Amazon Giving Up Advertising Revenue to Promote Its Brands

Amazon Giving Up Advertising Revenue to Promote Its Brands

Amazon has increased the number of ads allocated to promoting its brands. Out of the standard twelve ad spots on its website and six on its mobile app, three feature its private label products. Amazon is giving up advertising revenue it would have made otherwise by selling ads to brands to promote products which profit is unlikely to offset the loss.

“Of course, when the company chooses not to use space for advertising by third parties, Amazon foregoes the advertising fees it could have earned from that space,” the company said last year in October 2019 in response to questions for the record from House Antitrust Subcommittee.

In May, Amazon introduced a “Featured from our brands” label in search results. It is an updated version of the “Our Brand” label tested in September 2019. Amazon has changed its sponsored products system to use a different label for its brands. They are not featuring those products by adjusting the search algorithm to prefer their products. Instead, they come from the advertising system and use the “Featured from our brands” label instead of “Sponsored” like other products.

Because Amazon features its products by adjusting the sponsored products system, which reduces the number of ad slots available for brands on the marketplace, for search keywords where the company features its products, the ad price has increased. Finally, when the company highlights its products, it always takes the first sponsored product slot. Thus not only the price brands have to pay for ads is higher, but the most visible ad slot is unavailable.

Because of the search layout on mobile, which features one sponsored product followed by three organic results, it renders brands powerless to get the first spot, unless they are one of the best-sellers that rank high organically.

In the same response to House Antitrust Subcommittee, the company said, “In each month since July 2018, only 2–3% of space eligible for Sponsored Products and Sponsored Brands impressions has highlighted Amazon’s private brand products.” That’s true because Amazon’s private label catalog is small compared to Amazon’s overall assortment. It only features products when they match the search query. For those searches, Amazon highlights its private label products in 25% of sponsored products on its website and 50% on mobile.

Amazon search for 'power bank'

Amazon highlights its private label brands because customers prefer them, Amazon’s spokesperson said. “Amazon’s private brand products have, on average, higher customer review ratings, lower return rates, and higher repeat purchase rates than other comparable brands in the Amazon store,” they said. “As a result, like other retailers, Amazon highlights its private brands in promotions and marketing.”

A search for “power bank” returns a list of Anker products, each with at least a 4.5 out of 5 rating and tens of thousands of reviews. The first result, however, is a product by TalkWorks featured as one of Amazon’s brands because it is one of the hundreds of brands exclusively sold on Amazon. It launched on Amazon two months ago, has seventeen reviews, and a rating of 4 out of 5. Amazon is not highlighting it because customers prefer it.

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