Amazon Advertising Bidding Mechanism & Ranking Principles In-depth Analysis

When placing advertisements, Amazon sellers first need to understand the bidding mechanism and ranking principles of Amazon advertisements . After understanding these principles, they can be more efficient when placing advertisements.

How does the Amazon advertising system rank ads on search results pages? How is bidding conducted? In this article, I will give you a general understanding of how Amazon advertising bidding & ranking mechanism works.

PART 1

「 Traditional Advertising Bidding Mechanism」 Let me first explain the bidding mechanism of traditional advertising . Suppose there are four sellers competing for the position on the search interface. Each of them indicates that they are willing to pay $4, $3, $2 and $1 for each user clicking on their ads. We call it bidding . In the traditional bidding model, the ranking of an ad is directly determined by the bid , with the highest bidder getting the first position, the second highest bidder getting the second position, and so on.

PART 2

"Second-place bidding model" Amazon uses another model called the second-place bidding model. In this bidding model, sellers do not need to pay the full bid for each click, they only need to pay the price of the seller ranked next to them. So in this special bidding model, although the first seller bids $4, he only needs to pay the price of his next advertiser, which is $3. The same applies to the second and third advertisers.

This design allows each seller to set their maximum bid for each click, but they only pay a price that is just enough to beat their competitors. So in Amazon's advertising bidding model, sellers only need to pay for actual clicks , not the highest bid.

PART 3

"Factors affecting advertising quality" At the same time, Amazon also hopes that both users and sellers can have a good user experience, so Amazon also introduces other factors in advertising bidding. The first factor is the expected click-through rate of your ad. It is the expected value of clicks when your ad is displayed by Amazon. Amazon relies on customer feedback to drive Amazon's decision-making. The user's click-through rate will tell Amazon how buyers react to the ad.

The second factor is the experience (conversion rate) of your ad’s landing page . Only when the landing page displays the products that buyers are looking for, the ad is effective. A highly relevant landing page should get a higher score . So what should a high-quality landing page look like? It should be able to help buyers accomplish their shopping goals.

Another factor is the relevance of the ad . Amazon determines the relevance of your ad to the search query by analyzing the text of your ad . This is a way to detect the relevance of your ad to the buyer's search. Your ad will only be displayed if it is effective. It also helps sellers avoid wasting their advertising budget on searches that are irrelevant to their products.

The expected click-through rate of an ad, the landing page experience, and the relevance of the ad together determine the quality of the ad . Amazon will give the ad a score based on the seller's ad bid, expected click-through rate, landing page experience, and relevance , which we call the ad ranking score .

PART 4

「Amazon Advertising Ranking Mechanism」 Let’s go back to the previous example and see how their ads are ranked. The four sellers bid $4, $3, $2, and $1 for their ads respectively. Their expected click-through rates are 0.2, 0.8, 0.6, and 0.4. The landing page experiences are 2 points, 6 points, 8 points, and 5 points respectively. The ad relevances are 4, 7, 8, and 5 respectively. Their ad ranking scores are 70.0, 75.6, 86.4 and 39.2 respectively.

So the ad with 86.4 points won the first position even though its bid was not very high. Why? Because his ad score was 75.6 for the second place and 70.0 for the third place, the client who bid $4 did not get the first display opportunity even though his bid was very high.

Now we know how ads are ranked, but how much do we actually pay per click? We only need to pay the lowest price that will win the ranking position , so let’s go back to the ad ranking table and talk about the first ad. He bids with the second place, so he only needs to pay the price that can beat the second competitor. Even though his bid is $2, if his bid is as low as $1.73 and he can still beat his competitor, then his bid for each click is $1.73.

Similarly, the second advertiser only needs to pay the minimum bid that can beat the third advertiser, so in this example, the advertisers ranked at the top actually paid lower bids than they expected, and the same applies to other advertisers.

PART 5

「How sellers influence CPC and ranking」 Next, let’s look at how advertisers influence CPC and ranking in the bidding model.

By improving your ad quality score , you can improve your ad position, which can also result in better CPC. Let’s take a look at the second advertiser. We assume that he improved his ad landing page, and the landing page experience increased to 7.5 points. His ad score increased to 81 points. His position did not change, but how did his CPC change? Although it was priced at $3 before, assuming it actually needs to pay $2.6 to beat its next competitor, then the CPC before was 2.6.

But now he has improved his landing page experience . Assuming other conditions remain unchanged, if he can beat his next competitor with a bid of 2.2, then his CPC will be $2.2. Why? Because the seller's bid is partly based on his ad quality score .

Now suppose this seller wants to improve his ad ranking, so he increases his bid to $3.5. Now the ad ranking score rises to 94.5, which is enough to move him to the first place. What is his CPC at this time? His CPC only needs to beat the next one’s 86.4 points. Assuming all conditions remain the same, he can beat the next one with a bid of at least $3.3, so his CPC at this time is 3.3.

So to sum up, why does Amazon rank and charge for ads in this way?

As mentioned before, back to the ecosystem consisting of Amazon, sellers, and buyers, when both sellers and buyers have a high level of satisfaction, this is what Amazon wants to see, so that more people will use Amazon.

Author: Baixiaotang E-commerce Cross-border

Source: Baixiaotang E-commerce Cross-border