More consumers start their online shopping search on Amazon (AMZN 3.43%) than anywhere else on the internet, including Google.
Amazon's ability to attract a plurality, if not a majority, of valuable product searches has put its advertising business in the spotlight. Product-related searches indicate high purchase intent, which makes ads displayed to users making those searches much more likely to convert into sales.
But most of Amazon's searches may have a characteristic that makes them very valuable for advertisers, as well as for two important aspects of its retail business. 78% of Amazon searches are unbranded, according to an analysis by Marketplace Pulse.
Unbranded searches are often more valuable for advertisers, since ads have a greater chance of influencing which brands the shopper ultimately buys. Moreover, the high percentage of unbranded searches creates more opportunities for private labels from both Amazon itself and third-party merchants.
Image source: Amazon
The advertising opportunity
Brandless searches on Amazon can be extremely valuable for advertisers because they have the chance to pull double duty.
Like all advertisements on Amazon, they have a strong chance of converting into a sale. The presence of a shopper on Amazon indicates they're likely closer to making a purchase than if they were merely browsing search results on Google or another search engine. Indeed, there's often a disparity in surveys that ask where consumers start their product research versus where they start their shopping search. The former favors the Alphabet (GOOG 9.96%) (GOOGL 10.22%) search engine more.
As such, advertisers have a greater chance of converting a sale on an advertisement on Amazon compared to targeting the same exact search keywords on Google.
The second opportunity for marketers with brandless searches is to generate awareness and preference for their own brands. Even if a consumer passes over an advertisement on Amazon, simply gaining exposure to the brand could make them more likely to choose that brand in the future. This is the mere-exposure effect at work. Brand advertisements ought to have an even bigger influence on consumers who present no brand knowledge or loyalty based on their search terms.
That explains why marketers have been increasing their spend on Amazon's Sponsored Brand banners that appear atop search results. Those ads still account for a minuscule percentage of ad impressions on Amazon, but produce an outsized number of clicks. As a result, the average price per banner ad click has been climbing steadily.
The private label opportunity
The plethora of brandless searches on Amazon means there are plenty of opportunities for private label products to succeed in the world's largest online marketplace. That goes for Amazon's own brands as well as third-party merchants.
Marketplace Pulse found a greater prevalence of brandless searches in need-based or convenience items such as batteries. That explains why AmazonBasics batteries are best sellers, the researchers write.
Amazon's shift to one-day shipping for Prime members has been a boon for those types of convenience items, leading to accelerating retail sales for Amazon in the second and third quarters. As such, we should see an increase in brandless searches for need-based items and an increased need for third-party merchants to use Amazon's FBA program to qualify for one-day shipping. Investors will see a nice boost in third-party seller services revenue as a result.
That said, the researchers pointed out how difficult launching a successful private label brand can be, even for Amazon. Amazon launched over 100 brands in 2019, but none of them are category leaders. However, with a large number of shoppers searching for products without brand specifics, there will be plenty of businesses that are going to keep trying to launch new brands and spend lots of money advertising them.
