Amazon Advertising Strategy: Why Most Brands Are Spending in the Wrong Place

Amazon advertising strategy, at its most effective, is not about being everywhere on the platform. It is about understanding where your margin is, which campaigns are genuinely creating demand versus capturing it, and how to build a presence that compounds over time rather than one that disappears the moment you pause spend. Most brands get this wrong because they optimise for the metrics Amazon shows them, not the ones that actually matter to the business.

The platform rewards advertisers who understand its architecture. Sponsored Products, Sponsored Brands, Sponsored Display and DSP each serve a different purpose in the purchase funnel. Using them interchangeably, or defaulting to whatever the Amazon rep recommends, is one of the most common and expensive mistakes I see brands make.

Amazon advertising sits within a broader set of go-to-market decisions that most brands have not thought through carefully enough. If you are working through how your paid channels connect to your overall growth model, the Go-To-Market and Growth Strategy hub covers the strategic layer that Amazon activity needs to sit inside.

Why Most Amazon Advertising Strategies Are Structurally Broken

I spent a number of years managing performance marketing at scale, across retail, FMCG and direct-to-consumer categories. One pattern repeated itself regardless of industry: brands had conflated activity with strategy. They were running campaigns, hitting targets and reporting green dashboards, but the underlying business was not growing. Amazon advertising has the same problem, only amplified.

The default Amazon advertising playbook looks like this: launch Sponsored Products on your core keywords, set an ACOS target, optimise bids weekly, add negative keywords, repeat. That is a reasonable operational process. It is not a strategy. It is demand capture with a spreadsheet attached.

Demand capture is valuable. But it has a ceiling. If you are only advertising to people who are already searching for your product or your brand, you are not growing your customer base. You are competing for a share of intent that already existed. I made this mistake earlier in my career, overweighting lower-funnel performance because the attribution looked clean and the numbers were easy to defend. What I eventually understood is that much of what performance advertising gets credited for was going to happen regardless. The customer had already decided. You just happened to be the last click.

Amazon’s advertising ecosystem has matured significantly and now offers genuine upper-funnel capability through Sponsored Brands video, Streaming TV ads via DSP and off-platform audience targeting. Most brands are not using these tools because they do not fit neatly into an ACOS report. That is a measurement problem masquerading as a strategy problem.

How Amazon’s Ad Formats Actually Map to the Purchase Funnel

Understanding what each format does, and does not do, is the starting point for building a coherent strategy. Amazon’s own sales team will tell you everything works together. That is true in the same way that every ingredient in a kitchen can technically be combined. It does not mean you should.

Sponsored Products are the workhorse of Amazon advertising. They appear in search results and on product detail pages, and they operate on a cost-per-click model against keywords or product targets. They are excellent at capturing high-intent search demand. They are poor at building brand awareness or reaching audiences who do not already know they want what you sell. If this is your only format, you have a demand capture operation, not an advertising strategy.

Sponsored Brands appear at the top of search results and can feature your brand logo, a custom headline and multiple products. The video variant in particular has shown strong performance for brands trying to differentiate in crowded categories. This format sits at the consideration stage. It works best when someone is in category but has not yet committed to a brand. Brands that skip this format and go straight to Sponsored Products are essentially letting competitors own the top of the results page.

Sponsored Display is the most misunderstood format. It can target audiences both on and off Amazon, including people who have viewed your product pages, competitor product pages or relevant category content. Used correctly, it is a retargeting and audience-building tool. Used incorrectly, it burns budget on low-intent impressions with no clear connection to revenue.

Amazon DSP (Demand-Side Platform) is programmatic advertising that uses Amazon’s first-party audience data. It reaches people across Amazon-owned properties and third-party sites. This is genuine upper-funnel capability and the most underused part of the platform by mid-market brands. The barrier is usually minimum spend thresholds and the fact that attribution is harder to demonstrate in a last-click model. Neither of those is a good reason to ignore it if you are serious about growth.

The ACOS Trap and What to Measure Instead

Advertising Cost of Sale (ACOS) is the ratio of ad spend to attributed revenue. It is the metric most Amazon advertisers live and die by. It is also one of the reasons so many Amazon advertising strategies are structurally underpowered.

ACOS is a useful operational guardrail. It tells you whether a campaign is spending efficiently relative to the sales it is generating. What it does not tell you is whether those sales would have happened anyway, whether you are growing your customer base, or whether your advertising is building any kind of brand equity. Optimising purely for ACOS is a bit like managing a retail store by only measuring conversion rate at the till. Technically sound, strategically incomplete.

The metrics that matter more for strategic decision-making are Total ACOS (which includes organic sales in the denominator, giving you a truer picture of advertising efficiency), New-to-Brand orders (which Amazon reports for Sponsored Brands and DSP, showing you how much of your volume is genuinely incremental), and share of voice across your key category keywords. These are harder to optimise in a dashboard but they are the ones that tell you whether your advertising is building something durable.

When I was running agency operations and managing client P&Ls, the conversations that mattered were never about individual campaign metrics. They were about whether the advertising was contributing to a business that was growing. New-to-Brand rate is the closest Amazon gets to giving you that answer directly. If that number is low, you are spending money to retain customers you already have, not acquire new ones. That is a fundamentally different problem from what most ACOS-focused optimisation addresses.

For context on how growth metrics connect to broader commercial strategy, Semrush’s breakdown of market penetration strategy is a useful frame for thinking about what Amazon advertising should actually be trying to achieve at different stages of brand maturity.

Keyword Strategy: Broad, Phrase and Exact Are Not Interchangeable

Amazon’s keyword match types are one of the most mismanaged elements of campaign structure. Broad match generates discovery and waste in roughly equal measure. Exact match is efficient but limited. The structural approach that works is using broad and phrase match in separate discovery campaigns, harvesting converting search terms, and promoting them to exact match in tightly controlled campaigns with appropriate bids.

This is not complicated. But it requires discipline and a willingness to let campaigns run long enough to generate meaningful data before making decisions. The most common failure mode I see is over-optimisation in the first two weeks, before the data is statistically meaningful. Amazon’s algorithm needs time to learn. Cutting bids or pausing keywords after three days of poor performance is not optimisation, it is noise management.

Category keywords (generic terms for the product type) and brand keywords (your own brand name) should always be in separate campaigns. Category keywords are where you win new customers. Brand keywords are where you defend existing demand. Blending them inflates your apparent efficiency because brand terms almost always convert well, masking poor performance on category terms where the real competitive battle is happening.

Competitor targeting deserves a separate mention. Bidding on competitor ASINs through Sponsored Display or Sponsored Products can be effective for brands with a clear point of differentiation and a price position that makes the switch worthwhile. Without those conditions, you are paying to put your product in front of someone who has already decided to buy something else. The conversion rates reflect that.

Product Listing Quality Is Part of Your Advertising Strategy

This is the part of Amazon advertising strategy that most agencies separate out because it does not sit in the ads console. That separation is a mistake. The quality of your product detail page determines what happens after someone clicks your ad. A weak listing with poor images, thin copy and a low review count will underperform regardless of how well-structured your campaigns are.

Amazon’s A9 algorithm (the ranking engine behind search results) takes conversion rate into account. If your listing converts poorly, your organic ranking suffers, which means you need to spend more on ads to maintain visibility, which increases your ACOS, which triggers further optimisation. The spiral is self-reinforcing and the root cause is usually a listing problem, not a bid problem.

The analogy I find useful here is the clothes shop. Someone who picks something up and tries it on is far more likely to buy than someone who walks past. Your product listing is the fitting room. If it is cramped, poorly lit and the size guide is wrong, the product does not matter. The ad got them there. The listing has to do the rest.

Before scaling ad spend on any ASIN, the listing needs to meet a minimum standard: primary image on white background with clear product detail, five or more high-quality secondary images, bullet points that address the key purchase questions, A+ content if you are brand registered, and a review count that provides social proof. These are not nice-to-haves. They are the conversion infrastructure that your advertising budget depends on.

Budget Allocation Across the Funnel

There is no universal budget split that works for every brand on Amazon. But there are structural principles that hold across categories and maturity stages.

Brands in the early stages of building Amazon presence should weight heavily toward Sponsored Products on category and competitor keywords. The goal is visibility and conversion data. Upper-funnel spend before you have proof of conversion efficiency is premature. Get the flywheel moving first.

Established brands with strong conversion rates and meaningful review counts should be investing in Sponsored Brands, particularly video, to defend their position at the top of search results and build brand salience in category. This is where share of voice compounds. Brands that own the top of the results page in their category consistently outperform those that only appear mid-page, even when the mid-page product has better organic ranking.

For brands with significant scale and ambitions to grow their total addressable market on Amazon, DSP investment makes sense. The attribution is harder to defend in a quarterly review, but the audience data Amazon holds is genuinely valuable and not available through other programmatic channels. The BCG framework on commercial transformation is worth reading for context on how growth-oriented marketing investment differs structurally from efficiency-oriented investment.

Seasonal and promotional periods deserve specific budget planning. Amazon Prime Day, Black Friday and category-specific peak periods require pre-event spend increases to build relevance before the traffic spike hits. Waiting until the event to increase bids means you are competing at auction when everyone else has already built their position. The brands that win Prime Day started their advertising ramp two to three weeks before it.

Automation and Bidding: Where It Helps and Where It Does Not

Amazon’s dynamic bidding and automated campaign options have improved significantly. They are useful tools with specific limitations that are worth understanding before you hand over control.

Dynamic bidding (up and down) allows Amazon to increase your bid by up to 100% when a click is deemed likely to convert, and reduce it when conversion is less likely. In practice, this can improve efficiency on well-structured campaigns with good conversion history. On new campaigns with limited data, it can produce erratic spend patterns that make optimisation difficult. Start new campaigns with fixed bids or dynamic down-only, then introduce dynamic bidding once you have conversion data to anchor Amazon’s algorithm.

Auto campaigns are frequently dismissed as a beginner’s tool. That is wrong. Auto campaigns are an excellent source of search term discovery, particularly in broad categories where manual keyword research misses the long tail. BCG’s long-tail pricing research makes a related point about the commercial value that sits in the tail of a demand curve. The same logic applies to keyword strategy: the volume is in the head, but the margin is often in the tail. Running auto campaigns alongside manual campaigns, with appropriate negative keyword hygiene to prevent cannibalisation, is a structural choice that most sophisticated advertisers make.

Rules-based automation through Amazon’s campaign management tools or third-party platforms can handle routine bid adjustments efficiently. Where automation consistently underperforms is in strategic decisions: which keywords to invest in for share of voice, when to accept short-term ACOS deterioration in exchange for long-term ranking gains, and how to respond to competitor activity. Those decisions require human judgment. Automating them produces locally optimal outcomes that are globally wrong.

Connecting Amazon Advertising to the Broader Business

The most sophisticated Amazon advertisers I have encountered treat the platform as one channel within a broader commercial architecture, not as a standalone business unit. That means your Amazon advertising strategy needs to account for how it interacts with your DTC channel, your retail partnerships and your brand-building activity off-platform.

Brands that drive awareness through social, influencer and content channels and then capture that demand on Amazon see materially better conversion rates than brands relying solely on Amazon’s internal traffic. Later’s work on creator-led go-to-market campaigns is a useful reference for how off-platform demand creation translates to on-platform conversion, particularly in consumer categories.

Pricing architecture is another area where Amazon advertising strategy and broader commercial strategy intersect in ways that are easy to ignore. If your Amazon price is inconsistent with your DTC or retail pricing, you create channel conflict that undermines both. Amazon’s algorithm also factors price competitiveness into Buy Box eligibility and ad rank. A pricing strategy that is disconnected from your advertising strategy will produce outcomes that neither team can fully explain.

There is a broader set of growth strategy decisions that Amazon advertising plugs into, and thinking through those connections carefully tends to produce better outcomes than optimising the ad account in isolation. The Go-To-Market and Growth Strategy hub is where I work through those strategic questions in more depth.

The brands that build durable positions on Amazon are not necessarily the ones with the biggest budgets. They are the ones that understand the relationship between their product quality, listing execution, pricing, advertising structure and off-platform brand activity. Each element amplifies or undermines the others. Amazon advertising strategy, done properly, is a systems problem as much as a media buying problem.

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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