Retail Media Advertising of Amazon in the United Kingdom

Amazon Retail Media in the UK: Key Insights

• Retail Media Advertising Leadership: Retail media advertising is one of Amazon's multiple revenue streams, a business in which the retail giant generates billions of U.S. dollars annually and positions itself as a market leader. Amazon offers three types of advertising on its platform: Sponsored Products, Sponsored Display and Sponsored Brands.

• Measuring Ad Performance: Three KPIs are used to measure an ad's effectiveness: ACoS depicts the ratio of the cost of an ad to the revenue it generates, CPC calculates how much advertisers spend per click on an ad, and CTR is a metric that shows the ratio of user impressions to clicks through to the product or store page.

• Sponsored Products Ads Lead the Way: While Sponsored Products is the most expensive Amazon ad type in the UK, it also ranks best in terms of efficiency (ACoS) and relevance (CTR). Sponsored Brands consistently rank in the middle, and Sponsored Display ads are the least efficient and least relevant in the UK.

Retail media advertising is a term used to describe the promotion of products and brands through ecommerce platforms. By leveraging customer behavior and demographics, it improves the personal relevance of ads to a targeted audience. The largest retailer and marketplace in the West, Amazon controls the most extensive retail media network. As such, it is well positioned to provide clients with a detailed assessment of the effectiveness and value for money of their ad placements, focusing on KPIs such as Advertising Cost of Sale (ACoS), Cost-Per-Click (CPC), and Click-Through Rate (CTR). 

This insight discusses the median KPIs for Amazon’s three retail media ad types in the UK. The intent is to determine their relevance in the market as well as their cost effectiveness.

Sponsored Products Is the Most Expensive and Relevant Ad Type in the UK

The UK is the 3rd largest ecommerce market in the world. Amazon holds a prominent position in the UK, with amazon.co.uk generating far more online net sales than any of its competitors. Specifically, amazon.co.uk generated US$15.4 billion in online net sales in 2022, more than double that of Sainsbury’s and Tesco.

Amazon’s advertising portfolio consists of Sponsored Brands, Sponsored Display, and Sponsored Products. Sponsored Brands ads aim to build brand awareness and customer loyalty with customized storefront layouts and product selection. Sponsored Display targets shoppers based on their past searches and shopping behavior, suggesting related products to them from external networks. Sponsored Products ads blend into regular Amazon search results by promoting products based on search terms. They are identified by a small “Sponsored” label in the upper left corner.

We start by examining ACoS, the metric that shows how much of total ad revenue is ad spend. A high ACoS indicates lower profitability, as it means that advertisers spent more in relation to the revenue they generated from the ad.

The data shows that Sponsored Display ads in the UK are the least profitable, with a median ad cost of less than half of ad revenue at 44.8%. Sponsored Brands is more cost-effective, with ad costs representing 32.3% of ad revenue. Finally, Sponsored Products is the most profitable on average, with median ad costs at 29.8% of revenue.

In terms of CPC, Sponsored Products is the most expensive ad type with a median CPC of US$0.7, which is higher than for Sponsored Brands (US$0.63) and Sponsored Display (US$0.54). This higher price may be related to the high demand for Sponsored Products in the UK, possibly due to its ease of setup without the need for prior Amazon experience or a storefront on the platform. Combined with the low ACoS, which speaks to its cost-effectiveness, this further reinforces the high demand for Sponsored Products ads in the UK market.

The third KPI is the Click Through Rate. CTRs measure the share of user impressions that click through from an ad to a product or store page. A low rate means that the ad either did not reach the intended audience or was not engaging enough for consumers to click through to the product page. 

The results show that Sponsored Products ads generate the highest median CTR in the UK at 0.33%, meaning that UK consumers are most likely to click through to the product or store page from Sponsored Products ads. Sponsored Brands follows with 0.3%, while Sponsored Display ads lag behind with a CTR of 0.2%.

While Sponsored Products is the most expensive ad type on average, its high relevance seems to justify the cost, which is supported by the fact that it is the most profitable ad type, according to its low ACoS. Sponsored Display, on the other hand, has the lowest cost at 54 cents per click, but it is also the least profitable and least relevant. Sponsored Brands is more profitable, while being relatively relevant in terms of CTR and medium cost.

Amazon Retail Media in the UK: Assessing KPIs

Sponsored Products are the less obvious ads that look like search results. Perhaps because of its subtlety, this ad type is the most expensive, with a median CPC of US$0.7. At the same time, Sponsored Products generate the highest consumer response with a CTR of 0.33%. These ads are also the most profitable, as measured by an ACoS of 29.8%, which is the lowest cost-to-revenue ratio in this sample. 

In the middle range are Sponsored Brands ads, which are less expensive than the first type at 63 cents per click. They are still relatively relevant, with a CTR of 0.3%, and quite profitable with less than a third of the median ad spend representing ad revenue.

According to the medium KPIs examined above, the least profitable and least relevant ad type is Sponsored Display. It may be that due to low demand from UK advertisers, Sponsored Display ads are also the least expensive. Nevertheless, Sponsored Display has the highest ACoS, i.e. around 45 % of the median revenue is spent on advertising.

Sources: Amazon: 1 2 3 – Statista