Ad Sales Tripled, Organic Dropped: Decoding Amazon PPC Cannibalization

Ad Sales Tripled, Organic Dropped: Decoding Amazon PPC Cannibalization Speaker 1: Brent, welcome back to the show. Great to have you, as always. Speaker 2: Hey, Mike. Hello. Thanks for having me on. Speaker 1: We were just talking about your next trip to Austin, Texas. Is there anything on your radar that you absolutely must do when you return? Speaker 2: It's funny. I haven't been there in so many years, and it'll be a different time of year this time, but still the number one thing that stands out is just barbecue. It's kind of embarrassing to say, but living in France, we don't have that kind of barbecue. We have other barbecue. There's many barbecue traditions in Europe. But none of them resemble what we know as like American barbecue, which I think living outside of the country now for quite a while might be our finest culinary tradition, actually. Speaker 1: What barbecue for like America and its barbecue tradition? Speaker 2: Yeah, I think I think it might be like our top thing because we have so many versions of it, too. Speaker 1: Like, you know, we have an international audience. So I always try to be thoughtful of all the nuance of the world. But I have to agree with you. I would say that barbecue, I know that around the world there are meats that are prepared a certain way, but can you beat a brisket that's been On the smoker for three days. Speaker 2: It's one of the hardest things to imagine overcoming. Like I was speaking with a Brazilian guy I work with the other day and he's like, yeah, we have barbecue in Brazil, but we don't do the level of like spices and sauces that Americans do. And it's true. We do love a sauce. And in America, we have so many kinds of sauces. Speaker 1: Yes. Speaker 2: Vinegar ones, mustard ones, heavy barbecue, sweet barbecue, hickory. Yeah, it goes on. Speaker 1: I will get into a good debate on why Italian food is the best food in the world. And I'll start a whole podcast about that if I need to. Moving on. We had a call in question on this episode, Brent, and I'm excited about this. So we are going to get a question We're out there in the Amazon PPC world, and we're going to see if we can answer and help this person. Shall we? Speaker 2: Yes, we shall. Speaker 1: This is a great topic. Something that you gave a presentation on a couple of weeks ago in our core community, Amazon Mastermind, and there's a lot of... Well, let me just get into it. Here it is. I have a situation with one of my clients. Okay, so this person is an Amazon marketing professional helping clients with their Amazon PPC. Okay, great. The PPC to organic ratio was 30 to 70. So basically 30% ad sales to 70% organic. Said another way, 70% organic sales, 30% ad sales. Okay. Started scaling the account, ad sales tripled. Well, that's kind of cool. But organic sales not only didn't grow, but they actually decreased year over year. Okay, so situation so far. Ads tripled, organic actually decreased year over year. The listener continues. The first obvious thought is that ads might be cannibalizing organic. Cannibalizing, great word. We'll talk about what that means. Cannibalizing organic. The listener goes on to say, but from an Amazon algorithmic perspective, that doesn't really make sense. Typically, increasing total sales velocity and pushing top keywords through ads should help improve rankings, not hurt them. Has anyone experienced something similar? What could be the reason? This is such a great question. I love this question. There's so much to unpack here, but right off the bat, I want to empathize with this person. Amazon's tough, right? It's an algorithm that we don't know how it works and we're trying to poke and prod at it. And it's like, hey, I bid aggressively on these keywords, but my organic sales went down. What the heck? What is going on here? So what comes up for you when you read this question? Speaker 2: Well, the first thing, how it's finished. Yes, everyone has experienced this. This is certainly not an issue that this one individual is struggling with. Speaker 1: It's like a daily occurrence. Speaker 2: Yeah, no one's ever dealt with. And another thing that comes to mind is that 70-30 split. In my mind, that's pretty healthy. That's really healthy. The guidance we used to give is like, hey, 35% is pretty good for your percentage of overall sales from ads. That's pretty healthy. Kind of in the pocket, good place to keep it. The second thing that comes to mind is the term cannibalization. Speaker 1: Would you say that's still true? Would you still say that's generally true, 35% ad sales is still true today? Speaker 2: I think if you can maintain a business at that month over month with top line growth, that's great. Speaker 1: Yeah, that is great. Speaker 2: That's great. Speaker 1: Because I see a lot of 60% organic, 40% ad sales. I see a lot of that. Speaker 2: And that's where you're starting to find yourself on the lopsided. Speaker 1: Yes. And I kid you not, I've seen it flipped. I've seen 30% organic, 70% ad sales. Painful. Speaker 2: Yeah. That's nasty. That's where you're starting to get very concerned. I mean, for years we've had like a red line for some clients like, hey, this is now a problem. We've done well with ads, but like this isn't an issue. You need to work with us to fix this somehow. Speaker 1: Yes. So basically the situation, ad sales increased, organic sales decreased, total sales have stayed the same. And this is a tough situation. And it's tough because it'd be nice if organic only went up as we increased our ad sales, right? So this is like a painful situation to be in. Let's try to unpack this. What could have happened? Let's break this down. Number one, PPC ate organic sales. Cannibalization did happen. You like that word cannibalization? You think there should be a different word? Speaker 2: I hate it, but it's the one that everyone uses. I prefer to think of it as incrementality now that I've been more steeped in the kind of language of programmatic. But if we say cannibalization, everyone understands what you and I mean. So it's a nice shorthand. Speaker 1: And in case people don't, it basically means, hey, a sale that was going to organic is now going to paid And it's not going to organic anymore. Speaker 2: And it's a symptom of a lack of incrementality. Speaker 1: Yes. Speaker 2: Because you're not advancing on new customers. You're not gaining new ground. You're just retreading with people that already would have bought essentially. Speaker 1: Yeah. It's basically the opposite of incrementality. Like you didn't increment any more new customers. You just got the one that you would have gotten, who would have clicked on an organic placement. Instead, now they're clicking on an ad placement. And of course, not 100% of people will do this, but some percentage of people will do this. Like, you know, like a normal click through rate for your ad. It's basically saying whatever that percentage is, whatever that amount of people are clicking on the ad now are no longer clicking on the organic ad and such. My organic sales are being eaten by my PPC spend. And in your experience, when does This typically happens because this can happen. This is a real thing. Speaker 2: The first thing that comes to mind, Mike, would be like branded. So if someone has brand awareness and you start scaling spend for brand, most of the best advertising managers out there, they have a very clear idea of what percentage of spend should go to branded terms. They keep that in check and they watch it. But it is possible if you don't set some negations, they start a bunch of new campaigns. Yeah, you start to just encroach on that and you notice, wow, these campaigns have great ACoS. And then you dive into it and you realize, oh, this is just us getting 30% conversion rate on ads because someone would have bought this anyway. And that's kind of the spectrum of incrementality is the way I look at it. Speaker 1: I would say there's two big situations where I see cannibalization happen a lot, which is brand presence. So like incredibly popular Spend, they could have a lot of brand spend. I think there was a situation, it was like a really popular company. And I kid you not, I think it was like 40, 50% of their ad spend was going towards branding, branded like a keyword with their brand name in it. And it ended up being like a hundred grand a month. And they're like, this is obscene. And like slowly but surely they started to like experiment with taking their amount of branded spend down and didn't see a sales change. Speaker 2: Ideal. Speaker 1: Ideal. In other situations too, I've seen extremely dominant companies for certain keywords. They have the number one organic placement and it's so good. Their conversion rate is so, so, so good. You can go into brand analytics and see conversion rate for a keyword or share of sales. And if they are so, so dominant, usually an ad doesn't help that much. So I've seen it there too, where people just are going to buy from you. And if a competitor is in that ad placement, people will skip over that and go to that brand. So incredibly dominant brands, I've seen experiment too with lowering their bids and We'll talk about a holdout test later. But yeah, so that is when cannibalization can happen. So that could happen. That's option one, option A. Option two is that, this is the PPC hero story, the PPC savior story, is that PPC saved the company because the organic fell through the floor. That's a possibility here too, isn't it? Speaker 2: It is possible, but keep in mind, of course, each of those sales that is now attributed to ads has a click attached to it and has a conversion rate percentage attached to it. So the margin at the end of the day is going to be impacted by that, even if the overall sales are higher. Revenue does not solve all problems. It depends on what kind of revenue. Speaker 1: Option C is that there was a market constriction. Where the client gained market share through more aggressive ads, organic actually stayed the same relative to the market. So imagine if you were getting 100 sales a day organically and then your rankings don't change and now you get 90 sales organically with the exact same rankings. It's just that things got searched less. So actually the PPC helped you get that incrementality of the markets or your market share actually went up. Your organic percentage of sales relative to everyone else stayed the same. So option C, it could be a market. Constriction. Speaker 2: Yeah, contraction. And for that matter, we don't know the exact context on... I don't think there's any information given on what the product category was or product family. Speaker 1: Right, that's all we got. Speaker 2: Things are highly seasonal. There's one brand that we work with right now, and I know that their November and December was extremely good because I'm attaching my work with DSP to that account. But their January was terrible. And so a lot of the same DSP campaigns I'm running that are full funnel, full spectrum, Across the thing, I see all the metrics dip and it's like, well, what did I do differently? I changed things for sure in reaction to this, but the brand, the products are the same. The reviews are still fine. The prices have not moved. There's other things here, but we don't have the context for that, but that is a possibility, I guess, but that requires a whole other podcast maybe. Speaker 1: So we got option A, PPC did cannibalize organic sales. Option B, PPC saved the company because their organic sales fell off. Option C, there was a market constriction. And option D, I feel like you've been studying a lot about this. What if the ads that they were running have very low incrementality? Let me sort of mention this with option A, but what does incrementality mean here? Speaker 2: Incrementality, I think, is the reality check. And we've all been trained by Amazon, you and me, most of the people listening to this podcast, to look at things like ROAS and low A costs, and we just feel good about it, right? We're like, oh, okay, cool. But that's all thinking about things from a very bottom of funnel, low funnel performance marketing perspective. As I've done more DSP, as I've done more programmatic, I've started to expand my perspective on this a little bit and think about what other metrics matter at other stages of the funnel. So here we're still talking about this kind of like on the ground, lower funnel stuff, but incrementality is really, are we earning net new customers instead of just having someone that buys every month and what we've trained them to do is click on our ad every time they search the keyword? How about we get them as a subscribe and save customer instead and we're not paying for their ads anymore? The incrementality is like, let's search and find People that are searching for competitor terms or generic terms and not our brand. Those are just some very basic examples. But we do get this with like new to brand, the metric you see with sponsored brands mostly. And you can get with sponsored products now with AMC, actually, you can get new to brand, which is great. So that's like a brief on incrementality. And importantly, it exists on a gradient. You have generating new demand over here. And on the other side, you have taking credit for sales that are inevitable. And most ads on Amazon exist somewhere on this spectrum. They're not like one or the other purely. It's somewhere on the spectrum. Speaker 1: Yeah, it's really difficult to say. I think in all of digital marketing, incrementality is a really interesting thing to study. So thanks for bringing it up. It's basically like what you're bidding on usually has a high incrementality factor or low incrementality factor. Probably the highest would be like bidding on a competitor keyword where you can almost safely assume that they're not going to purchase from you. And it's sort of your way of saying, hey, if I get a sale for someone searching a competitor through an ad, I know I don't rank for that organically. So it's like a high probability that I just incremented my sales a little bit. And of course, we do have to mention option E is actually some combination of everything and other things that we have no idea on. Maybe competitors are doing something. All of these And we're here to talk about some of the key factors, maybe sales for their best product, but not a stock. Speaker 2: How about this, Mike? Placement bids. Maybe they're suddenly bidding way more on top of search and it's more costly and it's taking up more of the clicks that they maybe previously had on pages and rest of search. There's no information on that, but that's possible. Speaker 1: Yeah. So let's shift to chapter two of this episode and let's run through what we would do, what recommendations we have to avoid the situation and what we can potentially do If cannibalization happened or not. Let's jump into part two. So. The first thing, what gets measured gets managed, my friend. So number one, track organic versus paid percentage. What's good about this is you can go back in time and like pieces together through reports, but this is generally something that's worth paying attention to on a week-to-week, month-to-month basis, certainly. Track that percentage of sales coming from organic, track that percentage of sales versus paid. I think that's a standard Everyone should be paying attention to. The next thing is pretty interesting, which is horse like rank tracking. Should everyone doing Amazon PPC? Be tracking rank? Speaker 2: I would argue yes. I would argue yes. Even in the era of Rufus, even in the era of AI and discovery changing on Amazon, I think the reality is a lot of things still go through search. A lot of things are still governed by search placements. Speaker 1: Yes. Speaker 2: Mobile, I know is more than 55, 60% of sessions for a lot of our clients. I know from looking at data, the reality is most people are on a thing that's about this big. Yep. And so, yeah, rank matters. It still matters. And should you be tracking it? Will it be directionally correct? Yes and yes. Will it be precise? No, but yeah. Speaker 1: You know, I was recently looking at something that basically says, if you go to an AI model and you ask it to go find some products and you type this like long thing, like find me a gift for my grandma who loves flowers and so on and so forth, what the model will do is take what you just said and convert it to a search-based keyword. And then go make that search on the thing. So it's like organic rank for that thing that it converted it to still matters a lot. At least that's how I like, in fact, you can like look this up. You can actually look at the like source, like the network tab of your ChatGPT window and see it actually doing that, which is pretty cool. So it does convert to a keyword search, a boring old keyword search. So it's sort of worth thinking about. So historic rank tracking, it's easy enough to just populate and get going or that kind of thing. Okay. So in a perfect world, we have this tracked. Would you recommend that this person start organic rank tracking moving forward? I mean, I think the answer is yes, right? Everyone should have some kind of- Yeah, for sure. Speaker 2: And there's many tools out there. I'm not sure if we want to shout out specific ones, but there's several that I've used in the past that we currently use. Some of them I'm more happy with than others, but there's an ongoing debate, I think, in our industry about which one of these is accurate and which one should I use and how often does it refresh? How about things like Geo, but let's not get into that. Speaker 1: The next one, search query performance trend over time. Some of the best data that is available is search query performance over time. Starting with, it tells you search volume over time, meaning I can go select any product and just see search volume, which is fantastic. And so basically the first checkpoint is like, did search volume go up? Did it go down? If it went down, well then that is option C. There is a market constriction that PPC saved the day because we gained some more share. So that's the first thing you can learn from search query performance data. Fantastic. What else can you learn from search query performance data? Speaker 2: Is it click share, impression share, anything with share in it? Not the singer, but rather what percentage you have of the market, right? You're trying to get a comprehensive understanding of, here are my products, here are the search terms that are relevant for them. Of course, you can slice it and dice it more directly if you want, and that's where the per-keyword test comes into play, I guess. Anything with share will give you an idea of how it looks. We were talking about this before the recording, and it's like, oh yeah, you can go back and do this. You don't have to have done it already. You can actually look back quite a number of years to see this. Speaker 1: Yes, with search query data. That's perfect. It has the word share in it. Did my And then like, okay, your share of all this stuff, your share of clicks or your share of purchases, either increased or decreased. I think if it increased, if your share of sales increased, then congratulations, PPC was incremental. Now, that could also mean in some weird way that organic got better too and PPC stayed the same. But in this situation where we did have an organic sales drop off, if you had a brand percentage increase in anything, that means PPC added to what you previously had, which is nice. The downside of using search query data to try to piece this together. I do think if your brand purchase percentage is the same or worse, You still don't know what the answer is. You still don't know if PPC ate organic sales or organic sales got smaller. So like let's say organic sales went down 50%, PPC sales went up 50%. You're still at the same and you actually wouldn't know exactly what happened in that situation. So like if it's the same or worse, you wouldn't know if it's because organic fell down or just like PPC came and cannibalized all those sales so you like stayed at And we're going to be talking about 10% purchase share. So that's a little tricky, but it can help put you in the right direction. The last one is an interesting thing and we sort of referenced it previously, which is a holdout test. A holdout test. And this came up, you use this beautiful word, holdout test. I actually haven't heard of it that way. I know it by its descriptive word, but like, what is a holdout test? Like let's say people are concerned about cannibalization. They can do a holdout test. What is a holdout test? Speaker 2: And the most traditional implementation of it, it's simply a test group. They see the ads, a holdout group, they go dark, they don't see the ads. After two, four, three weeks, you compare the difference between those two groups. So if the test group has more sales, what percentage of sales more do they have? Is that the lift that ads are responsible for? Is that how ads are contributing to this with the We're a test group that still saw ads. The problem with this on Amazon is it's a bit scary to stop and stand on something, and we don't really have a super clear A-B separation. However, shout out AMC. AMC has something called Flexible Shopping Insights that gives you access to organic data. There's another one that gives you the five-year data set. These are both paid data sets with AMC. But people who are listening to this, you have AMC in your account now, everyone does. So this is like a really good way to answer this question because AMC traditionally is just people that clicked or viewed ads. But if you do this flexible shopping insights, you get organic information. Then you can start to ask questions, people that were ad exposed, people that were not ad exposed. It's something similar to a holdout test. I love it. Speaker 1: So yes, doing a holdout test is really interesting. And what's good about it is that you can kind of isolate it and there's risk with it. There's either a positive risk, like you either get like a nice result where you decrease your bidding or you pause bidding on a certain keyword and sales stay mostly the same. Or I would say, this is where search query data would be so helpful. You stop bidding on a keyword, you check your search query performance for that keyword, and then you see, did my purchase share stay the same or not? That's pretty definitive to know that, hey, I turned off my ad, my brand purchase share went down, Organic ain't cutting it by itself. Add back the PPC keyword, your brand purchase percentage goes up. You'll know a little bit more now. And moving forward, you'll have the organic rank tracking too. So you'll be able to triangulate if your organic was moving during the test. Speaker 2: True, that's the most practical way to do it now. Speaker 1: Yes. So I would say the situation could have been avoided if we had been tracking organic rank over time. That way we'd be able to see a little bit better, like, hey, the organic ranking actually did decrease over time. And we would just have that data. So you would know definitively the organic ranking for these keywords did decrease and Map that out like average rank per week relative to ad sales and ad spend per week, organic sales per week. Like you could map this out pretty good if you have rank tracking. So if you didn't do that in the past, you could potentially look at search query data. But I would say the only way to know definitively moving forward is to do a holdout test. Where I've seen holdout tests work correctly is when a brand, just like we mentioned it earlier, where a brand is incredibly dominant, and even when a competitor is bidding in that spot, Users will still step over it and purchase from the organic listing if you rank number one. I would bet any keyword that is ranking like five or worse is more than certainly going to benefit from an ad placement up top as well, almost every time I would say. So like the only time where a holdout test proves that PPC was cannibalizing is like you have to be ranked number one or number two. Branded traffic, you know, like a brand owns the eponym for something, meaning like when somebody searches it, they think of that brand, they buy from that brand, the conversion rate is so strong. Speaker 2: It's like keyword ownership without a brand name in it. That's like what any brand on Amazon would want as their final goal. Right. Speaker 1: So I would actually say like in many ways, PPC cannibalization isn't as common As people think it is, it still happens, but it's not like it's happening all the time, every keyword. I have a hard time believing that every single keyword that came from the tripling of these sales, because I think in the message, it said PPC sales tripled. I cannot imagine that every dollar there was cannibalizing. I'm sorry, cannibalizing organic. Maybe there were some, maybe there was a lot of branded traffic where they do continue to rank number one and maybe you can do a holdout test, but that's my general take here. I find it really hard to believe that you can triple an ad account and 100% of that is cannibalization. Speaker 2: Right. None of that is incremental because some of it must be, and maybe it'll even take time for it to rise in organic. We don't know what the timeline for some of this too. Speaker 1: So yeah, I would imagine paying attention to organic would have like buffered this situation a little bit where as it's happening, you're tracking it, you're talking about it, hey, our ranking is actually decreasing. And if you catch it sooner, you can like take action on, you know, thinking of a more nuanced organic strategy. Speaker 2: Right. So the lesson is pay attention to your weekly metrics week over week. Speaker 1: Simple. Well, Brent, thank you so much for coming back on the show and talking about this topic. I do really enjoyed this topic and thank you so much for the listener for writing in. If other people have questions, feel free to contact me. But Brent, you want to give a shout out to what you're currently working on? Speaker 2: Yeah, sure. I mostly do DSP and AMC over at Sellerplex now. Speaker 1: Awesome. Speaker 2: The company that acquired my old agency last year and I'm happily working away over there and diving deep into the world of programmatics. So Mike, you need to have me back on. Speaker 1: I do, yes. Speaker 2: More programmatic, more DSP. It's coming to everyone this year. Yes. It's going to be a relevant topic. Speaker 1: Amazing. Well, thank you so much, Brent. Links to you are in the description below. Always an absolute pleasure. I'll see you in Austin in a couple of months. And everyone else, I'll see you next week here on The PPC Den Podcast. Unknown Speaker: Now bad mistakes, I've made a few. I've had my share of broken dreams. I'm The PPC Den, my friends. And we'll keep on the music tonight. We're the PPC Den. We talk about Amazon. No time for medicons, cause we fix the game, baby.