you should do unless if you're in this category, then things are different or unless if you're doing that or if your products like this. So, so this episode is dedicated to kind of covering all those things and this is particularly valuable. Obviously if you, if you're, if you're a brand seller and you fall into one of these categories, You know, that's completely relevant to you. But for freelancers and agencies that are typically managing multiple brands, this is huge context for you to know, because every single account that you manage is going to be a bit different. So kicking off margin profile, Carly, walk us through it. Speaker 1: Yeah, absolutely. So margin is the it, right? Margin is the thing that matters the most on Amazon and when you're running PPC, right? I like to use Target ACoS kind of as a heuristic to what is the actual margin on the ASINs that I'm advertising and your margin should dictate your PPC strategy even at the product level. So that's why where your margin falls in different categories can have vastly different margins. CPG, for example, razor thin margins. Supplements, on the other hand, tend to be higher margins. Or if you're selling, you know, very large, bulky items, your margins are going to be higher. So margin is the number one thing is going to determine how aggressive you can be and it determines what your PPC strategy should be. So you have to know your margins. And when I say margin, I'm really talking about contribution margins. So that's kind of that's going to be your skew economics, right? Speaker 2: Do you want to define Define a contribution margin because not everyone may know that term. Speaker 1: Absolutely. So your contribution margin is your price minus your cost of goods, FBA fees, Amazon's and Amazon's commission fees. And then usually I'll put in something like a 3% buffer for any kind of weird, you know, little fees that come up, little storage fees or returns, things like that. And that's a good kind of rule of thumb for your contribution margin. Some people will try to include other things in that calculation like overhead, you know, rent of a warehouse, salary costs of employees, things like that. But no, you don't need to include those things. And maybe that's an accounting conversation better left for someone who's is another time. But yeah, essentially, that's that's how I would calculate it. Speaker 3: Got it. So it's basically just like your profit before you pay all the other expenses, your employees, everything like that. This is what it really boils down to, not your net net profit at the end of, you know, Everything. Speaker 1: Yeah. Then you'll have no money left over for ads. Unknown Speaker: Maybe if you include that. Speaker 2: So the second category trait, I think before I misspoke, I said we're talking about five categories. No, five category traits on the very likely the episode coming out next week, we will actually drill into specific categories and showing how these different traits shape. We're gonna give you a ton of different examples of like furniture, electronics, home goods and decor, clothing and apparel. We had a whole list here. So we're gonna try to go through as many of those as we can next week. But the second category trait is the repeat purchase rate. This is huge. It is the LTV multiplier. And it is basically saying how much is a customer worth? They're not worth just the ticket price on that specific product. They're worth more than that. In fact, actually, this is a good example. I just bought this aura ring. I don't like it. I'm going to return it. I would not recommend getting it if people it's a dumb thing. But anyways, It was like a $500 ring. I was able to purchase with my HSA, which was cool. Some tax savings, but there's also like a $6 a month subscription after you buy the ring, right? So like, I mean, it's not that much, but like, you know, depending on how many years you're going to have it, like their point being, they're baking that into their marketing, right? It's not just the sale of the ring. They're making an additional 72 divided by like 500. They're making an additional 14% per year. On top of just that, that sales price. So as long as they can keep that subscription on, you know, people aren't going to want to cancel the subscription because they already paid $500 for it. So it feels like, you know, they're. You know, losing money if they don't pay for the subscription. So that's one example, but they're typically repeat purchase rate are things like supplements, pet food, groceries, which are very different from one-time purchases, just like a mattress, right? But but we typically think of these repeat purchases as consumable items, but it can also be subscription based things. I've worked with multiple clients like life life alert type things where, you know, you buy like the life alert device, but there's a subscription for that. Um, GPS devices that have subscriptions. So those are just some things to keep in mind that when it comes to figuring out your contribution margin or how much each customer is worth, what your target cost per acquisition is, you have to bake in, you know, six or 12 months worth of revenue depending on LTV and things like that. Speaker 3: Yeah, and that's directly going to dictate how aggressive you can be. It's basically going to give you additional wiggle room to spend more to acquire more or more expensive customers. Go after more upper funnel customers that may cost you a little bit more to acquire, but understanding that the lifetime value of the customer, what one new customer means to the business in 6-12 months, how much actual new value that one customer created, then you can kind of get an idea of how much you can actually afford to acquire a customer On an annual scale, that is actually profitable. And so that's what you got to consider. And it's just going to allow you to be more aggressive and go after more expensive customers because you have that understanding of what that actually correlates to down the line. Speaker 1: And in terms of metrics, I would also add, for example, I had a client once they sold SIM cards, and so they were actually okay. They were like $1 SIM cards and so they were okay with a 300, even 500% ACoS on their campaigns because they knew what they're really selling was a subscription. They weren't really, that's just the entry-level product, right? And so anybody evaluating those campaigns might be like, oh my gosh, this looks horrendous, but that was part of the strategy. Speaker 2: All right, let's go on to the third category trait, which is, this is a huge one, huge one, but consideration time, research phase, time to purchase. How long is that consideration window? You know, if I'm just trying to buy a pack of gum, I need it. I'll just go on by the first the first thing with good reviews and a low price. That's very different from if I'm trying to buy, you know, we keep saying furnitures and mattress, but like the couch behind me, right? That took that was like it was a cheap couch. I wanted the cheapest one I could find. It was like 300 bucks, right? But I spent a week looking through different couches trying to find different items. So Andrew, what would you say? Like what are things? How does this kind of classify a category and and influence people's strategy with their Amazon advertising? Speaker 3: There's a variety of different ways you can interact with customers via different ad types and the way that you're actually displaying the brand and the way that those Ad types kind of show up in the funnel and different placements as customers kind of going through the customer journey. But in general, those higher AOV products are going to have longer consideration windows where you're I'm looking at a lot of different searches, maybe going through a bunch of different variations of queries, looking at all the different results, maybe clicking on product, clicking on ads. And if you're the brand who is selling one of those high AOV products, your strategy should be that you want to remain present in front of those customers, retargeting those customers who interacted with maybe one of your ads or your product. Previously somewhere throughout that journey and continue to show up as they are going through that purchase journey as every week that they're continuing to do research looking for another couch like you wanna still be there with your. Sponsored product ads with your sponsored brand ads. When it comes to the ad types that you're utilizing, those longer customer journeys are going to be easier to kind of continually show up on and probably be a little more impactful with like sponsored brands, top of search, you know, video ads or just kind of occupying a bigger mind space of the of the page. You know, you're showing up more. The customer is going to see that a little bit more. And every time they're searching, they're seeing your brand showing up in these key placements, your colors and all that type of stuff. So just having that understanding of how long that customer journey is going to directly inform not only how you're interpreting the metrics, but just like the strategy within what ads you're deploying and making sure you're covering, you know, everything from a short tail discovery keyword or research keywords to your really short tail actual converting keywords. And then also like your brand defense. Like I think that becomes a little bit more important. On those higher AOV products, because, you know, maybe you're influencing that customer throughout the journey as they're looking for a week, a month, whatever. And then they eventually come and they search for your brand. Like you would want to make sure you're showing up there just real quick. They can make that buy on that lower actual converting search term that they end on. But that customer journey is going to be really hard to track without things like AMC that can show you those different touch points on those customers. If you have AMC, you can definitely access some of that stuff and see that journey and understand it a little bit more, which ad type combinations are going to be most effective. And if you're not in the discord, make sure you get in there because I've been going deep on Amazon Marketing Cloud over the last week. And I've got a query library. I've got about 12 queries that are Pretty in-depth, they'll work for anybody that I'm going to be sharing in there, that one of them is going to allow you to see this path to purchase, this time to consideration timeframe. So make sure you're in there and you'll get access to that and be able to start running these queries and really dig into it on your own. Speaker 2: What's your favorite AMC query? Speaker 3: I really like CAC LTV by product. So basically, you can classify your individual ASINs, you can see your CAC LTV over time. And there's different ways you can set up the attribution model, whether you want it to show you like the LTV of that month, or you want to actually see like the extended LTV. So there's different ways you can play around with it. But that's been really helpful for us understanding and having targets around each individual product and understanding how much we're paying to acquire net new customers and whether or not our strategies are Effective at gaining new customers. So that one plus the new to brand versus repeat purchaser by product as well is super powerful. So I like to see new to brand versus repeat on a chart just I can just see like per product. I can just toggle between different products and see which ones are getting those repeat purchases. And as we're doing stuff within our ad campaigns, Targeting newer brand audiences, leveraging new brand tactics, all that type of stuff. Does that actually have an impact on growing the overall organic and ad organic contribution? Speaker 2: Carly, anything that you wanted to add or should we move on to the fourth? Speaker 1: No, I think that that pretty much covers it. The main thing there is the ad type mix, I think, that you're implementing as far as strategy goes with consideration. Speaker 2: Yeah, and that AMC is actually a great, great point to add there. I will just say, everyone should be aware that in the ads console, You're only getting last touch attribution. So, you know, if someone like if they saw a sponsored display ad, but then they clicked on a sponsored product ad, the sponsor display doesn't get any of that credit. And the other thing is that sponsored product ad only has a seven day attribution window where a sponsored brands and display have a 14 day attribution window. So you just have to be mindful of all that stuff because the ads console itself doesn't give you, you know, it's missing different data and the attribution is defined differently. So just bear all that in mind. Fourth category, price points and average order value. Who wants to take this one? Speaker 1: Yeah, I can take that one. So your price point and the average order value of your product is equally as important as your margin profile, I would say, since those two things go hand in hand. And obviously, you can change your price and I would always recommend experimenting with your price, but you are kind of locked into a range depending on the category that you're in. So if you're a low AOV product, so within $5 to maybe up to like $30 or $40, I would still consider that pretty low AOV. You're going to have thinner margins and so you're going to have less budget for ad spend and you're going to, in terms of your ad strategy, you're going to need to be a little bit more careful with not only budgets, but also number of keywords and campaigns, that kind of thing. You might be spread a little bit more thin, especially if you're in the CPG category and you've got a bunch of different variations, a bunch of different, hundreds and hundreds of products, you're going to need to be really strategic on how you're How you're spending, right? And you might not necessarily have the budget for those more expensive ad types, Sponsored Brands, Sponsored Display, etc. It might not make sense for you to be running Sponsored Display or even like DSP or something like that if your product only costs, you know, $20. You might not really be getting your good returns on that. And then mid-AOV products, I say that that probably would be, yeah, like around the $30 to $100 range. $30 to $100 is probably somewhere in the middle. And, you know, there you've got a little bit more, you've got more room to play with. You probably have higher margins as well, right? Again, those things go hand in hand. You can have higher budgets, you can start playing with those other ad types. And then high AOV, this is like, you know, 100 plus category. This is when you're getting into products that are maybe like machinery or like I just recently bought a reverse osmosis water filter that sits on my countertop. It was $500, right? They probably have really good margins on a product of that price. Then you can absolutely support higher budgets. You've got more room to play with. You can definitely get into those other ad types. So yeah, so thinking about where your product kind of sits in terms of price point is obviously going to impact your overall, you know, ad type mix and your strategy with that. But it also, of course, impacts the the budgets and general campaign structure and keyword strategy for PPC. Speaker 2: And this is where the the AdLabs algorithm for keywords with spend and no sales becomes massive because it is based on That average order value because if you have, let's just say for easy math, your target ACoS is 10%, right? I know that's a tight margin, but it's easier math. So if you have a $10 AOV product, that means you can only spend $1 total to get a sale in order to maintain that 10% ACoS. and you obviously can't bid a dollar unless you're planning on having a 100% conversion rate. Um, and so like that's something that would be taken into consideration where any keyword that has, you know, a dollar spent in no sales, maybe it got 10 clicks, right? It got 10 clicks, spent a dollar, no sales. The AdLabs algorithm, um, and we have a podcast episode on, I think it was like our episode three or four or something talking about like, you know, how to optimize those keywords with no sales. It's that same, same idea, same, same math, but That is huge for crazy AOV products. If you're in that sweet spot, that $20 to $40 range, which is like the average brand on Amazon with $30,000 of spend, yeah, you're probably averaging a $1 bid and that's probably fine. But once you get into those low AOV categories, managing that non-converting spend becomes massively important. You need to make sure those bids are calculated well. And on the flip side, with those super high AOV products, it can be pretty daunting, but you'll be seeing keywords with like $100 and $200 of spend with no sales. But you just have to realize that like, that's actually okay, because this product sells for $500 to $1,000. So you have to understand your target cost per acquisition to manage those extremes is hugely important because You know, you'll see other tools and agencies saying, giving hard numbers just like, oh yeah, once something has $25 to spend and no sales, you archive that keyword. It's like, Hold up. You know, there's so many things that are wrong with that. I'm not even going to dive into it now. We can maybe talk about that more next week. But yeah. All right. Let's talk about competition level brand loyalty. Andrew, how do these traits kind of define a category? Speaker 3: Yeah. Before we dive into that, I'm going to back up just a little bit on the AOVs on all the on all the different price points. Just just real quickly. The one thing I've seen most successful brands do is that they have Products that occupy different price points within each of the different markets, right? So they have what's called a value ladder. So they have these entry level products that are in this low AOV. And then they like, for example, a protein powder may have like a one pound, a two pound, a five pound. And so they have these different layers and each of them is going to have different margins going to influence a different type of customer show up for different searches and all that type of stuff. So that's just what I've seen. The most successful brands do is have that diversity of catalog, which we talked about, I think, on a previous episode or something. But anyway, just wanted to mention that now that kind of directly ties into Competition and brand loyalty and all of that, because whatever price point you're at is sometimes going to dictate that customer experience, that customer journey, what's actually going to influence them on those lower AOV products. You might notice that, like, no matter what you do, just the lower priced product is always going to out convert you, outperform you. You're not going to be able to compete. You can't lower your price that low because you have no margin left. They just have better margins in these lower AOV Price points and so in customers are less brand loyal, like they don't care quite as much in some cases, like which brand it is. If you're just going and looking for, I don't know, just like, like this desk mat I have on my desk, like I didn't care what brand it was. I just searched for like a desk mat and, you know, found one. So I didn't, you know, that's where brand loyalty is going to be less important. As you get into those higher AOV, mid AOV, it starts to become a little more important to like focus on building brand. Awareness, that's going to really help build up that organic visibility for you and allow you to spend a little bit more on ads and have a little extra margin to work with. But the way that competition shapes different price points, different categories is very important. Yeah, you just kind of need to understand that dynamic and where your product fits into that and whether or not you realistically have a chance to compete on certain differentiators. If it's not price, like what is it? Where is the differentiator for your product that you can build your messaging and your branding and your positioning in the market around? Speaker 2: Excellent. Yeah, those are all good additions. All right, competition level and brand loyalty. Because Andrew just talked, I will talk to switch things up. We have lots of things to say on this one, so we are running out of time here, so we'll definitely dive into it more next week. A lot of people don't understand when they are in a commoditized category where there is no brand loyalty, right? We're talking categories for cleaning supplies, office basics, cables, you know, iPhone charger, toilet paper, trash bags. Speaker 3: I like my Charmin, bro. Speaker 1: Charmin Ultra Soft. Speaker 2: I'm just kidding. Kirkland. Kirkland's great. No, I was talking with a brand that like sold literally like commercial trash bags. And they were just convinced that they had the best products in the world and they were all about their trash bags. And I was like, dude, there's literally nothing, there's nothing different about your bags. And they're like, no, it doesn't rip as easily or something. And I was just like, I mean, yeah, people are I mean, yeah, it's a heavy duty trash bag like those those exist, you know. So in those in those cases, you know, it's really it's kind of just a race to the bottom in terms of, you know, can you get really good reviews, really good ratings, you know, really low return rates and a really low price. Like you're not going to do some full funnel strategy of like, oh, brand awareness and DSP and all this kind of stuff. It's just it's just not going to happen. As opposed to, you know, where the brand does matter, where there is a ton of brand loyalty, where investing in sponsored brands, DSP is massive. And you're not necessarily trying to drive that sale. You're trying to drive that brand recognition so that next time people are like searching on on Amazon for something and they see your brand pop up, they're like, oh, yeah, I've heard about this brand because you've been planting those seeds and they think positive things about you because you you gave them a good ad or whatever. So Yeah, that's anyone else have thoughts to share on this one? Speaker 3: Just a side note on that. And this kind of ties into the ad strategy portion of that. It's like in those types of tactics where you're you're doing more awareness plays. I think about this in my own mind, like how I've been influenced by brands and their advertising. I see ads like 15, 20 times, like show up on my YouTube, show up on everywhere, like just see a boom, boom, boom, boom, boom all over the place everywhere. And then like, I don't know, it's just it's crazy how that actually influences you and how many touch points it actually takes. And how you need to like understand that those upper funnel campaigns are not going to yield that initial return right away. Like it's going to take months potentially for you to actually see that that actually return. But anyway, just a side note. On, yeah, just exposures, just ad exposures, number of ad exposures for influencing a sale. Like it takes a lot more than you think. Speaker 2: Yeah. I mean, another example on that is like when I buy toothpaste, I buy Colgate. I don't know why it just it's the first name that comes to mind, you know, so for whatever reason, it's the it's the it's the first thing that comes to mind. So I assume it's the most trustworthy, you know. It's the best paste for your teeth. Speaker 3: We've all been propagandized by these brands, dude. Speaker 1: Well, I think especially with those, you know, commoditized products where you do have There is still brand loyalty, even with those commoditized products, right? But you also have to remember that you're competing against those huge players that have crazy budgets to get that level of brand loyalty, even for a commoditized product, right? We've already mentioned, we've dropped some brand names, right? Charmin, Colgate, all of them do have those big budgets for off Amazon campaigns, but they've also been in the game for a really, really long time. And so if you're thinking about launching a product like that, that is something you have to keep in mind. On Amazon in general, I do think that the average shopper is very price sensitive and for something like that, they might just go for the brand, right? They might just go for the brand name. Like you said, you don't think about it when you buy toothpaste anymore. You just buy Colgate. That's your brand, right? It's kind of, it's always, it depends, right? That's always the answer. But all of all of these five traits, I think, kind of build off of each other and they kind of have, they're interdependent as well, right? So, we're talking about like, where does, if you want to try to think about like, when does the brand really matter, right? Well, it has to do with the consideration time, it has to do with the AOV, right? And it has to do with Um, you know, are, are you going to be repeat purchasing it? You know, all, all of those things kind of, kind of go hand in hand. I think all of these five traits kind of play off each other. Speaker 2: And a great question to ask yourself if you're wondering, like, am I in this commoditized industry? Like is, do I have this brand recognition, uh, brand loyalty? You just ask yourself, would my customer care if I changed my brand name? Like if you change your brand, like if Apple, for example, changed their name to like carrot or like cucumber, like, People will probably hate that, right? But if not, like if you're Kleenex, for example, and this is actually the most difficult categories are the ones where like the brand name is also commoditized. It's also a generic term or like Kleenex. People aren't looking specifically for Kleenex. They just mean tissues. Same with Instapot. People don't necessarily have brand loyalty to Instapot in particular. They just want that thing. So those are the most difficult categories, either if you are trying to compete with the brand or if you are the brand yourself. Those are both very difficult places to be in. So we'll talk more about that next week. But yeah, I mean, if If you're just buying whatever gum and you just wanted mint and you switch to a different brand, that doesn't matter if that brand goes through a rebound. And if not, then you're in a commodity space and it's time to play the commodity playbook. We are out of time. But Andrew, any concluding thoughts with the final like 30 seconds that we have and send us out? Speaker 3: That's it, man. I mean, it really comes down to just your strategy behind and understanding your market. We're going to dive a lot deeper into the different categories and show how each of these five traits actually shows up in the different categories. So you have a real clear roadmap of what metrics you should be looking at, what you should be understanding about specific categories. So stay tuned. Be back here next week on That Amazon Ads Podcast. Speaker 2: Peace out. Unknown Speaker: Thank you.