9 MINUTE READ | July 1, 2019
4 Considerations for the National Brand and Long-Term Amazon Opportunity
“Amazon is not your compassionate, conscience-driven engine for general social good. It is an admirably dogged force for growth which has mercilessly ripped out the premiums charged by a range of categories from publishing, to groceries, to entertainment, much to the delight of their customers.
Many of the brands staggering in the wake of this juggernaut were beholden to some long-held beliefs about what people wanted that turned out weren’t sacred after all, not if they came at a price. If you have some rules that cost customers money and you aren’t prepared to find out just how important they really are to people, you should fear Amazon.”
Fern Miller, CampaignUS – February 12th, 2018
Over the last five years, “customers” was the most commonly used word in Amazon’s letter to shareholders, according to a study by Harvard Business Review in May 2019.
This piqued our curiosity around top brand vision and similar letters. We compiled data on a combination of the NRFs top 5 retailers and the top 3 global consumer brands. Out of this group of brands (using their most recent annual shareholder letters), only 1 brand had “customers/consumers” as the most common word and yet another brand made no mention of customers at all. In contrast, “growth”, “sales”, “company” were consistently at the top.
Half of these brands also consider Amazon their top competition. If there is even a slight absence of customer obsession in your communication and vision, then expect Amazon to chip away at your customer.
“Find out what you’re afraid of and go live there.”
Where to Start/Re-Start with Amazon
In most of the conversations we/I have with brands, the introduction of Amazon creates an inherent cringe from the brand stakeholder. Rightfully so as Amazon, in most cases, has done a pitiful job in developing relationships with their core or potential partners. It isn’t in them culturally. Mainly because the customer (and understanding their behavior) is Amazon’s advantage and its mantra. Don’t expect this to change in the near term.
In our experience, the challenges listed below are the most consistent brand concerns. It will be important for stakeholders to address each one, while it will be equally important to address the risk-based opportunity of launching on Amazon.
Grid outlining common challenges to Amazon
To begin, we recommend building a system to regularly police, update, and educate your stakeholder group on these core challenges which will most likely fill the “threat” side of your traditional SWOT scoring.
When shifting your perspective to understand your customer’s point of view, ask yourself if your customer frets about anything within the above set of concerns? Probably not. So with that in mind, you’ll soon realize that it is truly on you to figure out the right path to de-risking the collaboration between your brand and Amazon. An easier way to think of it is to not let your customer feel it by allowing for a poor experience as a result of the aforementioned challenges.
When planning your Amazon practice, remember that this should be a cross-functional team that includes input from five to eight stakeholder groups to ensure optimal representation across the aspects of your business that Amazon affects. Most large organizations with limited to no first-party product on Amazon are not equipped to launch today. With this in mind, know that this is not a recommendation to in-source a specific team for Amazon.
It will be critical to recruit and hire a team that has specific platform experience. Your practice should include people with experience in vendor / seller-side strategy, marketplace management and optimization, supply chain strategy, data and insights, and the Amazon advertising platform. The initial resource cost implications are notable although in most cases, the bottom-line revenue within 18 – 24 months will override the risk.
Organizationally, it will be important to get buy-in and input cross-department. In my experience, Amazon is initially a hot potato between groups. This materializes when a brand has experienced or is experiencing the scale of Amazon then again they may not be clear on the long-term risk or how to drive the relationship.
The below is an up-leveled view so tweak it for your org strategy. The key is that this is multi-departmental with ownership by eCommerce, wholesale, and marketing operations.
Chart outlining the recommended organizational structure to organizing an Amazon practice
Bring in a customer panel so you can better understand their feelings towards your brand on Amazon and their likelihood of shopping .com or Amazon (or both). Ask yourself: How does this benefit them in the long run?
I’ll answer for you because in short, they are. It has become critical for all brand teams to set up an insights platform that allows them to evaluate customer behavior, brand product trends, and reseller performance on the Amazon marketplace. As an Amazon customer, you are able to glean a tremendous amount of insights from its reporting platform (with a grain of salt, of course) albeit this is not available to non-partners. That said, the space is crowded with software to help solve these specific insight requirements.
Our recommendation: Choose carefully but don’t over-evaluate. Most external reporting tools at this point are scraping Amazon versus having a direct integration so your team should use this data directionally.
Pro-Tip: No single-tool will answer every question. Budget for multiple partners.
Run a 25+ person usability and behavioral test on and off Amazon with the intent of finding out a customer’s path to purchase and search style.
In a blue-sky approach, what would you want out of Amazon given there was no risk? We believe that Amazon will need to play a high % role for most consumer brands within the next five years. Think about your world in 2004 when Google began to accelerate and the decisions that were made to de-risk or ride its growth. If you build the right strategy around this particular objective, then you could expect multipliers on growth within the channel. The more significant impact is the long-term access to the brand.
At PMG, our focus is on supporting the national brand with good customer awareness. These brands share an audience with the 320 million Amazon shoppers that are in the market and searching for a national brand. The challenge is that many of these brands are non-existent on Amazon, so the customer moves onto something similar or drops out of the shopping experience.
Many midsize brands depend on Amazon to be the majority of its online makeup (top line revenue); nonetheless, the marketplace is more suited for this type of business. That said, national brands (not currently on Amazon) have an innate challenge of education, speed, margin risks, and projecting out unit sales on Amazon.
Chart outlining estimated Amazon sales growth in relation to total eCommerce
There will be some cannibalization as the % of total grows although we have found that the Amazon audience behavior is incremental to most national .com gross unit sales. Since Amazon keeps this audience data tight, it would be advantageous to do a 3rd-party study at the onset and again every two to three years to reset benchmarks (e.g. Millward Brown).
Customer’s appreciate collaboration and ease of use. They also appreciate exclusivity, brand mission, and speed. Ensure your Amazon approach is as transparent as your .com.
Brands should begin to use Jeff Bezos’ approach to organizing their time. According to a recent talk at the Yale Club in New York City, Bezos pushes his team to be actioning and planning for Q2 2021 or Q4 2022.
Don’t hide. Amazon already knows your customer. Most likely, Amazon already knows their behaviors better than you do. Use their audience insights to help drive growth in the rest of your business.
70% of your potential Prime customers shop on Amazon because of Free, Expedited Shipping vs. 60% of non-Prime; while Prime members also consider expedited shipping 26% more than non-Prime shoppers.
If you bucket Amazon as a marketing line-item which typically means marketing- and finance- owned initiatives, then you will lose on Amazon. Ensure that your eCommerce, merchants, finance, marketing, and data science teams are all stakeholders.
Force a top-to-top session between your leadership team and Amazon. This should be on Amazon’s campus (they have limited travel budget) with your potential category leadership, account manager, and auxiliary team. Use this time to set expectations and begin the scope of terms.
Find a way to offer 1-day shipping by 2022. If applicable, create a lightweight fulfillment innovation group made up of single stakeholders from 1st-party logistics (1PL), eCommerce, packing/design, and outside 3rd-party logistics (3PL) expertise.
Continue to spend time educating your team on the potential of having an Amazon practice. What would you do if there was half the perceived risk on launching a product set on Amazon? How would that change your strategy and eyes on growth. This isn’t an easy road to growth, and it will be a critical market for you to understand, especially by finding ways to uncover audience opportunity and growth. National brands and Amazon will continue to find ways to build together, so prepare for a few meandering headaches with the expectations of a happy customer.
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Posted by Price Glomski
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