“To be successful, Brands need to reimagine their Amazon strategy and look at new ways to protect their brand whilst increasing online revenues.”
Interview with Ken Doyle, eCommerce veteran, entrepreneur and CEO of Luzern eCommerce solutions.
WBR Digital sat down with Ken to discuss his insights into current and future trends in eCommerce and tackled the tough question of whether Brands are too dependent on Amazon for their eCommerce strategy?
How do you see the relationship between manufacturers and Amazon evolving in the next few years?
Luzern works with Brands of all sizes across diverse verticals, and from what we hear, they expect both pains and gains over the short and long term working with Amazon. This is mainly due to the shift in priorities for Brands.
Initially, it was important to get selling online no matter where no matter how. That’s why Amazon was such an attractive option for many of the branded manufacturers. But now that the market is more mature, the implications of using this channel are under more scrutiny, and that’s where the pain comes in. In conversations with Brands of all sizes, regardless of whether they are a major Brand, with a long-standing relationship with Amazon, or just starting out, they still encounter the same challenges. The most common issues we hear from customers are:
- Lost control over pricing (which impacts the pricing on all channels);
- Margin pressure from Amazon; the squeeze can mean no profit on certain product lines
- Managing returns can be a significant overhead; and
- Amazon can push competitors’, or Amazon's own products if there is more margin in it for them.
These challenges will only increase in importance as margins are eroding and the complete cost, not only monetary value but also the cost to the Brand’s reputation, of having Amazon as the cornerstone of your online strategy become more apparent. Amazon is here to stay, however, and the bottom line is that if you are a popular brand, you need to be on Amazon.
To be successful, Brands need to reimagine their Amazon strategy and look at new ways to protect their brand whilst increasing online revenues. We have seen huge success if brands use a Hybrid model that is, using both 1P (Retail) and 3P (Marketplaces). 3rd party Vendor ( 3P/Amazon Marketplace Seller) like Luzern, to sell on their behalf. This enables the brand to build up listings and history, growing sales and margin across 3P as well as with 1P with Amazon, avoiding channel conflict or any “race to the bottom” pricing battles.
What are some of the issues for companies that rely too heavily on Amazon?
It can be challenging for companies to feel heard by Amazon, and that’s true in two ways: on a broader, more strategic level, but also on a tactical day-to-day level. When selling to Amazon directly(1P) Brands often feel at a loss as they have no control over key aspects of the strategy such as price changes, product reviews and customer service.
If we also throw in the balancing act required between Amazon Retail and Merchant, the result for companies too reliant on Amazon 1P will undoubtedly be an increase in time managing the channel, which can further erode their margins and impact their bottom line. This becomes dangerous for brands as they may be helpless should Amazon suppress their product listings or even “switch them off” if Amazon can get better margins elsewhere.
A number of brands have already lost significant market share, and are facing declining revenues as well as seeing their margins squeezed by not embracing a comprehensive online strategy. Brands need to ask themselves: “Will future customers go online to buy my product?” For any popular brand these days, the answer is a resounding YES. With 54% of all product searches starting on Amazon (Not Google or Bing) and 49% of those sales completed on Amazon (ahead of eBay & Walmart etc) Brands need an Amazon strategy. The real question is: “are you willing to allow Amazon to dominate your route to these precious customers?”
The upshot is that you can have a two-pronged approach. With a Hybrid model of 1P and 3P, you can invest in a strategy that you can control, enabling you to target your customer, and present your Brand, your way, on Amazon using a 3rd party vendor. This compliments your 1P strategy with Amazon meaning you can lessen the dominance of Amazon whilst reaching your customers via 3P. In reality, consumers don’t particularly care as long as they see and buy the Brands they want with ease on Amazon.
What are the big opportunities for manufacturers selling directly to consumers via eCommerce?
We have numerous clients that started out selling in new markets on Amazon only. Any brand that decides to invest in direct-to-consumer eCommerce can, in a relatively short time frame, identify new opportunities when introducing new products, launching promotions or even when wanting to expand to new markets.
Putting more importance on selling directly to consumers and reducing the distance between a brand and the purchaser of its products, no matter if that’s in a B2C or B2B setting, is key. Financially speaking, the investment necessary to manage a balanced online strategy will create a much more stable ROI for the brand over time. This is especially true when considering the potential impact of higher margins and the lifetime value of your customers on your bottom line.
With Luzern’s eCommerce Platform and expert services, our clients have a range of tools and Amazon expertise available to enable them to build a robust online capability, as well as a footprint that provides access to millions of customers in global markets. This means that our clients can focus on building their brand and their customers’ loyalty, delivering more value over the lifetime of the customer, and diminishing any issues with channel conflict.
What are some of the internal roadblocks you most commonly see?
Without question, the most frequent roadblock we see can be summarized in two words: channel conflict. Manufacturers have long counted on a network of retailers and distributors to sell their products and in the process, a number of relationships and expectations have been formed. Any attempt at online endeavours will test these relationships – if you’re lucky this will result in a positive embrace, but if you’re not, it could result in a series of unfortunate trade-offs between distributors, retailers, partners and customers.
How can they be overcome?
What’s important for all stakeholders to understand is that maintaining the status quo is extremely short-sighted which sweeps a difficult conversation under the rug where it will turn into a catastrophic situation.
The best way that roadblocks can be overcome is if there is a clear strategy from the top. It’s no secret that over the last few years that Amazon, the heavyweight retailer of the world has become increasingly competitive. Now more than ever major brands need to protect their brand presence on Amazon – Your brand is defined by a customer’s overall perception of your business.
Whether selling via distributors, retailers or direct to consumer, you need visibility into who is selling your products, where and at what price. There is the issue of brand erosion, if your products don’t look good online, with poor imagery and content, it creates a negative impression of your brand which can have a negative impact on the customer experience and lead to loss of sales. Brands need to be realistic about direct-to-consumer eCommerce and create strategies that protect their Brand whilst driving revenue.
Every company is different, and that’s why it’s important to have access to a knowledgeable partner that can help deliver growth now and in the future.
About Luzern
Luzern is a leading eCommerce platform and related services provider. We are experts in delivering innovative strategies for Amazon Marketplaces and for Direct to Consumer webstores. Luzern is proven to dramatically grow online revenues for brands across the globe and is trusted by Philips, Fossil, JDE coffee, Petsafe, Gatorade and Nestle.
Find out how Luzern helps major Brands with their Amazon Marketplace strategy here.
About WBR Digital
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So What’s next?