There is no question that COVID has accelerated the shift towards ecommerce. In April 2020, the sector showed 209% growth according to an analysis by ACI Worldwide.
2021 is set to be an even bigger year for Amazon. Amazon’s profits have continually come in higher than expected, and brands are rightfully looking at the platform to build online traffic and sales.
For brands new to online sales, Amazon offers relatively easy entry to a ready-made online platform — along with excellent fulfillment and logistical services. For brands already well-versed in ecommerce, Amazon provides reach to new customers and unique advertising opportunities that no brand can afford to leave untouched in 2021. It’s worth noting that many customers now visit Amazon to do product research and browse. In fact, (by a plurality) Amazon is the most common starting point for US internet users digitally shopping for a product — making it the go-to platform for browsing and product research.
Although Amazon makes getting started as easy as possible, the reality is that becoming an Amazon-ready business requires developing an Amazon-specific way of understanding your competitors, your customers, and your products. Your competitors off-Amazon often aren’t your closest competitors on Amazon — even compared to other ecommerce channels because of Amazon-native brands.
The main focus of this article is about making business-level decisions and planning. It will cover how to organize and structure your business to take advantage of Amazon's unique nature and opportunities. Let’s get started!
Additional reading: When it comes to selling on Amazon, the devil is in the detail. If you want to dig deeper – we can recommend some additional reading once you’re done with this article:
- Mastering Amazon Brand Analytics: This ebook is a deep-dive on how to use Amazon’s main analytics reporting tool.
- FBA vs FBM: This article provides an overview of the fulfillment options available to Sellers.
- Amazon pricing strategies: This article explains the main Amazon pricing strategies, and how they can be deployed to best effect.
Step 1: Seller vs Vendor — make a decision
The first choice that anyone new to Amazon merchants must make is whether or not to become a 1P Vendor or 3P Seller.
- Vendors: As a Vendor, you will be selling wholesale to Amazon. This means a simpler process, but provides limited control and lower profit margins. It’s also easy to underestimate the logistical challenge of being a Vendor.
- Sellers: As a Seller, you remain in control of your listings and are selling your products directly to customers via the Amazon marketplace. You are enabled to set your own prices, but are directly responsible for customer support and other customer-facing details that Vendors have effectively outsourced to Amazon.
Your entire relationship with Amazon will be different depending on the choice that you make, and it can be hard to change strategies once underway. Take this decision seriously.
Strategies to help
As a Seller, you have more control, can collect more data, and drive higher margins. Amazon can also be very demanding regarding logistics, and becoming a Vendor isn’t always as straightforward as would be ideal. You need a robust supply chain and the ability to maintain stock levels to be a successful Vendor — but these are challenges that Sellers have as well.
Fundamentally, the right choice likely comes down to the DNA of your company. If you’re used to selling wholesale, and are structurally and culturally set up to do that, it’s probably better to become a Vendor. If you’re used to being customer-facing, being a Seller will be the more natural fit.
The percentage of sales on Amazon facilitated by Sellers has continued to grow, and now represents nearly 55% of all sales of the platform. A lot of the more detailed advice this article will provide from this point on is more applicable to Sellers than Vendors, but the broader points are valuable to both.
Step 2: Embrace agility and granular thinking
Ecommerce demands agility to reap rewards. The amount of data feedback, automation and personalization available online increase your ability to react at speed — and the benefit of doing so. You need to think on a product-specific and platform-specific basis, and plan on a granular level.
A big shock for brick-and-mortar stores just starting out online is wrapping their head around who their competitors actually are. Dealing with search algorithms means that your products are always placed next to the most relevant competition — rather than brands. The product-specific nature of competition on Amazon is further heightened by the way most consumers use the platform — using generic search terms rather than branded ones.
Strategies to help
In order to succeed on Amazon, you will likely have to change the way you work internally.
- Do your functional leaders meet every day. Are you making strategic decisions every day — rather than every month?
- You will need to design and deploy innovations far more rapidly — both externally and internally.
- It’s critical to break internal silos and form cross-functional teams to get the job done.
Organisational communication is critical. For example, marketing needs to know what’s happening with inventory and logistics in order to ensure effective PPC targeting and organic ranking — e.g. if you are going to run out of inventory, there’s no point carrying on advertising.
Starting slowly is advisable. List one or two of your products on Amazon and see how it goes. If you upload your entire product portfolio, you could very easily create a logistical nightmare that is challenging to resolve.
Use analytics tools: Online sales and Amazon analysis tools can help you better understand your customer (using Customer Lifetime Value, for example) and target them more effectively. You can use the vast amount of data from Amazon to quickly see what works and what doesn't on an amazingly granular level. Amazon's data is second to none — and you need to exploit it to the full.
Build a brand: Amazon can be considered as more of a bazaar than a shopping mall. The danger is your brand and brand values can be watered down by appearing next to potential fly-by-night Sellers. Amazon has been trying to play down this wild-west image by encouraging brand registration and offering brand-specific advertising and storefronts. These are worth exploring as a means to differentiate on Amazon and maintain brand control over your offerings.
Step 3: Develop Amazon expertise
Amazon is a unique platform, with unique reporting functions, listing requirements and taxonomy, ad types and more. The first requirement when starting on Amazon is in-house platform expertise. If you don't have someone who already has a good grasp of Amazon's specifics, like how to win the Buy Box or optimize search terms and listings, you should hire one.
If you are not familiar with PPC on Amazon (Google experience does not transfer well), Amazon Demand Side Platform (DSP), or FBA vs FBM — you will need to bring in outside expertise to get up to speed fast.
Strategies to help
Managed services and self-service tools come into their own here. They enable you to:
- Make the most of your customer analytics: Amazon provides rich data on customer personas and buying habits – analytics software can fill the knowledge gaps and provide surprising insight.
- Review your advertising strategy: Amazon is rapidly gaining ground on Facebook and Google and is expanding its advertising both on- and off-Amazon. To be Amazon-ready also means understanding where Amazon is going as an advertising platform, and having expertise on how to optimize your use of the existing ad types.
- Restructure your organization: The right advice can help you look into how your existing fulfillment and distribution will be impacted and see where there are synergies with Amazon (for example, to be able to provide Seller Fulfilled Prime if needed).
Fundamentally, you need to spend the time necessary to learn the levers available to you as a Seller on Amazon, and then use them to your advantage. Although you can do that yourself, help is available in the form of both on-demand expertise and cloud-based tools that can give you an edge. Particularly when it comes to PPC, the value of making the right targeting and bidding choices can mean the difference between growth and profit loss. Get in touch if you want help optimizing your campaigns.
Step 4: Align Amazon with your wider business strategy
As you move to Amazon, you need to plan how your sales and logistics KPIs are captured and integrated into your wider business systems.
You will have one crucial decision to make – how much do you consider Amazon as a silo in your operation, and how much can you integrate with your existing way of doing things? It's critical to think about how your different touch points will interact with each other.
As well as looking at the impact on logistics and customer service, consider advertising and marketing implications. Remember that when selling on Amazon, you don't own the customer. The only customer marketing data available to you is provided by Amazon. This is why you need to consider your off-Amazon channel strategy very carefully.
Generally, the more you can direct customers to your own website, the better. But it can come at a cost. People like buying from Amazon because it's straightforward. Consumers are already committed to Amazon. They appreciate not having to re-enter card details, and find comfort in the platform's familiarity — not to mention delivery and security perks. There are now more than 100 million Prime subscribers in the US alone.
Strategies to help
There isn’t a right answer regarding the best way to align Amazon with your wider business. Well-established brands are likely to find it easier to drive a thriving off-Amazon (D2C) sales strategy. However, your specifics will always matter.
Particularly for brands that are reliant on Google and Facebook ads, there actually is an economic case for doubling down on Amazon. Conversion rates for Amazon PPC average around 10%, compared to 1-2% for D2C. Cost-per-click (CPC) is also, on average, cheaper on Amazon. You need to pay a 15% fee to access these advertising options, but you can see why it’s an attractive option.
With that said, what’s important is that you gain the visibility required to make informed decisions, and ensure smooth supply chain operations. It’s critical to understand which products are selling, at what volumes, and to which customers — across your entire business. Even if you direct all non-Amazon advertising away from your Amazon listings, you still need to incorporate your Amazon sales and customer data into your broader business planning. Your ability to do this comes down to having the right tools and organising your business in such a way that the right data is being used when making strategic plans.
Pro tip: One compromise strategy is to only sell product bundles on Amazon, and the individual products on your own website. This allows you to gain visibility on Amazon, but also helps indirectly direct users to your own website in order to buy exactly what they want.
There is no doubt Amazon is going to play an increasing role in online shopping. Every business will have to develop a clear vision of the role Amazon plays in its future. As we've discussed, there are significant pros and cons to working with Amazon.
The key is balance. Every business has to optimize and tightly control its operations. At the same time, every company must innovate. Third-party tools and strategic partners can help with heavy lifting. Keeping the balancing act tipped in your favor is much easier with state-of-the-art data analysis, AI and the right analytics software,
Full disclosure: As well as providing Amazon consulting and managed PPC services, we are an Amazon analytics software provider. Our product, Nozzle, combines AI and Amazon data feeds to provide contextual information about your competition, customers and trends — helping you jump from data analysis, straight to data-driven action.
How you become Amazon-ready really depends on where your business is coming from. Embrace data analytics, track results in real-time, and generate actionable insights. Do this, and you stand the best chance of being Amazon-ready and, more importantly, staying one step ahead of growing ecommerce competition.
2021 is going to be an exciting year online. For more information on us, check out our blog — 4 Things Nozzle Has to Offer.
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