Amazon Ad Effectiveness in Germany – A Digital Retail Media Perspective

Digital retail media advertising describes the promotion of products and brands through eCommerce platforms by using information gathered on consumer behavior and demographics to deliver personalized ad relevance. As the largest retailer and marketplace in the Western world, Amazon also operates the biggest retail media network. Consequently, the company is able to provide clients with a comprehensive evaluation of the success and cost-effectiveness of their ad placements, taking into account KPIs such as Advertising Cost of Sale (ACoS), Cost-Per-Click (CPC), and Click-Through Rate (CTR). 

In this article, we analyze the median KPIs for the three retail media ad types on Amazon in Germany to evaluate which are most relevant in the country and which are the most efficient in terms of cost and profitability.

Sponsored Products Is the Costliest, but Most Relevant and Profitable Ad Type

Germany ranks as the 5th largest eCommerce market worldwide and is expected to generate approximately US$125.5 billion in revenue by 2023. Amazon holds a dominant position in the market with its amazon.de domain, significantly outperforming its competitors. In 2022, amazon.de generated US$16.1 billion in revenue, surpassing the second and third largest players in Germany, Otto with US$5.5 billion and MediaMarkt with US$3 billion.

The three types of advertising on Amazon are Sponsored Brands, Sponsored Display, and Sponsored Products. Sponsored Brands are ads for storefronts on Amazon that use specific page layouts and select products to build customer awareness and loyalty. Sponsored Display ads target customers based on their past research and shopping habits. They are designed to reach customers outside of Amazon on external networks. In contrast, Sponsored Products are ads on Amazon that promote products based on search keywords. They are relatively indistinguishable as ads since they appear alongside regular search results, with only a small “Sponsored” tag in the upper left corner.

To evaluate the effectiveness of these ad types in Germany, we first examine the ACoS, which represents the percentage of total ad revenue spent on ad costs. A high ACoS indicates lower productivity, as it suggests that the ad was expensive relative to the revenue it generated.

The data shows that Sponsored Display ads have the lowest productivity in Germany, with the median ad cost representing less than a third of ad revenue. Sponsored Brands falls close behind, with ad costs accounting for 31.2% of revenue. On the other hand, Sponsored Products appears to be the most productive ad type overall, with costs representing 25.8% of revenue for the median ad.

Among the ad types on Amazon in Germany, Sponsored Products also stands out as the most expensive, with a median CPC of US$0.57, slightly higher than Sponsored Brands at US$0.56, followed by Sponsored Display at US$0.5. This higher cost can be attributed to the strong demand for Sponsored Products on Amazon in Germany from merchants, which can be explained by their relatively easy setup without the need for prior experience with Amazon or a matching storefront. Since Sponsored Products also exhibit the lowest ACoS, this indicates their high profitability in the German market.

Next, we examine the CTRs to see if the consumer response to Sponsored Products and Sponsored Brands justifies the elevated CPCs of these ad types. Click-Through Rates measure the share of users who responded to an ad by clicking through to the product or store page.

Without a doubt, Sponsored Products has by far the highest median CTR in Germany with a rate of 0.39%.  As Sponsored Brands is ranked second with a considerably lower relevance to consumers, while being similarly expensive per click compared to Sponsored Products, this may explain its high ACoS and consequently lower overall profitability. Sponsored Display appears to be the least relevant and profitable ad type, which is mirrored by its lowest CPC of US$0.5, indicating that this ad type is less competitive than the other two.

High Relevance and Profitability of Sponsored Products Explain the High Cost, Sponsored Brands Are Less Relevant and Profitable, While Sponsored Display Lags Behind in All Respects

Amazon has an outstanding position in the German eCommerce market, far outpacing its competitors. As the largest retail media advertising platform, it allows for a comprehensive analysis of the performance of its three ad types. 

Looking at the three KPIs – ACoS, CPC, and CTR – we find that Sponsored Products is the most relevant to consumers with a significantly higher CTR of 0.39% than the other two ad types. 

Since Sponsored Products is only slightly more expensive (US$0.57) than Sponsored Brands (US$0.56), this may explain the relatively low profitability of the latter, with the median cost for Sponsored Products representing the smallest share of total ad revenue at 25.8%. Both Sponsored Brands and Sponsored Display cost less than a third of the median ad’s total revenue, making Sponsored Products the most profitable and relevant ad type. 

In addition to being the least relevant, Sponsored Display ads also lack efficiency and are not as low-priced as one might expect given their limited reach and effectiveness.

Sources

Amazon 1 2 3

Statista