As Amazon’s yearly performance continues to skyrocket, brands must develop new measures to keep up with increasing marketplace demands and evolving conditions. Recently, Amazon has placed limitations and prices on 3P seller services, and paid media and customer acquisition costs have risen both on and off the platform. All of this is compounded by inventory shortages, which hamper advertising efforts, decrease conversions, and compromise overall brand success.
So what trends can you observe from Amazon’s 2022 season, and how can you prepare for what lies ahead?
Amazon’s growth fluctuated throughout 2022, with peak performance observed during Prime Day and the Q4 holidays. The platform experienced an overall sales growth of 20% from the previous year, mainly attributed to fruitful Prime Day deals. Comparably, holiday sales increased by 19% year-over-year. On the business side, Amazon’s 1P sellers grew by only 7% during the holidays, whereas 3P vendors saw a staggering 28% growth rate.
While these KPIs seem to indicate success on the platform and profitable opportunities for brands, conversion rates and advertising performance experienced major setbacks. While traffic increased by 20-30% yearly, conversion rates decreased by over 14%, and click-through rates and cost-per-click declined by 8% and 14%, respectively. These measurements resulted from inventory shortages and suppressions at the end of the year, causing brands to redistribute their ad spend in a short time span.
How has this data affected brand performance in 2022?
Brands that incorporated holiday promotions into their advertising budgets observed greater exposure off Amazon, leading to higher conversion rates. Likewise, businesses who monitored their inventory and product SKUs during the December shortage could withdraw their ad spend and promotions before depletion, thereby increasing ROAS.
With 3P seller central becoming increasingly prevalent, Amazon is placing restrictions on inventory and restructuring capacity. This means that brands can view both their capacity for the month and the estimated capacity for the near future. While this appears to enhance inventory planning and replenishment for the holiday season, sellers must bid for additional space, so profitability and sales remain uncertain in 2023.
Following 2022’s reduced advertising performance, budgets are projected to increase by 25%. Nicole Reich, Co-founder and VP of Marketing and Sales at Retail Bloom, attributes this inflation to a “need for omnichannel reports and insights, meaning that as people continue to invest in digital ad spend, they want to understand where those ad dollars are going and what’s impacting the ROI.” These data-driven decisions on ad spending are essential to offset the costs of 3P seller services and drive conversions.
3P seller conditions and ad spend allocations are major factors influencing brand profitability, so driving traffic from other marketplaces is paramount to success. One way to accomplish this is through Amazon Ads. Some of these ads — like sponsored display videos — allow you to promote your brand both on and off Amazon by targeting various products, categories, or audiences and expanding your reach.
For a more data-driven approach, you can analyze your performance on Amazon, develop KPIs for targeting consumers on different platforms, and measure the resulting ROI. Regardless of your chosen method, consider how each performance metric impacts your budget and structure it accordingly to streamline success.