Amazon Advertising 101: Search Term Optimization & Bid Optimization 

Matthew Boardman
Latest posts by Matthew Boardman (see all)

Table of Contents

The Role of Amazon Advertising 

If you sell on Amazon, you need to utilize Amazon advertising. In today’s era, Amazon has too many sellers and too many products for you to expect success without investing in marketing. But, don’t think of Amazon advertising as an obligation; it’s an opportunity.  

Kaspien grew Amazon advertising sales 55% year-on-year in 2020 while simultaneously dropping our advertising cost of sale (ACOS) 41% year-on-year. When you’re an expert at Amazon advertising, it shows in your top line and bottom line. But to become an expert, you must master the basics.  

That’s exactly what we aim to cover in this post. Let’s get to it.  

How Does Amazon Advertising Work? 

Most Amazon ad types, including Sponsored Product Ads, Sponsored Brand Ads, and some Sponsored Display Ads are cost-per-click (CPC) ads based on an auction system. Advertisers select the highest amount of money they are willing to pay for an ad placement for a specific word or phrase, called a “keyword”.  

When a shopper enters a search query that contains the keyword, an auction occurs. Amazon’s system looks at all bids for that keyword, then, using a combination of factors that Amazon keeps secret, Amazon selects the winner of the auction. The winner’s ad is placed in front of the shopper.  

Cost-Per-Click Pricing Model 

If the shopper clicks on the ad, the advertiser is charged. If the shopper doesn’t click on the ad, the advertiser is not charged. Amazon charges only $0.01 higher than the next highest bid, so if advertiser A sets their maximum bid as $5 and advertiser B set their maximum bid as $0.98, Amazon would charge advertiser A only $0.99. This may lead one to think it’s always best to set an absurdly high bid to ensure you always win the placement.  

In reality, this would result in your ad placing far too frequently, driving up your advertising costs and rapidly burning through your budget. If you allocated $500 per month, you could easily spend that in a day with such a strategy. Additionally, this approach is also prone to placing ads in front of too broad an audience, resulting in poor conversion rates. 

Amazon Advertising Summary 

To summarize, Amazon advertising occurs in five steps: 

  1. Advertisers select the keywords they want to bid on, and how high they are willing to bid for each keyword 
  2. Shoppers input a search query in the search bar 
  3. Amazon identifies which keywords are in the shopper’s search query, then reviews all bids for that keyword 
  4. Using a semi-secret list of factors, Amazon’s system selects the winning bid, and that ad places on the search results page 
  5. The winning advertiser is charged only if a shopper clicks on the ad 

Two Key Factors: Bids and Search Terms 

When we look at Amazon advertising in this way, we see there are two critical factors for advertisers: bids and search terms. Both have sweet spots, and undershooting or overshooting these sweet spots results in poor marketing performance. 

This has led to a great deal of time and attention being devoted to bid optimizations and search term optimizations, both in the form of strategies and the development of software that can automate the time-intensive processes. 

Bid Optimization for Amazon Advertising 

Bid optimization is the act of increasing or decreasing bids for specific keywords in order to strike a balance between frequency of ad placement and marketing budget. If ads place too frequently, you quickly run of budget. If ads place too infrequently, you sacrifice product visibility and sales, limiting your market share.  

Staying in the sweet spot requires constant attention, as Amazon is a dynamic marketplace. New competitors are constantly appearing, existing competitors regularly revise their strategies, peak seasons come and go, and consumer demand can surge or plummet unexpectedly due to unforeseeable external factors (like a pandemic, cough cough).  

As such, advertisers do not have the luxury of a “set it and forget it” approach, at least not those that care about strong marketing results. (If you have an agency or freelancer managing your Amazon ads, make sure they are actively managing your bids. If they are not, you’re paying for a mediocre service. 

Learn more here: How to Tell If Your Amazon Advertiser is Worth Their Salt.) 

Search Term Optimization for Amazon Advertising 

Search term optimization is the act of adding or removing keywords to an ad campaign based on the keyword’s performance and/or shopper search queries. To understand search term optimization, let’s make sure we have a mutual understanding of a few key terms: 

  • Search term: The word or phrases that a shopper types into the search bar on Amazon 
  • Keyword: The word or phrase that an advertiser bids on in an Amazon advertising auctionA search term must contain a keyword in order for an ad to bid on it.  

Search term optimization is critical because it determines whether your ads place in front of the shoppers who are most likely to buy your product.  

So how does it work? 

Advertisers can identify keywords that they want to bid on in a few ways: 

  • Common sense – What terms would you use to find a similar product to what you’re advertising? 
  • Competitor research – What words or phrases are competitor products focusing on in their listing title, bullet points, and product description? 
  • Customer reviews – What words are customers using to describe your product or competitors’ products in customer reviews?  
  • Seller Central – Amazon sellers can download search term reports from Seller Central to see a list of search terms that their listing placed for organically. 
  • Third-party keyword research tools – There are several credible services for keyword research, such as Jungle Scout, Helium 10, and Merchant Words. 

Like bid optimizations, search term optimizations are not a “one and done” act. Advertisers should regularly review performance and make changes as needed. This ongoing process is what advertisers are typically referring to when they say “search term optimization.”  

Match Types for Amazon Advertising 

Before we go further into how to conduct search term optimization, we need to define a few more terms. On Amazon, advertisers can place keywords into three buckets, called “match types.” Each match type should be used a little differently than the others. Understanding how to use these match types is a critical part of search term optimization. 

Broad Match 

When a keyword is set for broad match, your ad will bid on any search query that contains the keyword, regardless of whether there are other words before or after the keyword. Your ad will also bid even if the keyword is in a different order. For example, if your keyword is “phone case,” your ad would bid for search query of “case for phone.”  

Broad match keywords help place your products in front of new shoppers with a general interest, increasing product visibility. 

Phrase Match 

When a keyword is set for phrase match, your ad will bid on a search query if it contains the keyword in the same order as you set it. The ad will still bid if other words precede or follow your keyword, but the search query itself must include the keyword in the correct order. So, if your keyword is “phone case,” your ad would not bid if a shopper searched “case for phone,” but it would bid if a shopper searched “black phone case” or “phone case for iPhone.” 

Phrase match keywords help place ads in front of slightly more targeted shoppers but is still geared towards increasing product visibility. 

Exact Match 

When a keyword is set for exact match, your ad will bid on a search query if it contains only the keyword in the same order as you set and has no other words in the query. The search term and keyword must match exactly. 

Exact match keywords place ads in front of highly targeted shoppers who are more likely to convert. However, they will not do a whole lot for increasing product visibility to a larger audience. 

Automatic Campaigns 

“But wait, you said there are only three match types!” I did, and there are. But match types can only be selected when running manual campaigns on Amazon. Amazon also offers a second campaign type: automatic campaigns.  

Automatic campaigns are run by Amazon’s instead of an advertiser. These campaigns can be used to identify new search terms that should be added as keywords to your manual campaigns, making them an essential ingredient for Amazon advertising success. 

As you can see, each match type fills a different role and use case. Advertisers are wise to make use of all three match types; focusing only on broad match or only on exact match would limit an ad campaign’s efficacy. Likewise, advertisers should make use of automatic and manual campaigns. 

How to Make Search Term Optimizations  

With this understanding of match types, we can finally get to search term optimization. To get started, Amazon advertisers need to identify which of their current keywords are performing great, average, and poorly. They should also identify which search terms they should add to their campaigns as keywords. 

Search Term Migration 

Search terms that the product consistently ranks for should be added as keywords. These terms can be identified using the methods mentioned above and through automatic campaigns. Depending on the specificity of the search term, they may be added as broad, phrase, or exact match keywords. 

Keyword Migration 

Keywords that are performing great in broad or phrase match types should be migrated to exact match. This results in your most-relevant ads being placed in front of the most relevant shoppers. Plus, by migrating these keywords into exact match, you have more control over bid optimizations for these star keywords. 

Some broad match keywords that perform well may still be a little too broad (pun intended) to migrate directly into exact match, so instead, you can migrate them into phrase match. 

When you migrate a keyword from one match type to another, always remember to negate the keyword from the previous match type so you’re not bidding against yourself.  

Keyword Negation 

Key words that are performing poorly should be flagged as “Negative Keywords,” or keywords that your ads are set to not bid on. Negative keywords can be very helpful when your keyword may involve multiple product types, and only one product type is relevant.  

For example, if selling a lavender oil product, you may bid on “lavender oil.” However, if you found that your ad was placing for lavender candles, you could flag “candle” as a negative keyword so that your ad would never place for a shopper that was specifically interested in candles. 

Negating keywords helps ensure that you’re not wasting ad spend on irrelevant placements. It’s a key practice for using a marketing budget efficiently.  

Campaign Architecture Enables Bid & Search Term Optimizations 

Both bid optimizations and search term optimizations are made much easier to identify and manage when you construct your campaigns in a certain way. 

In general, we recommend creating four campaigns: 

  1. Broad Match Campaign 
  2. Phrase Match Campaign 
  3. Exact Match Campaign 
  4. Automatic Campaign 

Each campaign can contain multiple ad groups. In general, we recommend including only one product per ad group. Amazon provides reporting at the ad group level, so this architecture enables you to see ad performance at a product-level, including insights that inform bid and search term optimizations. 

Next Steps

If this sounds like a lot, well, it is. You can absolutely manage your Amazon ad campaigns using only Seller Central, but this is really only usable for sellers with a small product catalog. As you scale, you’ll need to find ways to automate much of this process. That’s why Amazon advertising agencies and Amazon advertising software exists. Such tools are increasingly important as Amazon ads continue to grow more expensive.

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Matthew Boardman
Latest posts by Matthew Boardman (see all)