“Your margin is my opportunity” may the most influential quote of the internet era.
Even as revenues soared quarter after quarter, profits flatlined. And yet, Amazon kept finding opportunities to translate Bezos’ quote into reality.
With Amazon accounting for a staggering 49% of the US eCommerce market, it’s delayed gratification writ large. But that’s just one of many impressive stats:
- 197 million people from around the world visit the site each month
- 95 million Prime members in the US spend $1400 every year
- 90% of shoppers use Amazon to search for a product after seeing it on other sites
And if you think Amazon is going to stop after cornering a near majority of the online market, think again. At an all-hands meeting last November, Bezos replied to questions about the company’s future, saying:
“I predict one day Amazon will fail. Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years… If we start to focus on ourselves, instead of focusing on our customers, that will be the beginning of the end.”
This growth-oriented paranoia, while great for Amazon and shareholders, signals turmoil for everyone else.
If you’re an eCommerce company of any size, how to survive and thrive in the shadow of the beast? There are three options.
1. All eggs in the Amazon basket
Baby diapers are a tough market to enter. First Quality, a small diaper manufacturer, did not feel like it could beat the competition. So, it collaborated with Amazon to create an Amazon-exclusive brand: Earth+Eden.
Within a few weeks of its launch, sales increased threefold.
Joining the Amazon Exclusives program can be a substantial win for companies. These companies pay Amazon 5% of sales revenue and can expect:
- Better counterfeit protection (through Project Zero and other initiatives)
- Dedicated branding and advertising consultants
- Access to special promotions
- Automatic Fulfilment by Amazon (FBA) designation
- Automatic qualification for Prime delivery
According to Retail Dive, there are currently 223 brand partners in the Amazon Exclusives program. Most of the products are in the food, health care & beauty, and household goods categories.
Amazon Exclusives is an invite-only program. And being an Amazon Exclusives brand doesn’t mean you can relax. If your product gets traction and is a demonstrated winner, Amazon might copy it and launch it as a private label (it already has 119 of these).
In the case of diapers, Amazon already owns the Mama Bear brand, and according to One Click Retail:
“In the Q2 2018… smaller brands like Honest Company and Bambo Nature were at risk of losing out to Mama Bear. As of September, Amazon’s private-label controls the largest market share of the three brands, beating them with their significantly lower per-unit price ($0.18 for Mama Bear vs. $0.27 for Honest Company vs. $0.34 for Bambo Nature).”
One way to firewall yourself against Amazon’s predatory tactics is to bake a strong and unique brand into your Amazon presence. Buzzfeed, for instance, has its main store on Amazon where it sells uniquely branded merch like T-shirts and sweatshirts.
These designs are trademarked by Buzzfeed with on-brand captions and graphics, which Amazon cannot replicate in a private label.
2. Hedging your bets on Amazon
Pop-A-Shot is an iconic 35-year-old brand which sells basketball arcade games. It was struggling financially when the new owner decided to open the official Pop-A-Shot Amazon store.
Within a month of its launch, the brand saw a stunning 971% upswing in sales.
Pop-A-Shot still has its own website, but Amazon continues to drive volume sales. Without Amazon, the brand may not have survived.
For any seller, this middle-of-the-road path has multiple options:
- Selling directly to Amazon
- Selling on Amazon Marketplace
- Using FBA (Fulfillment by Amazon)
- Dropshipping through Amazon
While your margin will vary based on the option you choose, a major benefit of selling on Amazon is rapid product and price testing that can then be translated back to your own storefront. Here’s how:
- Get rapid feedback on Amazon in the form of customer reviews and ratings.
- Test SKUs for views and conversion rates on Amazon first.
- Then, invest in larger production runs to sell onsite.
- Write Amazon-specific product listings versus onsite product descriptions.
As an example of the last bullet, here’s how the same shoe is described differently on a website versus:
Amazon is becoming increasingly restrictive with the products brands are allowed to sell on and off its platform. Already, the vast majority of Amazon contracts force retailers into an all-or-nothing approach.
For legal and procedural issues, you may need the help of IP attorneys and third-party Amazon consultants. You can also enroll in the Amazon Brand Registry.
Preventing price cannibalization is straightforward: set a minimum advertised price (MAP) and enforce it strictly.
Lastly, closely monitor your brand and customer experience with the goal of diverting the majority of your sales to your own site.
3. Out of Amazon’s walled garden, into your own
For two years, mobile phone accessories maker PopSockets sold products at wholesale directly to Amazon. The merchandise was a smashing success. But when Amazon pressured the brand to reduce prices and increase marketing spend, PopSockets decided to go the Marketplace route.
Amazon’s response? PopSockets was pulled from the platform entirely. But that wasn’t entirely bad news.
Brands that care about delivering a unique customer experience have done more than draw a line in the sand; they’ve built moats, walls, and bulwarks against Amazon. Why? According to Digiday, it’s due to
“…Amazon’s refusal to share meaningful customer data, its lack of nuance and expertise in areas like premium fashion, the lack of discoverability on Amazon’s search platform, the inability to track attribution from platforms like Facebook, its general user experience, its faceless customer service.”
The growing anti-Amazon crowd is made up of direct to consumer (DTC) brands who haven’t just decided not to sell on Amazon, they’ve also turned down investments as well as advertising and FBA deals worth millions.
Many of these brands have ambitions to be category owners. Some, backed by VC funding, are taking pages out of Amazon’s playbook to grow fast and develop new products. All are fanatically focused on end-user experience.
In the short term, brands who have given up on Amazon might see their sales and profits dip, especially if they don’t have strong brand recall as well as during major events — like Amazon Prime Day and the eCommerce holiday season.
For commoditized or cheaper products, knockoffs will inevitably appear on Amazon. Squashing them can become a full-time job.
This strategy also means either investing internally or outsourcing for software, customer service, marketing, and — most dauntingly — shipping and logistics. All things Amazon sellers take for granted.
However, to willfully exile yourself from Amazon is the only way to ensure long-term brand value and direct connection to your customers.
A foolproof guidebook to successfully navigating Amazon marketing doesn’t exist. What truly matters is knowing what you want your company to achieve and aligning those goals with the pros and cons of what Amazon has to offer.
Fight, join, or co-exist? Ultimately, the only wrong choice is not to choose intentionally, thus leaving the fate of your brand in the hands of a man who wasn’t joking when he said, “Your margin is my opportunity.”