The news of Amazon’s purchase of Whole Foods rocked both the financial and retail industry and I believe it lends to what should be a healthy discussion about this retail giant.
While it seems easy to place Amazon as public enemy number one for the retailers who directly compete, it is not fair to take the broad stance that Amazon is the common enemy to all retailers.
Instead, it is a “Frenemy”, although you might not love all they do and perhaps even feel threatened; there are positives to consider. Amazon should be a consideration for every omni/multi-channel strategy as one piece of the larger puzzle and simply another potential channel to drive incremental sales and traffic. This way of thinking is evidenced by Nike’s announcement last month that they will officially beginning selling on Amazon and is also consistent with statements made last year by Gap CEO Art Peck when he said “to not be considering Amazon and others would be in my view, delusional”. This viewpoint also aligns with what many brands and retailers are requesting from their agencies.
This is by no means a universal statement that Amazon is right for every business, there are in fact many physical factors to consider such as margins, shipping cost, data distribution, operational preparedness, and perhaps most importantly, the impacts on the brand. There are also digital marketing metrics such as ROI, customer acquisition cost (CAC), and lifetime customer value (LCV) to consider when deciding whether Amazon is a worthwhile venture.
For early stage startups, Amazon can be leveraged for their expansive customer base and traffic which allows you to gain exposure and drive sales much quicker and potentially much more effectively than other paid channels. For most product categories, Amazon charges 15% of the sale price, but they also process the order and cover the credit card fees, effectively reducing the seller fees to 12-13%. So, if marketing channels such as Google Product Listing Ads (PLAs), PPC, and re-engagement campaigns are averaging less than an 8:1 ROI (equivalent to the Amazon marketplace seller fees), Amazon could be even more profitable than these digital marketing activities.
Even for mature businesses, if a large majority of customers are not returning to your website directly, and instead are visiting through paid media channels, Amazon could be an excellent option as a pay for conversion model. According to a recent Statista survey, today’s customers are over twice as likely to begin their product search on Amazon as compared to in-store, directly at a retailer’s website, or even on Google.
There are also disadvantages to Amazon – Amazon doesn’t share the customer’s real email address, only providing retailers an anonymized version, so you don’t own all of your buyer’s information. However, you do have options such marketing to the customer through packing slips and box inserts, encouraging them to return directly to your website for the next purchase. Strategizing how important collecting the email address is to your overall strategy would certainly be something to weigh against incremental sales through a marketplace.
Another major concern for brands and manufacturers is channel conflict, how selling on Amazon could affect or disrupt relationships with your retailers and channel partners. Careful planning and consistency of pricing will help to mitigate challenges and avoid disruptions.
Sell easily reproducible, commoditized products? Amazon shows no signs of losing focus on their burgeoning private label business, so expect the behemoth to compete directly against you or even copy your product. Well established, ubiquitous brands and products not easily genericized, like Nike shoes, have little risk. But in category groups where customers shop more by form and function, like bed sheets, Amazon already has the manufacturing and distribution channels to produce their own 700 thread count Egyptian cotton sheets cheaper, and then promote and give prominence through their own website’s search, navigation, and promo banners.
But it doesn’t have to be an all or nothing approach. Sophelle helps retailers create compelling customer experiences in stores, online, and throughout the customer journey and we can work with you to create a marketplace channel strategy best suited to selling on Amazon or any other digital channel. Whether it be private label, overstocked or distress merchandise, we can evaluate your entire catalog and create a winning strategy for working with, or perhaps against your new frenemy. To find out more about Sophelle, please contact us for more information.
Contributed by Tim Henderlight