Amazon Advertising: Why Most Brands Are Spending in the Wrong Places

Amazon advertising works best when it is treated as a commercial system, not a media channel. The brands that get the most from it understand where their products sit in the purchase experience, how Amazon’s auction dynamics reward margin discipline, and why chasing the lowest ACoS is often the wrong objective entirely.

Most brands default to Sponsored Products, bid on their own brand terms, and call it a strategy. That is not a strategy. It is a reflex. And it leaves a significant amount of growth on the table.

What Amazon Advertising Actually Is

Amazon is, at its core, a search engine that happens to sell things. The advertising infrastructure built on top of that search engine is one of the most commercially efficient media environments available to product marketers, precisely because purchase intent is explicit and the gap between ad exposure and transaction is almost zero.

The main formats are Sponsored Products (keyword-triggered ads that appear in search results and on product pages), Sponsored Brands (banner-style placements that appear at the top of search results and link to a brand store or custom landing page), Sponsored Display (audience and product-targeting ads that appear on and off Amazon), and the Amazon DSP (a demand-side platform for programmatic display and video across Amazon-owned properties and third-party inventory).

Each format serves a different purpose. Sponsored Products captures existing demand. Sponsored Brands shapes it. Sponsored Display extends it. DSP builds it. The mistake most brands make is treating all four as interchangeable levers and pulling whichever one their agency recommends that week.

I spent a long time managing large performance budgets across multiple retail categories, and one of the clearest patterns I observed was that brands with the most efficient-looking Amazon accounts were often the ones growing the slowest. They had optimised themselves into a corner: low ACoS, high share of branded search, very little incremental reach. Everything looked clean on the dashboard. Nothing was happening in the market.

Amazon advertising strategy sits squarely within the broader question of how you go to market as a brand, and that question is worth examining carefully. The Go-To-Market and Growth Strategy hub on The Marketing Juice covers the commercial frameworks that inform decisions like these, including how to sequence investment across the funnel and where advertising fits within a wider growth model.

Why ACoS Is a Dangerous Primary Metric

ACoS (Advertising Cost of Sale) is the ratio of ad spend to ad-attributed revenue. It is intuitive, easy to track, and almost universally misused.

The problem is that ACoS measures efficiency in isolation. It tells you how much you spent to generate a sale that Amazon attributed to your ad. It does not tell you whether that sale was incremental, whether it would have happened anyway through organic search, whether you are growing your customer base or just recirculating existing buyers, or whether the margin on that sale justifies the spend.

I have a long-standing scepticism of lower-funnel performance metrics that I developed over years of managing significant ad budgets. Early in my career I overvalued them, the same way most performance marketers do. The click happens, the sale happens, the attribution fires, and it looks like the ad worked. But a meaningful proportion of those sales were going to happen regardless. The person was already in market, already searching for the product, already close to buying. The ad captured the transaction. It did not create it.

This is not an argument against lower-funnel Amazon advertising. Sponsored Products are valuable. Capturing in-market demand is a legitimate objective. But if your entire Amazon strategy is built around minimising ACoS on Sponsored Products campaigns, you are optimising for efficiency at the expense of growth. You are, in effect, running a very tidy machine that is not going anywhere.

The more useful metric framework involves TACoS (Total Advertising Cost of Sale), which divides total ad spend by total revenue including organic, and tracks it over time. A declining TACoS alongside growing total revenue is the signal you actually want. It means your advertising is building organic momentum, not just buying sales.

There is also a strong case for tracking New-to-Brand metrics, which Amazon makes available for Sponsored Brands and DSP campaigns. These tell you what percentage of your ad-attributed sales came from customers who had not purchased from you on Amazon in the previous 12 months. If that number is low, you are spending money to sell to people who were already going to buy from you. That is margin erosion dressed up as marketing.

How to Think About the Amazon Funnel

Amazon’s advertising formats map reasonably well onto a purchase funnel, but most brands only activate the bottom of it. That is a structural problem, not a budget problem.

At the bottom of the funnel, you have shoppers who are actively searching for your product or a direct competitor. They know what they want. They are comparing options. Sponsored Products are the right tool here. The objective is to appear prominently when intent is highest, convert efficiently, and protect your brand terms from competitor conquest.

In the middle of the funnel, you have shoppers who are in a category but have not yet formed a strong brand preference. They might be searching for “protein powder” rather than a specific brand. They are browsing, comparing, reading reviews. Sponsored Brands and Sponsored Display are the right tools here. The objective is to make your brand visible and compelling before the shortlist forms.

At the top of the funnel, you have people who are not yet on Amazon, or who are on Amazon but not yet thinking about your category. DSP is the right tool here, particularly for retargeting lapsed customers, reaching lookalike audiences, and running awareness campaigns across Amazon-owned properties like Twitch, IMDb, and Fire TV.

Think of it like a clothes shop. Someone who walks in and tries something on is far more likely to buy than someone who walks past the window. Your job with upper and mid-funnel Amazon advertising is to get more people through the door and into the fitting room, not just to stand at the till waiting for people who have already decided to buy.

The brands that understand this invest proportionally across all three layers. They do not abandon efficiency at the bottom, but they accept that the top and middle of the funnel will show worse ACoS in the short term, because the payoff is incremental reach and long-term category growth rather than immediate transaction efficiency.

Keyword Strategy: Where Most Accounts Go Wrong

Amazon keyword strategy is not complicated in principle, but it is consistently executed badly in practice. The most common errors are: bidding on too many irrelevant broad match terms, failing to harvest converting search terms from auto campaigns into manual campaigns, neglecting negative keyword management, and treating all match types as equivalent.

A well-structured Amazon keyword account typically runs auto campaigns as discovery tools, harvesting converting search terms at regular intervals and adding them to manual exact and phrase match campaigns with controlled bids. Irrelevant terms get negated. High-converting terms get bid up. The system becomes progressively more efficient over time as you learn what your actual buyers are searching for.

The failure mode I see most often is accounts that were set up by an agency, handed over to a junior team member to manage, and never properly audited. The auto campaigns are running, the broad match terms are spending, the reports look fine at the top level, but underneath there is a tangle of wasted spend on irrelevant queries that nobody has looked at in months.

Competitor keyword targeting deserves its own consideration. Bidding on competitor brand terms can be effective for conquest, particularly if you have a clear value proposition and a lower price point. But it is expensive, conversion rates are typically lower than branded or category terms, and it invites retaliation. Before committing budget to competitor conquest, the question worth asking is whether you would be better served investing that same budget in upper-funnel awareness that reaches undecided shoppers before they form a brand preference at all.

Long-tail keywords are systematically undervalued on Amazon. They have lower search volume, which makes them unattractive to agencies optimising for impression share, but they often have higher purchase intent and lower competition. A shopper searching for “organic cold pressed coconut oil 500ml” is further along the purchase experience than one searching for “coconut oil”. Bid accordingly.

Product Detail Pages Are Part of Your Ad Strategy

This is the part of Amazon advertising that most brands treat as someone else’s problem. It is not. Your product detail page (PDP) is the landing page for every ad you run on Amazon. If it is weak, your conversion rate will be weak, your ACoS will be high, and your organic rank will suffer because Amazon’s algorithm rewards conversion performance.

I have seen brands spend tens of thousands of pounds per month on Amazon ads while their PDPs had stock photography, bullet points copied from the back of the packaging, and no A+ content. The ads were doing their job. The pages were undoing it. Every click was money spent to deliver a shopper to a page that failed to close the sale.

Strong PDP fundamentals include: a primary image that is clear, professional, and shows the product at a size that reads well on mobile; additional images that show the product in use, communicate key benefits visually, and address common objections; a title that is keyword-rich but readable; bullet points that lead with benefits, not features; a description or A+ content module that tells the brand story and reinforces purchase confidence; and a competitive price relative to the category.

Reviews matter enormously. Amazon’s own data has consistently shown that products with more reviews and higher ratings convert better, rank higher organically, and perform better in paid placements. This is not a surprise. What is a surprise is how many brands treat review acquisition as an afterthought rather than a core part of their Amazon growth strategy.

The relationship between PDP quality and ad performance is a multiplier effect. A 10% improvement in conversion rate on a PDP does not just improve organic rank. It makes every pound of ad spend work harder. It lowers your effective ACoS without changing your bids. It is, in commercial terms, one of the highest-return activities available to an Amazon seller, and it costs far less than increasing ad spend.

Sponsored Brands: The Most Underused Format

Sponsored Brands consistently underperform their potential because brands treat them as an afterthought. They set up a banner, point it at their brand store, and leave it running indefinitely. That is not a Sponsored Brands strategy. It is a placeholder.

The formats within Sponsored Brands have expanded significantly. You can now run video ads that autoplay in search results, which are among the most attention-grabbing placements on the entire platform. You can run custom image ads that link to curated product collections. You can use the Store Spotlight format to showcase different sections of your brand store. Each of these serves a different purpose and requires different creative thinking.

Sponsored Brands video is particularly worth attention. It appears inline in search results, autoplays without sound, and occupies a disproportionate amount of visual real estate compared to standard text ads. For categories where demonstration matters, where the product benefit is visual, or where you are trying to differentiate from a sea of similar listings, video is one of the most effective tools available on the platform.

The creative brief for a Sponsored Brands video is different from a standard video ad. You have roughly six seconds to communicate the core benefit before a shopper scrolls past. There is no audio by default. The product needs to be on screen immediately. The message needs to land without narration. Most brands approach this with a repurposed TV ad or a YouTube pre-roll, and the results are predictably poor.

Sponsored Brands also provides the New-to-Brand attribution data mentioned earlier. If you are not looking at this metric for your Sponsored Brands campaigns, you are missing one of the clearest signals available about whether your Amazon advertising is actually growing your customer base or just recycling it.

Amazon DSP: When It Makes Sense and When It Does Not

The Amazon DSP is a powerful tool with a high barrier to entry and a significant potential for wasted spend if used without a clear strategy. It is not for every brand, and the fact that Amazon’s sales team will push it enthusiastically does not mean it is right for your situation.

DSP makes sense when you have a meaningful product catalogue, sufficient margin to support awareness-level investment, a clear audience definition, and the patience to measure incrementally rather than by immediate ROAS. It makes less sense for single-product brands, low-margin categories, or businesses that need immediate return on every pound spent.

The strongest use cases for Amazon DSP are retargeting (reaching people who viewed your product but did not buy), lapsed customer reactivation (reaching people who bought from you more than 90 days ago), category conquest (reaching people who purchased from a competitor in the past 30 days), and lifestyle audience targeting (reaching people whose browsing and purchase behaviour signals relevance to your category).

Retargeting is typically the most efficient DSP use case and the right starting point for most brands. The audiences are warm, the intent signals are strong, and the cost per acquisition is usually lower than cold audience prospecting. If you are going to test DSP for the first time, start with retargeting, establish a baseline, and expand from there once you have proof of incremental return.

One thing worth understanding about DSP is that Amazon’s audience data is genuinely differentiated. It is built on actual purchase behaviour, not just browsing signals. When Amazon tells you it can reach “people who purchased baby food in the last 30 days”, it means people who actually bought baby food on Amazon in the last 30 days. That level of behavioural precision is difficult to replicate on most other platforms, and it is the primary reason DSP is worth considering for brands where audience definition is a meaningful challenge.

Budget Allocation: The Framework That Actually Works

There is no universal budget split for Amazon advertising. Anyone who tells you that 70% on Sponsored Products, 20% on Sponsored Brands, and 10% on DSP is the right allocation is either guessing or selling you a template. The right allocation depends on your category, your competitive position, your margin structure, and your growth objectives.

What I can offer is a framework for thinking about it. Start by categorising your objectives: are you defending existing revenue, growing within your current customer base, or reaching new audiences? Each objective implies a different budget emphasis. Defence skews toward Sponsored Products on branded terms. Growth within existing audiences skews toward Sponsored Products on category terms and Sponsored Display retargeting. Reaching new audiences requires Sponsored Brands and DSP investment.

The mistake I see most often is brands that say they want to grow but allocate almost all their budget to defence and efficiency. They want the results of a growth strategy without the investment profile of one. That tension is not resolvable with clever bidding. It requires a genuine decision about what you are trying to achieve and what you are willing to invest to achieve it.

Seasonal budget management is also worth addressing. Amazon’s auction prices spike significantly during peak trading periods: Prime Day, Black Friday, Cyber Monday, Q4 in general. Brands that set static bids and budgets and leave them running through peak periods often find themselves either overspending at inflated CPCs or losing impression share at exactly the moment when category demand is highest.

The approach that works better is building a seasonal budget calendar that front-loads investment in the weeks before peak periods (when CPCs are lower and you can build organic rank ahead of the spike), maintains presence through peak (with adjusted bids that reflect the higher conversion rates that typically accompany high-intent shopping events), and pulls back in the post-peak period when demand and conversion rates both drop.

For brands thinking about how Amazon advertising fits within a wider commercial growth model, the question of budget allocation connects directly to how you sequence investment across channels and audiences. BCG’s work on commercial transformation is worth reading in this context, particularly the thinking around how growth-oriented organisations allocate resources differently from efficiency-oriented ones.

Measurement: What to Track and What to Ignore

Amazon’s reporting environment is rich, which means it is also easy to drown in data that does not inform decisions. The metrics worth tracking consistently are: TACoS (total ad spend divided by total revenue, tracked monthly to identify trend), New-to-Brand percentage (for Sponsored Brands and DSP), conversion rate by ASIN (to identify PDP performance issues), impression share on key branded and category terms (to identify competitive pressure), and organic rank for your highest-value keywords (to track the flywheel effect of paid investment on organic visibility).

The metrics that get too much attention are: ACoS in isolation (useful but incomplete), click-through rate on Sponsored Products (largely a function of creative and placement, not a growth indicator), and total impressions (meaningless without context).

Attribution on Amazon is also worth understanding clearly. Amazon attributes sales to ads using a 14-day click-through window by default. That means a sale is attributed to an ad if the customer clicked the ad within the previous 14 days, regardless of what else happened in between. This overstates ad contribution in categories with longer consideration cycles, and it can make retargeting campaigns look more efficient than they are if the customer was going to return and buy anyway.

Incrementality testing, where available, is the most honest way to understand whether your Amazon advertising is actually driving additional revenue or simply claiming credit for sales that would have happened regardless. Amazon has made incremental measurement tools more accessible in recent years, and they are worth using even if the results are occasionally uncomfortable. Marketing does not need perfect measurement, but it does need honest approximation, and the gap between what Amazon’s default attribution reports and what is actually incremental is often larger than brands expect.

I judged the Effie Awards for several years, and one of the things that experience reinforced was how rarely brands can demonstrate genuine incrementality in their advertising. The submissions that stood out were the ones that had thought carefully about what would have happened without the campaign, not just what happened with it. That discipline applies equally to Amazon advertising. The question is not “did sales go up while we were running ads?” It is “did sales go up because we were running ads?”

The Flywheel Effect: How Amazon Advertising Compounds

One of the genuinely distinctive features of Amazon advertising is the flywheel dynamic between paid and organic performance. On most advertising platforms, paid and organic are largely separate systems. On Amazon, they interact directly.

Amazon’s A9 algorithm (the search ranking system) rewards products that convert well. When a shopper searches for a term and clicks your ad, and then buys your product, that conversion signals to Amazon’s algorithm that your product is relevant for that search term. Over time, with enough conversions on a keyword, your organic rank for that term improves. As organic rank improves, you get more organic traffic. As organic traffic converts, rank improves further. Paid investment seeds the flywheel. The flywheel generates organic return.

This is why TACoS is a more useful metric than ACoS for tracking long-term Amazon performance. A rising ACoS accompanied by a declining TACoS is often a sign that the flywheel is working: you are spending more on ads, but your total revenue is growing faster than your total ad spend, which means organic is picking up the difference.

The flywheel also works in reverse. Brands that cut Amazon ad spend sharply often see organic rank deteriorate within weeks, because the conversion signals that were supporting their organic position disappear. This is a meaningful operational consideration for budget planning: Amazon advertising is not a tap you can turn on and off without consequences. Sustained investment builds a position that is genuinely defensible. Erratic investment builds nothing.

For brands thinking about how this fits within a broader growth architecture, the broader challenge of go-to-market execution is worth examining. The principles that make Amazon’s flywheel work, compounding investment, building organic momentum, sequencing paid and earned carefully, are not unique to Amazon. They are the same principles that underpin effective growth strategy across channels.

Common Mistakes Worth Avoiding

After managing significant ad budgets across multiple retail categories, a few failure patterns come up repeatedly. They are worth naming directly.

The first is treating Amazon as a last-resort channel. Some brands only invest in Amazon advertising when their direct-to-consumer channel is underperforming, or when a competitor starts gaining share. By that point, the competitor has often already built organic rank, review volume, and brand familiarity that is expensive to displace. Amazon rewards sustained presence, not reactive surges.

The second is over-relying on agency-managed campaigns without meaningful oversight. Amazon advertising agencies vary enormously in quality, and the metrics they report in monthly reviews are not always the ones that matter most. If your agency is reporting ACoS and total sales without discussing New-to-Brand metrics, TACoS trends, or organic rank movement, you are not getting a complete picture of account health.

The third is neglecting the relationship between inventory and advertising. Running ads on ASINs that are out of stock or low on inventory is expensive and counterproductive. Amazon’s algorithm penalises products that go out of stock, and the organic rank recovery after a stockout can take weeks. Advertising into a stockout accelerates the problem by driving traffic to a product that cannot fulfil demand.

The fourth is assuming that what works in one category will work in another. Amazon advertising dynamics vary significantly by category. Competitive intensity, average CPC, typical consideration cycle, review volume requirements, and seasonal patterns are all category-specific. Strategies borrowed from adjacent categories without validation are a common source of wasted spend.

The fifth, and perhaps the most costly, is treating Amazon as a standalone channel rather than as part of an integrated commercial strategy. Amazon advertising does not exist in isolation. It interacts with your pricing strategy, your promotional calendar, your brand equity, your DTC performance, and your retail distribution. Brands that manage it in a silo, optimising the Amazon P&L without reference to the broader business, often find that what looks efficient in the channel is creating problems elsewhere.

For context on how growth-oriented organisations structure their go-to-market investments more broadly, Forrester’s thinking on intelligent growth models is a useful reference point, particularly the emphasis on sequencing investment to build compounding returns rather than optimising each channel independently.

The broader question of how Amazon advertising fits within a full commercial growth strategy is one I cover in more depth across the Go-To-Market and Growth Strategy section of The Marketing Juice. If you are working through how to allocate investment across channels, sequence paid and organic, or build a growth model that compounds rather than just converts, that is a good place to start.

About the Author

Keith Lacy is a marketing strategist and former agency CEO with 20+ years of experience across agency leadership, performance marketing, and commercial strategy. He writes The Marketing Juice to cut through the noise and share what works.

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