AdExchanger: How much do you rely on Amazon?
BRYAN PORTER: We launched with an Amazon-first channel strategy. We didn’t launch a product that we necessarily had great insight on; we just felt very confident we could sell well on Amazon. We ended up testing into the products we sell today.
The website came a little while later, but we weren’t having much success on DTC until about two years ago.
Was that an investment decision or a consumer pandemic response?
We always wanted a DTC presence, just for the control that comes along with it – and the lack of dependence on things you can’t control, like whether Amazon wants to sell your products or not.
It was a long-term strategic play, but the pandemic was definitely a catalyst for our website.
Why did you decide to freeze all Amazon advertising?
We were spending between 8% and 10% of our revenue on ads, but we started to have success with listings that ranked organically at a high level.
We’ve realized over time that if you have elite-level organic placement on Amazon, paying to have a sponsored ad show up one spot ahead of your organic placement is really just paying for organic traffic.
We’ve always been skeptical of attribution. Amazon and Google are incentivized to show you awesome performance numbers on your ad spend so that you spend more. Ad spend is not always incremental.
How do you prove that paid media isn’t incremental?
Where Amazon really makes it look like ads are doing well are on branded keywords. That was first to go for us, because we’re going to get those sales anyway.
One reason it’s been hard for us to make Amazon advertising work is that we run at very low margins that are built around mass retail. There’s not a whole lot of room for ad budgets, especially when we have to grow our inventory base by 50% or even double year-over-year for many years. We just decided that it’s best for us to be investing in inventory more than advertising.
We’re a bootstrapped company. Cash flow really matters to us – so it’s apparent when sales aren’t profitable. My goal is to find ways to incrementally add paid media. But at the moment we have other priorities and ways to invest our capital that are a higher ROI than advertising.
How do you drive incremental sales without advertising?
The biggest way is to launch new products.
We’ve noticed on Amazon that a successful product launch can cap out in about two years. To keep growing, you have to keep launching new listings. We’re also starting to invest in equipment to manufacture our own products in the US.
The year-over-year inventory growth numbers will not double in perpetuity. We’ll get to a point where our cash flow will improve, and that’s when we’ll be able to pour some gas on the fire with advertising.
Do you advertise off of Amazon?
We’re more willing to run breakeven ad traffic to our website than to Amazon. DTC is our most strategic channel.
So, yes, we do have Facebook and Google Shopping ads running.
Did the Amazon ad budgets disappear or go to Google and Facebook?
We did recently reallocate Amazon budget to those other investment areas. However, we had independently decided to increase our ad budgets to the website, so it wasn’t directly related to the decision to halt Amazon ads.
Considering the economic climate we’re in, we also have some excess inventory sitting in our warehouse, so it’s become more appealing for us to use an ad budget lately.
Some people say you need paid media to have effective organic placement on Amazon, Google and Facebook. Do you see any impact on organic listings when you stopped advertising on Amazon?
We see an inverse relationship between paid and organic placements. That was one of the things that made us want to stop paying for advertising.
For example, we do really well with the search term “water bottle” on Amazon. Whenever we started a sponsored product campaign, we noticed our organic placement dropping. We saw no drop in organic ranking with zero ad spend.
Our goal as a company has been to create listings on Amazon that can rank and out-convert other listings, and we’ve been able to do that. You don’t have to spend on ads to get the impressions you need.
But you must see a drop in overall sales, right?
Yes, there definitely is a drop whenever we cut ad spend. In terms of profitability, though, we don’t view ourselves as less profitable without the ad spend.
Where I think about resuming ad spend, one potential opportunity is when there’s a big delta between our organic ranking and the top paid placements to target their brand keywords. A good example is Starbucks, which sells highly stylized tumblers similar to ours but at a much higher price. We’re able to advertise on a keyword like “Starbucks tumblers” and show enough of a value proposition to a customer who is searching for Starbucks to actually change their mind.
Another area is keywords where we’re partially relevant. For example, we have the number one selling kids backpack on Amazon. But there are many different types of backpacks. We’re not fully relevant to “backpack” as a keyword, but it’s possible that we can convert on it, although we’re not going to organically place at the top of that search.
We’re thinking about resuming paid media on Amazon where it can be done profitably.
Take the “backpack” search example: How do you get impressions without ads when you don’t rate highly organically?
At certain times of the year – back to school, mainly – we’re able to get a better organic ranking on a search term like that. Kids backpacks are much more relevant in August, and we’ll see more success in ranking around then. It tails off after back-to-school is over.
The most effective lever we found for boosting organic placement has been deals, and I think the reason is that pricing drops increase your conversion rates much more than ads do. With ads, you increase the number of eyeballs on your listing, but it could actually hurt your conversion rate [a metric Amazon uses to rank organic listings].
We found that deals are really the love language of the Amazon algorithm.
How has the industry responded to your Amazon ads pullback? Positive? Aghast?
I get a little bit annoyed with the kind of groupthink that happens around advertising. There’s a famous quote from Jeff Bezos. He said that advertising is the price you pay for having an unremarkable product, and I think there’s a lot of truth to that.
I know there’s a lot of competition on Amazon, but I’m an advocate of brands shifting their philosophy toward being product-focused more than marketing-focused.
That’s not the reality for every seller on Amazon. There is a place for advertising. And some people do need to use it.
But we view marketing as a way to invest capital – and there are many ways to do that.
Do we choose to spend $200,000 by giving it to Amazon for ad impressions or to help create a new product line? And, if you can create a new product line, that’s an annuity that you’ve created. Ad spend is a one-shot deal. Maybe you acquire some customers, but, for the most part, you’re just leaking value to the advertising channels.
This interview has been edited and condensed.