How Amazon owns the co-op game and why it is more important than ever to examine transparency standards
Long before Jeff Bezos’s creation dominated the e-commerce landscape, marketers used co-op advertising to ensure that retail consumers noticed their products. In fact, the value of co-op advertising with retail partners was perceived to be so high (or, at a minimum, an unavoidable cost if you wanted to work with certain retailers) that brands accepted – for decades – that there was no real way to determine the actual ROI of their co-op dollars. Co-op advertising was a necessary “black hole.”
Then, through its sheer scale, Amazon became the dominant retailer and changed everything. With the brick-and-mortar co-op model largely supplanted, advertisers that opt to engage with Amazon now have no choice but to accept their version to participate. Today Amazon virtually equals co-op advertising.
And there’s more.
As it has scaled, Amazon has claimed superior data transparency, stoking greater expectations along the way. But expectations regarding transparency into those dollars, despite being heightened, are not so easily satisfied. Amazon may be the default retail choice for many brands, but the biggest player in town hasn’t been delivering on transparency in a meaningful way.
The story so far: from black hole to glass house
Back in 2012, an IAB study declared co-op advertising to be “digital’s lost opportunity.” And a big opportunity, at that. Though historically challenging to quantify its value, one estimate in the report puts US spend at about $50 billion.
Those figures include in-store displays and flyers, as well as external-facing advertisements. But the one element that has traditionally been only a minor part of that spend has been digital ads. And because of the traditional co-op advertising mindset (“You throw money in, then you cross your fingers and move on”), even the digital portion of co-op spend often has not been held accountable in the way that advertising through other digital channels has.
As the retail marketplace has continued to orbit (myopically) around Amazon, so has the old-school co-op mindset. With its Sponsored Products ads and retargeting product, Amazon has created a dominant performance marketing channel that suggests the “we win together” principles of co-op advertising. It has joined — and topped — the ranks of the traditional co-op advertising retail players. And ithas done so with vastly bigger budgets, plus the lure of greater transparency.
Consider that proposition yet another element of the “Amazon Effect.” Now that brands have adapted their marketing to align with the world’s biggest retail player (and exuberantly buy into Amazon’s transparency promises), they’re taking the lessons from that process and applying it to their other relationships.
Brands now expect greater transparency in light of Amazon’s promise. They’re requesting transparency and measurability from all beneficiaries of their co-op dollars. These retailers are struggling to put the needed mechanisms in place to accommodate such requests. This transparency promise — made but undelivered — by digital co-op’s rule-maker is disingenuous at best. It does marketers a great disservice.
Is the glass house actually smoke and mirrors?
On one level, there’s a pretense of authenticity. It feels more transparent, because previously a marketer received no reporting detail, and today’s report shows some data, including clicks, conversions, and so on. But, following these somewhat cursory numbers to drive your budgeting decisions would be haphazard (or even risky) at a time when we know better analytics are available.
Consider this: Ads running off-site Amazon.com retarget prospects who have viewed a brand’s products previously on Amazon. If these potential consumers click on an ad, they are directed back to Amazon and perhaps eventually make a purchase.
Amazon pinpoints and takes credit for the eventual sale in the ad performance reports. Shrewder marketing professionals know that the bulk of these people would have bought without seeing the ad. Therefore, they set up tests to get a sense of the real incremental impact to correct the numbers.
Amazon is using the same playbook as Google and Facebook. Both have pushed their retargeting offerings in past years to show better ROI and attract even higher budgets. Yet advertisers on Amazon need to find ways to measure the true incremental impact.
Many advertisers that tested the incrementality of Facebook’s Dynamic Products realized that less than 10% of what they see in their reporting numbers represents incremental revenue. In other words, more than 90% of the sales would have happened without showing ads.
Taking this further, numbers from Amazon’s Sponsored Products (which run on-site) are even more difficult to validate. On the one hand there’s question around incrementality, because a brand’s products are already featured by Amazon and can be found easily by the user. But by advertising them, they establish more prominent rankings and eventually generate additional sales.
Even so, the real uplift is always much lower than what a marketer sees in Amazon’s reporting, of course. Specifically, the attribution model used for the reports makes the numbers untrustworthy. For example, if a consumer clicks on 20 products of brand X, then on one Sponsored Product ad, and finally clicks on another 10 products before he buys, the purchase will be credited to the ad. On paper, the sale happens because of one out of 31 clicks.
Sponsored Products and Amazon’s retargeting solution struggle with both attribution and steering clear of the kinds of transparency illustrated above. There’s no getting around the fact that, as a retargeting vendor, Amazon grades its own homework when it comes to tying ad exposures to sales — and it seems to have opted for fairly superficial reporting. As a result, there’s a notable gap between the numbers that Amazon shows brands, and the true bottom-line impact of those investments. Amazon clearly understands the value of both retargeting and partners that may not be inclined to — or understand enough to — question the numbers.
When it comes to advertisers’ expectations of their co-op dollars, Amazon’s influence cannot be denied. Alas, such narrow reporting practices hamper marketers’ ability to truly understand their own performance and optimize allocations. Today, when efficiency, attribution, and transparency are rising imperatives, accountability rules supreme. I believe that traditional retailers who engage in this co-op game only see a modicum of their possible success.
It’s true that the new ad formats that Amazon has introduced are a step in the right direction. That said, transparency in reporting remains an issue: marketers must take the numbers with a grain of salt. To realize co-op’s full potential, they need to demand and receive meaningful reporting transparency. Call it true “co-opportunity”: a situation in which they understand the true impact of their ads, rather than being left with reporting artifacts.
It stands to reason that marketers can demand a realistic attribution for their Sponsored Ads, as well as for retargeting ads. It would represent a huge gain to see how many other touchpoints there were prior to a conversion.
It may be unrealistic at this point in time to ask Amazon to include an estimation of the real incremental impact of their ads — something neither Google nor Facebook have done. In the end, it’s the advertisers’ responsibility to run incrementality tests and correct the numbers they see. Vigilance is essential when assessing and optimizing performance.
Andreas Reiffen is chief executive of Crealytics