Tactics for Brands to Succeed on the Amazon Platform

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For any brand doing business online, the world’s largest retail platform, Amazon, is an essential part of the e-commerce strategy. But at the same time, many brands find themselves lost on Amazon, and as a result, they are unable to realize the benefits of their investments. Alex Taylor, Principal at Metyis, shares several tactics for brands to successfully engage with Amazon.

Amazon’s “flywheel” – a model first sketched out by Jeff Bezos 20 years ago – is the key to Amazon’s success. It assumes that the customer experience is the most critical aspect, and goes from there.

To provide customers with a great experience, you need competitive prices and a wide selection. For low prices you need an inexpensive structure and for a varied selection you need lots of sellers – which means you’ll need lots of traffic. Bundled together, this generates the growth that keeps the flywheel spinning.

But the success of brand owners depends on incrementality. The massive number of buyers on the Amazon platform certainly makes it attractive, but before deciding whether (and how) to launch, brands must focus on the quality of sales they will generate. Will the sales really be incremental or simply shifted from other channels? Will the pricing and transparency provided by Amazon impact their ability to earn margins on other channels?

Four levers to increase sales while protecting the company

To drive incremental sales while protecting existing business, brand owners should focus on four levers:

  1. Leverage their competitive portfolio of brands to decide on the right product line for Amazon. These offers may include niche brands that are not widely listed elsewhere and will be less affected by Amazon’s price matching algorithm;
  2. Use product variations: unique package sizes (or colors or flavors) to provide better value without triggering price responses from other retailers. Considering big packs that aren’t attractive to physical retailers but more convenient for delivery can be useful here;
  3. Selecting the correct channel. Amazon offers a range of different channels that cater to different needs;
  4. Use Amazon as an innovation platform with mass reach and ease of purchase from day one of launch.

Amazon Channels

Example: Innovation on Amazon
Johnnie Walker has launched “Johnnie Walker White Walker” in partnership with Game of Thrones, exclusively on Amazon. A strong online PR launch enjoyed extensive online coverage accompanied by a clear call to buy on Amazon. This illustrates how a brand can benefit from partnering with Amazon in an innovative area. “Johnnie Walker White Walker” quickly became the number one bestseller in the Grocery category thanks to this targeted launch.

Amazon’s Algorithm

Amazon’s pricing algorithms and aggressive business approach are significant risks to manage.

Amazon’s pricing algorithms aim to ensure that no product sold directly by Amazon is more expensive than the lowest online retail price, including promotional prices. This is great for consumers looking for the cheapest price available anywhere online, but not so great if you’re a brand owner looking to manage your margin tactically throughout the year through to a series of promotional and non-promotional periods.

If your product is on sale somewhere, Amazon’s algorithm will detect it and this will become the maximum price displayed to shoppers on the Amazon site. This triggers a difficult conversation for an account manager to explain to existing customers how promotional pricing that only runs for a limited number of times is constantly available on Amazon.

Amazon takes a long-term view of price economics. Ensuring that products sold directly by Amazon offer the best value available online keeps the wheel spinning. Amazon accepts that many of the sales from equally priced products may be loss making in the short term. This becomes exaggerated when Amazon enters a new category, as 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 to pay to position yourself in a new category.

However, brands need to think long term. Once a category has been developed by Amazon, as sales of associated brands become significant, operating within Amazon’s framework becomes more difficult due to large investments in price improvement and marketing expenditures. Brands have the choice to walk away from large volume or accept the high levels of investment required by Amazon.

Some brands choose to walk away. PopSockets – a popular brand of cell phone accessories – is a notable example, but most find it difficult. To manage this risk, brands need to plan ahead and have a clear vision, backed by best practices, if they want to engage with Amazon in the first place.

Choose how to engage

Amazon’s flexible model makes it difficult for brand owners to prevent 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 must choose between three largely distinct approaches:

1. Indirect trade
Products are sold on Amazon through third-party vendors, usually without the explicit consent or knowledge of the brand owner.

Advantages
Products listed by third parties are not priced by algorithms. Products are made available to consumers without the brand owner investing in a business relationship.

Risks
No control over the content of the brand on the site or the authenticity of the products themselves. Probably missing potential sales.

Case Study: Barbour
Barbour operates indirectly on Amazon, which gives them exposure if people search for the brand on the platform. Sales and content are controlled by the third-party sellers who list the products. Many Barbour products listed on Amazon are not from the current season, allowing them to be visible, but retain a point of differentiation within their other online channels, including their website.

2. Direct trade
Products are sold directly to Amazon and delivered to their warehouses.

Advantages
Control of content, images and descriptions of products found on Amazon, to ensure compliance with brand style guides. Significant flexibility to increase and decrease engagement as the environment evolves.

Risks
Products can get lost among the large number of other products. If the business becomes very large, the “right” to step back may become difficult to exercise.

Case Study: Nike
Nike initially had an indirect business relationship with Amazon, focusing on developing direct sales from Nike.com. Nike lost control of how its brand appeared on Amazon, and they lost out to competitors who had a more obvious proposition.

In 2017, Nike moved to direct selling and launched a Nike Amazon store. It focuses on a limited selection of non-premium products, providing incrementality by offering products to a broad group of consumers without cannibalizing premium products on Nike.com.

3. Strategic Partner
Think of Amazon as an essential part of e-commerce strategy. Invest in strategic vendor services, resources and media packages from Amazon.

Advantages
Stand to win a major share of the category. Well positioned to benefit from Amazon’s continued growth

Risks
A heavy reliance on Amazon can weaken your strategic position in negotiations. May damage relationships with long-established customers who see Amazon as a strategic rival – or an existential threat.

Case Study: P&G
Procter & Gamble views Amazon as a key strategic partner and has demonstrated this by revising the packaging of several notable brands to comply with stringent Amazon shipping standards and being the first to adopt the (now discontinued) Amazon Dash Buttons ).

The partnership has been successful with top-selling P&G brands across multiple categories – but it has caused friction with other customers – underscoring the risks of focusing too much on Amazon.

Visibility on Amazon

Regardless of the strategic approach a brand uses, there are essential steps to building visibility among the millions of people listed on the site. Amazingly, 80% of sales come from brands listed on the first page of results.

There are several ways to obtain these coveted placements. The easiest way is to pay for it through Amazon search or Amazon media. Paying for Amazon search means your products will appear as sponsored when certain keywords are entered into the search bar.

Using Amazon Media Group involves paying for media features on certain parts of the Amazon ecosystem. This can 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’s expensive, and there are other ways to increase brand visibility for less.

These include:

  • ‘Fix the basics’, including images, naming convention and product description
  • Execution of a short term offer to be featured in the offers section of the website
  • Increase the number of reviews on your product through sampling

The future

Amazon is a major retailer that dominates the online retail market worldwide.

As online shopping continues to grow, brands that don’t design a clear Amazon strategy will suffer. In the second half of 2018, Amazon overtook Google as the online product search destination. If your brand doesn’t have a winning Amazon strategy, it won’t just be your sales that will be impacted, but also your overall brand awareness.

Voice commerce is expected to disrupt future brand purchases and Amazon is leading in this area. The biggest risk here is reduced reliance on brand names themselves, with shoppers saying “Alexa, order toilet paper” rather than “Alexa, order Andrex.” Brands that embrace voice commerce and grow their credentials alongside a leading retailer in this space have the best chance of benefiting from future growth in this space.

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