There are two bidding strategies for Amazon advertising campaigns: dynamic bidding and fixed bidding. Fixed bidding is relatively simple. We only need to set a fixed price, and this price will not change in the future. However, this mode is unscientific and not smart enough, and is not recommended. Next, let’s focus on dynamic bidding.
Dynamic bidding is divided into two modes: only lowering mode and raising and lowering mode. Simply put, if you choose the raising and lowering mode, Amazon will automatically lower your bid when the ad is unlikely to bring sales. Conversely, Amazon will automatically raise your bid. Of course, if you choose the lowering mode, then even if your ad is likely to bring sales, the bid will not automatically increase.
What is Amazon’s standard for measuring “unlikely to bring sales” and “likely to bring sales”? The standard is the system’s consideration of the product’s estimated conversion rate. If the Amazon system determines that the product’s estimated conversion rate is very high, higher than similar competing products, then the ad will be judged as “likely to bring sales”; if the Amazon system determines that the product’s estimated conversion rate is very low, lower than similar competing products, then the ad will be judged as “unlikely to bring sales.” How is the estimated conversion rate calculated? It is nothing more than considering various factors: the star rating and quantity of the evaluation, the price adjustment, whether to apply for flash sales, inventory status, consumer behavior data, etc. Although the estimated conversion rate is only an estimate, it is estimated by Amazon, and the accuracy is quite high. The price based on Amazon’s estimate usually brings good conversions.
What are the specific implementation standards for the reduction and increase in dynamic bidding? Amazon decides to increase your bid to let you grab the front row position in order to make your ad appear at the top of the first page of search results, and your bid will be increased by up to 100%. Amazon defines the top position of the first page of search results as the first considered ad position. For other ad positions, such as product detail pages and other parts of the search results page, Amazon will only increase your bid by 50%. In the reduction mode, the reduction setting will withdraw your product from the competition for ad positions by continuously reducing the bid. Assuming that your bid is $1.5 and you choose the dynamic bidding with the increase and decrease mode, then during the bidding process, if Amazon finds that your ad has the possibility of appearing at the top of the first page of search results, it will likely increase your bid to a maximum of $3 (based on a 100% bid adjustment). For ad positions other than the first page of search results, Amazon can raise the bid up to $2.25 (based on a 50% bid adjustment). On the contrary, when Amazon determines that your ad is not performing well and is difficult to bring conversions, Amazon may directly reduce your bid to 0, allowing you to withdraw from the competition for ad positions.
So how should we choose between the two dynamic bidding modes? It is recommended that sellers use the “dynamic bidding – increase and decrease” mode as much as possible. The reason is simple. Since Amazon’s increase and decrease in bids are based on the estimated advertising conversion rate, we can rest assured that it can achieve intelligent price adjustment, because this is in line with the logic of “chasing up and killing down” in advertising. Some readers may not understand the “chasing up and killing down” of advertising. For example, Amazon estimates that the conversion rate of your product may be 25%~30%, which is far greater than the conversion rate of similar competing products. At this time, Amazon will automatically increase the bid, which will not increase your advertising cost-to-sales ratio (Average Cost of Sales, ACoS), but will reduce your ACoS indicator. Although increasing the bid will increase advertising costs, with the support of high conversion rates, advertising orders will also increase significantly. Therefore, the way to reduce ACoS is not only to reduce the bid, but also to increase the conversion rate, which is relatively more benign. The same is true for “selling at a loss”. When the estimated conversion rate is very low, blindly grabbing advertising space may result in “low conversion and high cost”. Therefore, Amazon will automatically reduce your bid to make your product withdraw from the competition for advertising space, thereby avoiding unnecessary advertising costs.
When should the “dynamic bidding only lowering mode” be used? It is recommended to use this mode when a new product without any historical sales data is just launched. For newly launched products, even Amazon will inevitably have some deviations in the conversion rate estimate, because there is no historical sales data for reference, and it is difficult for us to guarantee that Amazon’s estimates are all correct. We try to be conservative in the early stage and adopt the “dynamic bidding only lowering mode” to avoid unnecessary advertising costs. After accumulating a certain amount of sales data, we will change the bidding strategy to the “increase and decrease mode”.
After talking about the bidding strategy of advertising, let’s take a look at a function that is closely related to it: adjusting the bid according to the ad position.
The function of adjusting the bid according to the ad position breaks down the display position of the ad into two parts: the top of the search results page and the product details page. In other words, sellers can focus all the budget and exposure of the advertisement on a certain target position according to their own needs, and after determining the target position, increase the advertising bid of the corresponding position according to the percentage. If the seller’s product performs better in the data of the associated traffic, then focusing the advertising budget and exposure on the product details page ad position is the goal of adjusting the bid; if the seller’s product performs better in the ad position on the homepage of the search results, then focusing the advertising budget and exposure on the ad position on the homepage of the search results is the goal of adjusting the bid.
In addition, this function can be used in conjunction with the bidding strategy settings mentioned earlier. The two functions are superimposed together to form a “combination punch.”