Amazon Sponsored Search Strategies
Many of the simplifying assumptions we use in class when studying auctions and sponsored search do not hold up in the real world. For example, we often assume that all bidders in the auction know the value of the slots for themselves and others. Even ignoring a competitor’s value per click, it is often hard for small companies to know their exact bid value. We can explore how a large e-commerce marketplace such as Amazon handles sponsored product ads.
For Amazon, the bid is what advertisers are willing to pay whenever a user clicks on their ad (not views their ad). As we have seen in class, this value also depends on competitors’ bids. Where the advertiser with the highest bid only pays the second-highest bid.
Amazon offers different bidding strategies:
- Fixed Bids: like what we learned, set one bid value. requires constant management.
- Dynamic Bids – Down Only: bids are decreased if the ad is served to a user less likely to click/convert to a sale.
- Dynamic Bids – Up and Down: bids are increased or decreased when Amazon determines your ad is more or less likely to convert to a sale.
- Rule-Based Bidding: this is a new strategy. Instead of setting a bid in hopes of meeting a specific return on advertising (ROAS), this strategy allows advertisers to set a goal ROAS and have Amazon adjust base bids up and down to maintain the set goal.
Dynamic bids are interesting because they let firms target the user demand curve more. In traditional dynamic pricing, some consumers pay more for the same product; this can negatively affect a brand. However, in this case, the firm is the consumer paying to attract different users, and the normal cons of dynamic pricing are no longer there.
It is expected that real-world search auctions are much more complicated than the scenarios seen in class. The different bids have their own pros and cons. Some take the guesswork out of determining a bid, and others help set useful spending limits on an ad campaign.
Sources:
https://advertising.amazon.com/library/guides/basics-of-success-sponsored-ads?tag=mochaglobal20-20
https://www.jumpfly.com/blog/how-and-when-to-use-the-different-amazon-ads-bidding-strategies/