Many aspects of the digital world are dominated by a single giant: Google dominates search, Facebook dominates social, and of course, Amazon dominates e-commerce. For the vast majority of brands, walking away from the giants simply isn’t an option … so digital success means dancing with these giants more effectively.
For most brands, particularly in consumer packaged goods (CPG), walking away from Amazon simply isn’t feasible. They’d lose the benefits of Amazon’s wide reach and access to customers they wouldn’t otherwise get. Moreover, “walking away” from Amazon generally doesn’t mean having zero presence there; it means allowing resellers to control your pricing, customer service, counterfeit control, and overall brand experience. Even while maintaining a presence on Amazon, many brands would prefer their sales to be direct to consumers (DTC), strengthening both profits and customer relationships, and it’s into this direct channel that CPG categories with no history of DTC are now forging (often via subscription models such as Dollar Shave Club). Balancing direct sales with an Amazon relationship is a delicate balancing act indeed. It’s dancing with a giant.
As a result, brands are increasingly revisiting their relationship with Amazon. Walking away isn’t an option for most, although Birkenstock is apparently going to give it a try. Conversely, long-time holdouts such as Nike will now begin selling on Amazon. Ikea’s position about selling on Amazon? It has gone from a long-standing “no” to a short-lived headline-inducing “yes” and then to a “no but sort of”… all just this summer. While brands strive for direct sales, so is Amazon … by becoming a manufacturer and brand owner as well as a distribution channel. Its Amazon Basics brand has quietly put them at or near market leadership in traditional CPG categories as diverse as batteries and baby wipes, not to mention flashier plays (buying Whole Foods Market and launching luxury apparel line “The Fix”), as well as apparently owning a variety of secret brands which hide their membership in the Amazon empire.
In an environment of turmoil and change, here’s a three-step process for dancing with giants like Amazon most effectively:
1. Stop flying blind. Most CPG brands have a surprisingly limited understanding of where (and at what prices) their products are sold; information about competing brands is even harder to come by. It has been said that brands often get checks, but not information, from retailers. This lack of visibility was true in the pre-Internet era, when CPG brands had to rely on data from in-person retailers, and it is even more true today. A comprehensive digital search often turns up hundreds or even thousands of sites selling their product, often via resellers (and at prices) of which they were unaware. Knowing the “lay of the land” is crucial before negotiating new deals with giants. Brands must stop flying blind, and comprehensive market intelligence is a must.
2. Go behind the veil. These days the real retail action takes place on Amazon. There has been a paradigm shift in search, from offsite to onsite, and if you don’t have data on how consumers are searching for your category or brand on Amazon, then you are only seeing the tip of the iceberg. Research in 2016 by BloomReach found that 55% of Americans start their shopping searches on Amazon, up from 44% a year before; in contrast, only 28% (and falling) start at a traditional search engine. In many CPG categories, onsite search is even more critical. An analysis by SimilarWeb found that in Q1 2017, about 15,000 traditional (i.e., search engine) searches for “toilet paper” sent consumers to Amazon, but there were 860,000 searches for the same term on Amazon — that’s 57 times more onsite than traditional searches! Amazon has begun making some onsite information available, but many consider it expensive and incomplete (particularly in terms of competitive insights). Without seeing behind the veil, you are on the losing end of information asymmetry and at a disadvantage in any negotiation.
3. Quantify conversion. Search is important; conversion is crucial. Obviously actual purchase is where the retail rubber meets the road, and purchase data is perhaps the hardest to obtain. Precious few brands can answer key questions such as: What percent of your visitors purchase on your site, and which traffic sources convert best? How do your conversion rates across channels stack up to your competitors? And perhaps the biggest lost opportunity: What percent of your visitors start on your site, and then go buy your brand on Amazon? The challenge can be daunting. BloomReach found that 90% check Amazon before making a purchase. One specific example: a SimilarWeb analysis of Bose headphones found that consumers who visited Bose.com and Amazon.com on the same day were six times more likely to purchase on Amazon than on the Bose site.
The optimal strategy ultimately depends on the answers to these questions. Some brands strive for the best of both worlds, having a portion of their portfolio available on Amazon to capitalize on the large audience there, but keeping some high-profile (and high-profit) products on their own site, to provide motivation to visit there. Nike’s strategy is similar, and their decision to begin selling on Amazon was fueled by a desire to tap Amazon’s audience, to control quality, and strengthen their ability to sell directly to consumers (as part of an initiative to they called “Consumer Direct Offense”).
The bottom line: For the vast majority of brands, walking away from Internet giants simply isn’t feasible — digital success will come from using market intelligence to learn how to dance with giants like Amazon more effectively.