Brands are feeling the pinch because Amazon now has a 49% share of the US e-commerce market, which will only get larger given its 29% growth rate (source). Three primary factors make life hard for Brands on Amazon:
- Amazon’s growth makes it almost impossible to ignore (and negotiate with);
- Amazon has a maniacal focus on Customer Experience (by customers they mean their shoppers, not you);
- Amazon is all about automation (yes, you just might be negotiating with a bot).
Look no further than the “The Amazon Flywheel” to see the basic schematic of Amazon’s incredible growth engine and the source of the pressure Brands are feeling. The Flywheel represents a virtuous cycle with a superior shopper experience as its linchpin.
We certainly don’t expect Amazon’s focus to shift its emphasis away from the Customer Experience. But as Amazon continues to experience outlandish growth, vendors on Amazon will continue to feel the pressure rise. That covers #1 - Amazon and the Customer (the shopper silly, not you) are in control.
WITH OR WITHOUT YOU
Now, onto #2! The virtuous cycle goes like this - A great shopper experience attracts more traffic (shoppers), which in turn brings in more vendors, thereby improving the selection available for purchase, which in turn enhances the shopper experience. Efficiently and continuously delivering a superior shopper experience at scale is therefore a maniacal focus for Amazon. Brands that fuel this shopper experience are rewarded disproportionately well, while brands that detract from the shopper experience stand to lose out. And we’re not just talking about the quality of your product detail pages. All Brands feel the pressure from Amazon to (continually) provide them with lower wholesale prices (which means tighter margins for you so Amazon can algorithmically offer better prices to power the flywheel), drive high sales velocity relative to competitors, supply ample inventory at all times, win superior product reviews, etc.
Failure to help Amazon in their quest means losing out, which often manifests itself indirectly as things like loss of the buy box to a 3rd party seller, and drops in product search rankings. From analysis of hundreds of brands on Amazon, we can attest that a sub-optimal shopper experience can result in up to 20% in lost sales. Ouch!
BRING IN THE BOTS
It’s also clear Amazon will continue to automate (everything). Which means it’s looking at a mountain of data from every SKU to understand which is delivering the best shopper experience. Amazon shoppers experience your brand by finding it through search, your placement in the Buy Box, your paid ads, price (of course), etc.
Amazon evaluates shopper experience via sophisticated algorithms that use 30+ variables and millions of data points from thousands of brands and 3P sellers. These include variables such as pricing, customer ratings, inventory, content, competition, profitability, conversion rate, search rank, advertising, etc. that help shoppers quickly discover what they are looking at the best possible price and level of service.
What this means is brands need to basically outperform other brands and 3P sellers across all these variables for all their SKUs in every category, not just one or a few of them. That’s certainly a big “ask” of any brand. How do you do battle with the Amazon “bots?” Well, you can either throw bodies and spreadsheets at the problem, or adopt your own automation strategy. Maybe it’s best to simply ask yourself, “What would Amazon do?”