Metyis has demystified Amazon as our specialists are deeply familiar with its inner workings. Read on to learn several tactics to engage with Amazon on your own terms from a place of strength.
The Amazon Flywheel
The ‘Amazon flywheel’—a model first sketched out by Jeff Bezos 20 years ago—is key to Amazon’s success. It starts from the principle that customer experience is the most critical aspect, and works back from there.
To provide customers with a great experience, you need competitive prices and vast selection. For low prices, you need a low-cost structure and for a varied selection you need lots of sellers—which in turn means you will require abundant traffic.
Delivered together, this generates the growth which keeps the flywheel turning.
But success for brand owners hinges on incrementality. The massive number of shoppers on the Amazon platform certainly makes it attractive, but before deciding whether (and how) to jump in, brands must focus on the quality of the sales they will generate. Will the sales be truly incremental, or simply shifted from other channels? Will the pricing and transparency that Amazon brings impact their ability to earn margins in other channels?
4 levers to increment sales while protecting business
To deliver incremental sales while protecting existing business, brand owners stand to benefit from focusing on four levers:
1. Leveraging their compete portfolio of brands to decide on the right product mix for Amazon. These offerings can include niche brands that are not widely listed elsewhere and which will be less affected by Amazon’s price matching algorithm;
2. Utilising product variants: unique pack sizes (or colours, or flavours) to deliver better value without triggering pricing responses from other retailers. Consider large packs that are unattractive to physical retailers but more practical for delivery can be useful here;
3. Selecting the right channel. Amazon offers a range of different channel (Figure 2) which serve different needs;
4. Wielding Amazon as a platform for innovation with mass reach and ease of purchase from day one of launch.
Example: Innovation on Amazon
Johnnie Walker launched “Johnnie Walker White Walker” in partnership with Game of Thrones, exclusively on Amazon. A robust online PR launch gained widespread online coverage accompanied by a clear call to purchase on Amazon. This exemplifies how a brand can leverage a partnership with Amazon in an innovative matter. “Johnnie Walker White Walker” quickly became the number one bestseller in the Grocery category due to this targeted launch.
The ‘Everything Store’ where shoppers can browse millions of products
Searching for the product you need at the best available price
A same-day grocery delivery service
Online grocery shop, with rapid fulfilment also able to meet distress purchase needs
Subscribe & Save
Shoppers select eligible items and receive a discount, free standard delivery and automatic deliveries at intervals of their choosing
Used to replenish everyday household and grocery items
The Amazon Algorithm
Amazon’s pricing algorithms and aggressive trading approach represent significant risks to be managed.
Amazon’s pricing algorithms seek to make sure that no product, sold directly by Amazon, is more expensive than the lowest price anywhere across online retail, including promotional prices. This is great for consumers scouring for the cheapest price available anywhere online, but not so great if you are a brand owner looking to manage margin tactically throughout the year through a series of promotional and non-promotional periods.
If your product is on promotion somewhere, Amazon’s algorithm will pick this up and this will become the maximum price displayed to shoppers on the Amazon site. This sparks a difficult conversation for an account manager, who must explain to existing customers how the promotional price that only runs for a limited number of periods, is constantly available on Amazon.
Amazon takes a long view on pricing economics. Ensuring that products sold directly by Amazon are the best value available online keeps the flywheel turning. Amazon accepts that many of the sales that come from price-matched products may be loss-making in the short term. This becomes exaggerated when Amazon enters a new category because the cost prices they receive from brand manufacturers in that segment are likely to be higher than those offered to established customers. This is the price of establishing a position in a new category.
However, brands need to think long term. Once a category has been developed by Amazon, with the sales of the associated brands becoming significant, operating within Amazon’s framework becomes more challenging due to significant investments in price improvements and marketing spend. Brands are left with the choice of walking away from a now with significant volume, or accepting the high levels of investment required by Amazon.
Some brands opt to walk away. PopSockets—a popular mobile phone accessory brand—is a notable example but most find it challenging.
To manage this risk, brands must to plan ahead—and have a clear vision, reinforced by best practices, if they’re to engage with Amazon in the first place.
Choosing how to engage
Amazon’s flexible model makes it hard for brand owners to stop their products from being sold by someone else within the platform. Beyond a small group of mostly luxury brands, it doesn’t make much sense to do so. This means that brand owners should choose from three broadly distinct approaches.
Products are sold on Amazon via third-party vendors, typically without the brand owner’s explicit consent or knowledge!
Third-party listed products are not price-matched by algorithms
Products are made available to consumers without the brand owner investing in a trading relationship
No control over brand content on the site or the authenticity of the products themselves
Likely missing out on potential sales
Case study: Barbour
Barbour operates indirectly on Amazon, which gives them visibility if people search for the brand on the platform. Sales and content are controlled by the third-party sellers who list the products.
Many of the Barbour products listed on Amazon are not from the current season, which allows them to be visible, but keep a point of differentiation within their other online channels, including their website.
Products are sold directly to Amazon and delivered to their warehouses
Control of product content, images and descriptions found on Amazon, to ensure compliance with brand style guides
Significant flexibility to dial commitment up and down as the broader environment evolves
Products can get lost among the huge number of other products
If the business become very large, the ‘right’ to step back can become hard to exercise
Case study: Nike
Nike initially operated an indirect trading relationship with Amazon, focusing on developing direct sales from Nike.com. Nike lost control of how their brand appeared on Amazon, and they lost out to competitors who had a more evident proposition.
In 2017, Nike moved to direct sales and launched a Nike Amazon store. It focuses on a limited selection of non-premier product, delivering incrementality by offering products to a broad group of consumers without cannibalising the premium products on Nike.com.
View Amazon as critical part of e-commerce strategy. Invest in Amazon’s strategic vendor services, resource and media packages.
Stand to win a significant share of the category
Well positioned to benefit from Amazon’s continuing growth
Heavy dependence on Amazon can weaken your strategic position during negotiations
Can be harmful to relationships with long-established customers who view Amazon as a strategic rival—or existential threat
Case study: P&G
Procter & Gamble value Amazon as a key strategic partner and demonstrated so by overhauling the packaging of several notable brands to comply with Amazon’s strict shipping standards and being early adopters of the (now discontinued) Amazon Dash buttons.
The partnership has been successful with P&G brands best-selling in several categories – but it has caused friction with other customers – highlighting the risks of focusing too heavily on Amazon.
Visibility on Amazon
Whatever strategic approach a brand uses, there are critical steps to build visibility amongst the millions that are listed on the site. Strikingly, 80% of sales come from brands listed on the first page of results.
There are a number of ways to achieve these coveted placements. The most straightforward is to pay for it via Amazon search or Amazon media. Paying for Amazon search means that your products will appear as sponsored when certain key words are entered into the search bar.
Utilising Amazon Media Group involves paying for media features on certain parts of the Amazon ecosystem. This could range from a graphic banner on a category page to a campaign featured on Amazon Prime TV.
While paying for visibility on Amazon is effective, it is expensive, and there are alternative ways to grow the visibility of a brand, with lower costs.
• ‘Fixing the basics’ including images, naming convention and product description
• Running a short-term deal to be featured in the deals section of the website
• Growing the number of reviews of your product through sampling
Amazon is a major retailer, dominating the online retail market worldwide.
As online shopping continues to grow, brands that don’t devise a clear Amazon strategy will suffer. In the second half of 2018, Amazon overtook Google as an online product search destination. If your brand doesn’t have a winning Amazon strategy, it will not just be your sales that are impacted, but overall brand awareness as well.
Voice commerce is forecasted to disrupt future brand shopping and Amazon is leading in this space. The biggest risk here is the reduced reliance on the brand names themselves with shoppers saying, “Alexa, order toilet roll” rather than ”Alexa, order Andrex”. Brands which embrace voice commerce and develop their credentials alongside a leading retailer in this space, stand the best chance of benefiting from future growth in this area.
In summary, we believe that understanding Amazon, and the opportunity that it presents, is critical to a brand’s e-commerce strategy. As you grow on Amazon, it is important to continue to evaluate its role and how it complements your other e-commerce trading channels. Reach out to our e-commerce team at Metyis to gain a competitive advantage in leveraging your brand’s presence on Amazon.