Amazon

Amazon is the new Google (at least for retail)

Amazon is the leading search engine for physical product and the fastest growing platform for advertising revenue. What are the challenges for brands to sell more on Amazon?

Amazon is the new Google (at least for retail)

To argue this striking title I would like to divide this post into two blocks:

1) Why Amazon is the leading search engine for physical product search and why it is the fastest growing platform in advertising revenue.

But let's start at the beginning.

If you search in Google "retail" this is the first entry that appears selected by its search engine:

What does retail mean?

Retail is the concept that refers to retail or retail trade. A term that is gaining more and more weight thanks to the digital transformation of companies. The purpose of this is to sell to many customers an abundant stock.

A little further down we see the answer to another question:

What does a retail salesperson do?

Provide advice to potential buyers.
A good salesperson must be able to advise their customers and respond to each of their concerns that arise during the buying process, all with the objective of satisfying their needs and providing the best possible experience.

Well, this is simply what Amazon does better than anyone else as shown by the 1.4 billion monthly web visits Amazon's ten European marketplaces combined receive. Or the 200 million Prime accounts it has globally.

These are interesting facts, but they are so big that they may not say anything. But there are two other facts that stand out to me and I think retail brands should think about them:

1. Amazon's search engine is more widely used than Google's search engine when searching for physical products. Reference.

2. Advertising on Amazon grows more than on Google or Facebook because the Cost Per Click is much cheaper than on Google or Facebook. Reference.

These data show two trends:

1. The general public has moved to search and buy on Amazon.

2. Brands must be well positioned organically in A9 (Amazon's algorithm) and inorganically by investing in advertising.

2) If this data is so clear, why are retail brands not professionally managing their Amazon channel, with some exceptions. Here are some of the challenges brands face when selling on Amazon.

1. Ignorance of Amazon

Strangely enough, there is a great lack of knowledge about Amazon at the professional level. We all know Amazon because more or less everyone has bought from it at some point. But apart from our personal anecdotes with the Amazon Marketplace, little is known at the professional level. Amazon is not only the Marketplace, it is a whole ecosystem of innovation.  

Currently, brands in general, and retail brands in particular, are quite familiar with the Google ecosystem. They have learned to position their e-commerce organically on Google (SEO) and to bid on those keywords that bring the most traffic to their site (SEM), but they don't know how this works on Amazon.

Lack of equipment

Managing Amazon is not easy. Multidisciplinary teams are needed to perform all the tasks that allow us to optimally position our catalog:

- Content Manager: it is necessary to have specialized profiles to position our catalog organically. To do this, we have to work on images, titles, descriptions, A+ content (multimedia content), Brand Stories and Brand Stores. And all this, in the different languages and markets where Amazon operates. It is essential to have native profiles to ensure that the texts are optimal in each of the languages.

- Designer: it is not possible to create good A+ Content, Brand Stores, etc. without good graphic resources. Design is becoming more and more important on Amazon, especially if we take into account that it is not only a transactional channel, but also a branding channel. It is important that the cards show the values of the company and that the Brand Stores respect the brand identity.

- Account Manager: another key profile is to have a good account manager to ensure that everything is in order, manage incidents, shipments to Amazon and, in general, to be aware of everything that happens with the account.

- Ads Manager: we are also going to to need profiles specialized in advertising to bring more traffic to the tabs and get good conversions. Although this profile is already important, it will continue to become more important as bids on Amazon will inflate as it happened with the Google world.

- Data Manager: if it is important to create good listings and invest in advertising, it is no less important to analyze what is happening at all times in order to improve. Measure, measure, measure is the key to optimize listings and advertising campaigns with the ultimate goal of increasing sales. It is important to have good sales and advertising reports that allow us to see the evolution of the channel over time and optimize results.

3. Channel resistors

Over the years, especially before the pandemic, the biggest concern we saw from brands was "not to disturb" the distribution channel. While it is true, this reluctance was diminished during the pandemic, as many channels were closed and brands tried by all means to reach the end consumer online, either using their own e-commerce or using marketplaces.

Before I continue with my presentation, let me remind you about the ways of selling on Amazon because it will be useful to understand the rest of the post.

On Amazon we have several ways to sell:

- Vendor: the first is to serve as a distributor for Amazon. Brands reach a distribution agreement with Amazon, as they might do with El Corte Inglés, and Amazon is responsible for selling the products (which it has purchased from the brand) to the end customer using its own platform. There are brands that are very comfortable in this mode, as it is similar to their usual operations with other distributors in B2B mode. It should be noted that the Vendor mode works only by invitation from Amazon and that Amazon always reserves the final RRP of the product in the Marketplace. This last feature makes brands that want to keep control of prices not want to operate in Vendor. While it is true that it can provide a large volume.

- Seller: Amazon's big growth is not coming from the Vendor world, but from third-party sellers who want to sell directly on Amazon's Marketplace. Currently, there are more than 2 million Sellers in the world. To become a Seller you only have to pay a small monthly subscription of 39€/month and, in return, Amazon will allow you to upload your catalog to the Marketplace and will offer you Digital Marketing tools so that you can boost sales.

- Hybrid Vendor | Seller: Vendor and Seller mode can be combined. That is, you can have part of your catalog in Vendor and part in Seller. Maybe Amazon invites you to participate in Vendor but only wants to buy some of your references and you want to continue selling the rest in Seller.

As you can see, there are different ways for a manufacturer/distributor to sell on Amazon. But what if you are a manufacturer and your distributors are already selling on Amazon as it happens in most cases. Often, we talk to brands with this "problem". They may be manufacturers who have never sold on Amazon and when they start researching they realize that their products are already on Amazon sold "that way" by distributors. Distributors may be selling in both Vendor and Seller mode, but they may not be taking care of the brand at the level of texts, graphic resources, brand identity, etc. We often see brands that invest a lot of money in Social Networks, which I'm not saying is wrong, but they forget that where their brand and product is being seen the most is on Amazon.

What options do brands have in these cases to control the channel?

The first thing to do is to decide whether or not the brand wants to sell directly on Amazon or leave the Amazon channel to the distributors, if it wants to sell on Amazon, it can do so as a Vendor or as a Seller. If it enters to sell on Amazon, it will compete against its own distributors. Or maybe you don't want to sell on Amazon, but you want to organize the channel and all the distributors will have to do it through an official file, through a single Brand Store, etc. Well, this option that we call "brand defense" can be done. You only need to submit the documentation from the Patent and Trademark Office or EUIPO to prove that you are the owner of the brand. This is called Brand Registry in Amazon and gives you the power to create the official files that all your distributors will have to sell with.

We have seen cases where the brand makes the Brand Registry and manages the channel and only sells in those countries where it has no distributors, for example. In other cases, the brand competes freely with distributors. Or even, we have seen brands that contractually no longer let their distributors sell on Amazon to control the channel directly and get a higher margin.

As you can see, the casuistry is diverse and different decisions can be made. From selling and competing with distributors to staying on the sidelines, but managing the presence of your brand.

4. Cost of selling on Amazon

Another argument of brands that are not on Amazon professionally is the costs of selling on Amazon. The argument is usually "Amazon is expensive". From my point of view this is not the case and I will try to argue it.

- If you are a Vendor, you will enter into a distribution agreement with Amazon for which they will pay the agreed price. Amazon will negotiate these contracts hard in order to buy as cheaply as possible and be more competitive when it comes to setting the final RRP. Nothing that brands are not already used to. Of course, after having reached an agreement, Amazon does not guarantee the sale of products in the Marketplace and leaves it up to the brand to ensure that the tabs, Brand Stores, etc. are optimized. In some cases also advertising, although Amazon is usually committed to make some advertising investments within the Vendor agreements, usually what we see is that brands have a budget to invest in Ads.

- If you are a Seller, you will have to pay the monthly subscription of 39€/month and a % on sales. Depending on the category. This % is usually between 8% and 15%. You can see your category in this link. In addition to this cost, and as with Vendor, you will have to add the cost of managing the content and the investment in advertising you make. On the other hand, if you use Amazon's logistics (FBA) you will be charged for the cubic meters of warehouse you use, as well as for each shipment. Amazon settles every 15 days and, from the amount to be paid, they will deduct the FBA logistics and advertising costs.

- If you do not sell on Amazon, but you want to "order the channel" by making a Brand Registry, you will have no operating costs but you will have to invest in creating listings, Brand Stores, etc. in the different languages and keep it updated.

And why I say that I don't think it's expensive. Let me explain.

Right now we have two major B2C channels to reach the consumer. And the two are not mutually exclusive, but are often complementary.

1. Create your own e-commerce

Creating an e-commerce is usually a good option to reach the consumer directly and has some advantages, such as the fact that the final customer is yours and you can impact him several times. On the other hand, it has some costs of creation and maintenance associated, not to mention the costs of payment gateways. In addition, you usually have to take care of the logistics directly with a logistics operator that you hire.

But the main handicap of an e-commerce is to get traffic and have a good conversion. Traffic costs money and the cost of customer acquisition is high if you have to pay traffic to Google or Facebook.

2. Use Marketplaces

The advantage of a Marketplace is the large volume of traffic it offers you and high conversions since users already have our payment data on the platform.

Is it worth paying between 8% and 15% to Amazon in exchange for that traffic and a good conversion? I think so because being in the Marketplace will allow you to sell all over Europe in a simple way. It will simplify the logistics if you use FBA. It will offer you marketing tools to boost your sales with a lower CPC than Google or Facebook. Above all, it will be of interest to manufacturers who have a higher margin than distributors.

In the end, of course, we would have to estimate all the costs and do the math. What we see more and more often is that brands/manufacturers use both channels in parallel.

Well, sorry for the extension. I hope I have shed some light on the fantastic world of Amazon Marketplace.

Finally, Amazon, and especially if you use their logistics (FBA), is pure magic. It is very difficult to compete with a 1-click purchase process and 24 hours delivery like clockwork.

The thought is whether you want to compete with Amazon or join it.

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