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Making Sense of Sponsored Search on Amazon and Walmart: Part 4 – ROAS and Profitability
Part four of an installment series examining the different ways of approaching attribution, ad ranking, profitability, and other mechanisms across the sponsored search offerings of Walmart and Amazon.

In the previous installment, we took a look at offline revenue across both platforms. Within this article, we’ll focus on how ROAS and profitability are taken into account within both Amazon and Walmart’s sponsored search offerings.

ROAS and Profitability

Both retailers have their own approach to ROAS. While Amazon’s uses a more generous lookback window, Walmart’s deploys less orthodox methods. Amazon excels, however, in providing access to back-end metrics (net PPM, avg. sales price, etc.) that helps advertisers assess true profitability.

Amazon
Amazon’s Sponsored Search platform (Amazon Advertising) is all about ROAS. Their attribution approach, as defined in Part 2 of this series, is designed to ensure a strong output from advertiser dollars. The fact that it’s the world’s largest online retailer and features ad formats that exists inches from purchase (i.e. sponsored search ads) doesn’t hurt either.

As noted in previous installments, they view attribution across a 14-day, click-based scenario, they flood their results pages with sponsored ads and they have no measures in place to dissuade competitive bidding or non-incremental buying. It’s all about revenue, and the ROAS advertisers typically see within Amazon Sponsored Search is a testament to this. ROAS marks in the 30+ range for brand spend are not out of the ordinary in many cases. But is this ROAS inflated? Can it be compared evenly to other platforms with varying, some might say more modest, approaches?

Whether or not their numbers are inflated is for advertisers to decide. Devising a methodology for focusing on incremental, understanding when competition is most likely to eat into sales, these are hurdles advertisers need to account for. The good news is, if they have their ducks in a row, every dollar spent on Amazon can be whittled down its true profitability metrics.

As my colleague Ryan Bocken alluded to in his article, Amazon provides all the tools needed to decipher profitability within its Vendor and Seller Central platforms. Here, advertisers can understand how their products are performing organically, and use that information to decipher how much profit they’re deriving from their advertising efforts. The age-old question of “what’s my advertising spend really getting me?” is answered via Amazon Vendor Central.

Advertisers can simply take their average sales price, net PPM, then take out average. cost of conversion for that particular ASIN to get to the root of everything. It’s a fantastic device that connects the dots in a manner other advertising channels can’t fathom. And one that definitely helps set Amazon—and their sponsored search—apart from other digital commerce platforms.

Walmart
Like Amazon, Walmart’s Sponsored Search platform uses ROAS as its main indicator, but it’s nowhere near as simple as Amazon’s 14-day click-based window. As detailed in Part 2, Walmart’s attribution efforts are more akin to a hybrid approach between paid search and programmatic display. It brings in the click-based attribution elements of search (3-day click) along with the view-based attribution elements of display (1-day view) to create a Frankensteined revenue output.

How they approach this output may be an attempt to counteract the handicaps inherent to their system, detailed in previous installments:

  • No offline revenue, despite Walmart being the largest brick-and-mortar-based retailer
  • Multiple, advertiser-friendly safeguards within their ranking and auction dynamics
    • These limit unnecessary spend, but also limit ROAS

Add to this the previously mentioned notion that image-based, product listing ads (which both platforms focus on) deserve some level of view-through credit. They’re a hybrid search/display unit, always have been. They’re as much an introduction to (or influence on the purchase of) a product as a display ad viewed at a point further up in the funnel. Maybe Walmart is correct in limiting its click-based reporting, but then supplementing overall revenue with a small view-based window.

In Conclusion

So, how do advertisers assess these two platforms on a level-playing field?

It’s tricky, but the previously mentioned caveats will all come into play when comparing Amazon Advertising and WMG’s sponsored search offerings. For example, if you spent $100k across each and saw a 10.0 ROAS within Amazon and a 5.0 ROAS within Walmart, it doesn’t necessarily mean Amazon performed twice as well. The various factors discussed thus far across auction dynamics, attribution approach and offline revenue should be used to understand the value of sponsored search across platforms.

But if you only take one nugget of truth away from this, let it be the following: don’t discount Walmart simply due to a lower ROAS. As discussed, not all ROAS is created equal. Nowhere is this statement truer than when comparing these two platforms. At their roots, they both offer ad placements that help influence purchase right before the actual moment of purchase. A lot can be won or lost in that moment. Advertisers need to understand how to gauge true success to keep from getting lost themselves.