The Impact Amazon Has (or Soon Will Have) on Your Brand: Do You Have a Plan? A strategy along the lines of "If you can't beat 'em, join 'em" may be your best move.
By Joseph Hansen and James Thomson Edited by Frances Dodds
Opinions expressed by Entrepreneur contributors are their own.
Do you remember when Amazon was small enough that brands could safely ignore the channel? Those days are long gone, of course, yet too many brand executives are still playing catch-up.
Related: 7 Pitfalls to Avoid When Launching on Amazon (Infographic)
"Catch-up" in this regard means implementing a strategy that capitalizes on the opportunities the Amazon channel provides but also protects the brand from what Amazon has become: Through its efforts to improve sales, search, advertising and product development, Amazon now has substantial influence over how products are discovered, evaluated, purchased and improved. (Full disclosure: We're well versed here because our business enables brands to build direct-to-consumer businesses on Amazon).
While Amazon is predominantly known as an online company, its ability to influence each of these areas has created the following challenges and opportunities for brands across both their online and offline channels:
Sales
Most of us think of Amazon as a place to buy stuff. And it's true that through millions of sellers, including Amazon itself, the marketplace offers customers hundreds of millions of products. But, because Amazon is an open marketplace, it puts few limitations on the types of price competition that develop when sellers seek the same customers for their individual products. In this free-for-all, price degradation can occur, accelerated by four key Amazon activities:
- the company's constant search for lower prices on thousands of other sites (which Amazon then usually matches)
- Amazon's willingness to accept very low margins on product it sells itself
- the company's desire to carry key brands, even if that means buying them through alternative sourcing channels or selling them at a loss
- Amazon's willingness to accept lower margins on products sold through its own first-party business rather than through the network of third-party sellers -- all so Amazon customers get the best shopping experience.
While brands may seek to limit who sells on Amazon, the open nature of the marketplace actively fosters the invitation for diverted, gray market products to surface (meaning products sold by resellers that the manufacturer doesn't recognize, and whose identity may actually be disguised, because they're breaking the terms of a contract).
These products are usually sold for something below a brand's desired minimum advertised price (a.k.a., MAP policy). Furthermore, many Amazon resellers operate using disguised "doing business as" names, making it harder for brands to enforce distribution agreements.
As Amazon improves its products through its Prime and Prime Now programs, the previous distinction between brick and mortar stores and Amazon -- in terms of convenience -- is quickly disappearing. The reason for this is Amazon's ability to deliver directly to customers' addresses, often within an hour. That means that Amazon can compete aggressively with stores, even when it comes to customer impulse purchases.
Related: 4 Ways Omni-Channel Retailers Can Step Up Their Shipping Game
How your brand executive team can respond: Implement and enforce an online reseller policy with language forbidding distributors from reselling/diverting inventory to unauthorized resellers. This will help your brand to better control who represents the brand on Amazon, and how much price degradation occurs.
Branding/search
According to BloomReach's 2016 survey research, 55 percent of product searches in the United States start on Amazon.com, while 28 percent start on search engines like Google.
Because significant portions of the top Google listings are Amazon-product listings, it's difficult to ignore how important it is for Google to control, optimize and police its content in the Amazon catalog -- even if the search engine doesn't seek to use Amazon as a sales channel.
Furthermore, Amazon listings populate the majority of price-comparison shopping sites, while websites participating in Amazon Associates' affiliate program are expanding the exposure of Amazon catalog content still further across the web. Even for brands that have their own B2C websites, the magnitude of Amazon traffic overwhelms any other website's ability to outrank most Amazon content organically.
Any brand that anticipates that its products will show up eventually on Amazon, then, needs an actively managed content strategy that ensures that correct and complete product information is loaded and secured in the Amazon catalog. It's simple reality that Amazon's open marketplace allows practically anyone to create new product listings.
Given how Amazon's open marketplace allows practically anyone to create new product listings, it's up to the brand to ensure that its content is accurately loaded on a timely basis. Otherwise, some random reseller may create a product listing on Amazon that does not align with the brand's standard messaging used on all of its other online and offline channels.
How your brand executive team can respond: Your brand needs to load its optimized catalog onto Amazon.com, and monitor it to make sure your brand content continues to be represented accurately.
Advertising
Listen up, brands! Amazon competes with you on Google. Amazon competes with you in display advertising. Amazon competes with you in retargeting.
The fact that your products will almost certainly show up on Amazon means that Amazon now has the incentive to sell your brand, even if that means increasing the cost of advertising for everyone else through increased competition.
Given Amazon's traffic volume, its fair share of advertising budget will outpace practically any brand's total advertising budget. Recently, the company started buying premier advertising inventory on other websites, allowing it to retarget Amazon customers to come back to Amazon to buy those products that the customers didn't buy on the first visit.
How your brand executive team can respond: For firms already spending online ad dollars with Google and/or Facebook, it is important to evaluate where Amazon advertising options fit into ad budgets.
Product development
The sales of Amazon's own private label products are booming, as the company leverages its enormous database of customer search and purchase behavior to locate the product gaps it can fill with its own low-margin, lower-priced brands. Amazon can then promote those overlooked products through access to the Amazon.com merchandising real estate and targeted-customer email lists it already controls.
National brands should be particularly worried, as Amazon continues its quest to locate which nationally branded products are tied to repeat purchases or visits to Amazon. This data only motivates Amazon further to own the products that customers are seeking as part of their repeat purchases.
Further complicating the issue are the armies of private label brands that exist predominantly only on the Amazon channel: These are usually brands run by third-party sellers that have figured out how to win on Amazon; they analyzed sales and feedback data of other products to find product gaps, then had product overseas, and finally applied proper account management and effective advertising to build successful Amazon brand businesses.
We have seen many large consumer-packaged goods firms find their Amazon channel sales stagnate on account of the advancement of these smaller private label brands, winning "the Amazon game" through better channel knowledge than the national brands.
How your brand executive team can respond: The fast-evolving pace of changing customer preferences online is requiring brands to expand their product selection, to keep up with shifting customer trends. Brands will need teams to pore over online sales and review data looking for their own product gaps.
En route, those brands should consider building products whose sales targets are lower than those in traditional brick-and-mortar tcontexts.
Related: 11 Strategies for Optimizing Your Amazon Product Listing
In sum, as all of us consider the breadth and development of Amazon's marketing tentacles,it's clear that every product brand needs to build out a team of individuals skilled in the ways of Amazon. Brands should also consider how their actions in other channels will be used against them on the Amazon channel by the many opportunists today calling the Amazon channel home.
