High-Margin Ad Dollars Aren’t Just for the Amazons of the World – Leveraging the Power of AI #23
Amazon recently reported advertising dollars grew an astonishing 66% year over year to $8 billion in the fourth quarter.
Ad sales on the platform surpassed $21 billion in 2020, up by 50% from 2019.
In other words, sticky customer relationships are paying off — in the billions — for Amazon. When distributors learn to leverage AI to grab customers, they can begin seeing the payoff, too.
Here is how Amazon is doing it:
Amazon is continually improving the tools its sellers, vendors and other partners are using to drive maximum revenue from its advertising. Using AI, Amazon knows what customers want, which enhances customer experiences and creates customer loyalty. (Nearly two-thirds of consumers start on Amazon when searching for a new item.)
Amazon sells access to those customers for billions of dollars each year in the form of highly relevant ads in product search results and on product pages.
A small “sponsored” label appears next to these products. Amazon also runs “sponsored brand” advertisements for more money, which includes a banner on search results pages and a landing page. They have also added video ads, which play automatically on product search results pages.
Vendors aren’t charged unless consumers actually click on their product. The pay-per-click model works especially well for Amazon and its advertisers because shoppers are usually there with the intent to buy — and Amazon is really good at predicting what customers will buy.
The model is working.
Other major B2C platforms that rely on AI-enhanced advertising have seen similar revenue spikes in the past year. For example, Facebook revenue hit $87 billion in 2020, up from $71 billion in 2019; ad revenue was responsible for $84.2 billion of that.
You may think that advertising is reserved for the Amazons and the Facebooks of the world. But with excellent AI-powered search and product-recommendation functions, distributors can gain the kind of customer attention that manufacturers are willing to pay for.
Distributors, embrace this opportunity using these three steps:
- Apply AI to your sales channels: Implement an omnichannel AI system to capture and use data points from customers across your sales channels to accurately predict what they are most likely to buy.
- Grow customer loyalty: With AI-powered product recommendations and relevant search, customers will spend more time on your website, and they will buy more.
- Sell targeted ads to vendors to reach those customers: As an indispensable and lucrative link between customers and manufacturers, distributors can help manufacturers promote their products to the right customers.
This is a high-margin opportunity. Picture this: If manufacturers spend 5% of revenue on marketing and distributors sell at 25% gross margin, you capture $4 in additional profit per $100. That is a 20% margin boost if all ad dollars are funneled through distributors.
But this win depends on AI-powered features like search and product recommendations that grab customer attention, build loyalty and reveal customer intentions — all invaluable to a vendor. You need all three to drive the conversion rates that Amazon is experiencing, which some analysts have estimated at between 20% and 30% (Facebook, by comparison, is between 1% and 10%).
Lock in your customer’s attention today. The time is now to build the foundation required to supplement your income with high-margin advertising.