Assessing the Profitability of Amazon Ads in Italy: Insights and Key Performances

Digital retail media advertising refers to the use of eCommerce platforms to endorse products and brands. This approach relies on consumer behavioral, demographic, and psychographic data to ensure that ads are tailored and relevant to the target audience. As a leading player in retail and marketplaces, Amazon owns and manages the largest retail media network in the West. This allows the company to provide clients with a holistic evaluation of their ads’ performance, taking into consideration KPIs such as Advertising Cost of Sale (ACoS), Cost-Per-Click (CPC), and Click-Through Rate (CTR). 

This article presents an analysis of the median KPIs for the three retail media ad categories on Amazon in Italy to assess their relevance in the Italian market, and their effectiveness in terms of cost and profitability.

Sponsored Brands Emerges as the Most Affordable and Relevant Ad Type, Outperforming Sponsored Products and Sponsored Display in Efficiency

Italy is the 11th largest market for eCommerce, with an expected revenue of US$52.9 billion by 2023. Amazon is Italy’s largest retailer, having a significant lead over its competitors. With revenues of US$5.2 billion in 2022 on its amazon.it domain, it surpasses the respectively second and third on this list, Apple with revenues of US$806.9 million and MediaWorld with US$716.7 million.

Amazon offers three types of advertising to its clients: Sponsored Brands, Sponsored Display, and Sponsored Products. Sponsored Brands are designed to promote storefronts on Amazon with custom designs and product selections to foster customer recognition and loyalty. Meanwhile, Sponsored Display ads focus on users based on their past browsing and shopping patterns, with the goal of encouraging customers on external networks to buy products that match their previous queries. The third type is Sponsored Products, which are Amazon ads that highlight products based on search terms. They are largely indistinguishable from normal search results, save for a small “Sponsored” tag in the top left corner.

To measure the effectiveness of these ad categories in Italy, we first look at ACoS, a KPI that represents the ratio of total ad revenue spent on ad costs. A high ACoS indicates lower efficiency, suggesting that the ad costs more in respect to the revenue it generated.

The data indicates that in Italy, Sponsored Display ads have the lowest efficiency, with a median ad cost of less than 35% of ad revenue. Sponsored Products fall in the middle, with ad costs representing 27.2% of revenue. On the other hand, Sponsored Brands appear to be the most cost-effective ad type overall, with the median ad accounting for only 21.4% of revenue.

In terms of CPC for Amazon ad types in Italy, Sponsored Products is the costliest, with a median CPC of US$0.37, followed by Sponsored Brands at US$0.28 and Sponsored Display just 1 cent lower at US$0.27. The higher cost of Sponsored Products suggests strong demand among Italian merchants, which could be due to the simple setup process that doesn’t require prior experience with Amazon or an endemic storefront. However, since Sponsored Brands have a significantly lower ACoS, their low cost meets a high profitability in the Italian market. 

Following, we evaluate the CTRs to discern whether consumer response to Sponsored Products and Sponsored Brands confirms our prior assumptions. A CTR measures the percentage of users who have clicked through an ad to the promoted site.

Most clearly, Sponsored Brands has the highest median CTR in Italy, achieving a rate of 0.44%. Since Sponsored Products comes in second and has the highest CPC of all ad types, this may explain its higher ACoS and consequently lower profitability than that of Sponsored Brands. Sponsored Display seems to be the least relevant, with the lowest CTR at 0.26%, which accounts for its low CPC of US$0.27 and subsequent highest ACoS, indicating that this ad type is less competitive and profitable compared to the other two.

Sponsored Brands Indicates High Efficiency, Followed by Sponsored Products in the Middle, While Sponsored Display Shows Lower Effectiveness

Upon analyzing the three KPIs – ACoS, CPC, and CTR – we find that Sponsored Brands are the most relevant to consumers in Italy with a CTR of 0.44%, significantly higher than that of the other two ad types. At the same time, Sponsored Brands have a relatively low CPC of US$0.28 and the highest profitability with a low ACoS of 21.4%. This means that the median Sponsored Brands ad in Italy is able to generate a decent amount of revenue compared to its relatively low costs, putting it ahead of the other two ad types in terms of efficiency. 

Given the high cost of Sponsored Products, with a CPC of US$0.37, its profitability as measured by the median ACoS is still moderate at a rate of 27.7%, which is confirmed by a CTR of 0.32%. Concurrently, Sponsored Display ads are the least relevant, with a CTR of 0.26%, while being only slightly cheaper than Sponsored Brands, the most effective of the ad types studied. As a result, Sponsored Display ads have the highest and thus least profitable ACoS of 34.5%.

Sources

Amazon 1 2 3

Statista