Tradeswell Research: Instacart’s Advertising Algorithm and Its Effect on Ad Performance

This article is part of our Tradeswell Research series. We’re sharing findings from our data and research and turning them into actionable insights that ecommerce brands can use to make better business decisions that drive profit and enhance the customer experience.

After hearing about Instacart’s latest advertising updates, the Tradeswell Research team reviewed data from our platform to compare ad performance before and after the new features. We outlined advice for getting the most out of your Instacart advertising strategy based on our findings.

Instacart Releases New Advertising Optimization Features

Earlier this year, Instacart released new optimization features for its sponsored product ads: Optimized Bidding and Bidding Landscapes. The Optimized Bidding feature uses an algorithm to automatically set bids for your ads and adjust them throughout the campaign.

The grocery delivery app designed these features to drive greater performance and transparency when it comes to setting bids and give customers a more relevant customer experience. Prior to the update, brands had little insight into the optimal bid amount.

Ad Performance Before and After Instacart’s Bid Optimization Feature

To understand the impact of these recent changes by Instacart, we looked at an example of a brand using Instacart’s product sponsored advertising and compared its percentage of total ad spend and return on advertising spend (ROAS) on branded vs. non-branded search terms before and after Instacart released the bid optimization feature.

Here’s what we found:

  • Instacart’s new algorithm works in the brand’s favor. After switching to Instacart’s optimized bidding, the brand saw a 105% increase in ROAS for non-branded terms. This indicates that Instacart is effectively optimizing cost per click and inventory assortment to ensure advertisers see a valuable return (and shoppers see relevant products).

Instacart Algorithm Analysis - ROAS

  • Instacart is increasing the percentage of spend behind branded search terms. The brand saw a 130% increase in branded search terms’ share of advertising spend. 

Instacart Algorithm Analysis - Ad Spend

How to Get the Most ROI From Your Instacart Advertising Campaigns

You might think that if Instacart is pushing shoppers more towards branded search terms, your ad spend should also go towards those terms, right?

Wrong—and here’s why. Shoppers searching for products using branded terms are indicating their intent to purchase from your brand. 

By putting ad spend behind these terms, you’re essentially trying to capture an audience that is more than likely already going to buy from you. This approach could inflate your ROAS—giving you a false sense of ad profitability.

We recommend prioritizing category, or non-branded, search terms. Here’s how we’d break down the budget between branded and category terms:

  • Category terms = 80% of budget
  • Branded terms = 20% of budget

As your company grows, protecting branded search terms becomes less important—you have more brand equity and can leverage category terms to expand your reach and increase market share. At this point, we’d suggest allocating 90% of the budget towards category terms and 10% towards branded terms.

If you need help capturing ad performance across your marketing channels, look no further than Tradeswell. Tradeswell tracks ad performance in real-time and generates insights to help you optimize marketing strategies, boost sales, and maximize profit margins. Try Tradeswell for free.

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