Luzern’s Guide to Amazon
When the CEO of a new client informed us that his business had exceeded their yearly sales targets, shown double digit growth, but it was keeping him awake at night we had to question why?
Another client told us that the revenue in their biggest single channel had tripled in three years with no increase in profitability. Again we asked why?
The answer, in both cases? Amazon.
Amazon is the marketplace brands & retailers love to hate.
In a recent survey conducted by SLI systems with over 200 companies the top 3 reasons brands and retailers took the decision to sell on Amazon was to:
1. To increase sales
2. To acquire new customers
3. Gain visibility from a high traffic channel
(Survey was conducted May 2017, http://sitesearch.sli-systems.com/epic-report-q2-2017)
There is no doubt if a Brand successfully engages with Amazon Retail, or Amazon 1P as its more commonly known in the industry, they will successfully increase sales, acquire new customers and leverage Amazons traffic.
However, if not managed correctly the longer term impact to the overall business can be detrimental as many brands find that they have:
- Lost control over pricing (which impacts all pricing);
- Are under margin pressure from Amazon;
- Managing returns can be a significant overhead; and
- Amazon can push competitor’s products if there is more margin in it for them
Control over Pricing
Often other Retail customers will complain that the same product set they have been buying from the Brand appears on Amazon at sell price that they simply can’t compete against.
Upon challenging Amazon on why they are selling at such a low level, Amazon will state that they simply match the buy box price that is being set by Amazon 3P Marketplace sellers. But as Amazon has grown in size and become a major retailer in its own right this is no longer always the case.
Margin Pressure from Amazon
Amazon 1P are putting all of the Brands we work with under extraordinary margin pressure, which is generally triggered by the activity highlighted above, i.e. the price war to win the buy box.
Amazon are perfectly entitled to try and maximize their margins and they then make it clear to the Brands that they need better prices or they will stop ordering some or all of the products.
This can equate to millions of dollars of lost revenue if the demands aren’t met and that is what is keeping the CEO of our new client awake at night.
In addition, Amazon look for rebates on slow moving stock, charge brands significant amounts of money to add & market products, fine Brands for late delivery of inventory or for shipment issues.
Again, Amazon are perfectly entitled to do this, but it has a serious impact on the margin achieved by Brands through the amazon 1P channel.
Amazon is a highly successful business and will always push the products that will earn it the most margin. We have seen many examples of Brands where large levels of Inventory in Amazon are not moving and they have no control over this at all and frustratingly know that this will ultimately come back as costly returns.
Luzern can operate as a 3P/Amazon Marketplace Seller on behalf of the Brand.
This enables the Brand to build up listings and history, growing sales and margin across 3P and 1P with Amazon.
We do this successfully with many brands including Fossil, Petsafe, Fellowes and Jacob Douwe Egberts enabling them to take control of their Amazon strategy and improve the overall profitability of this critical channel.
Specifically, Luzern can help with:
- Executing your product assortment strategy and resolve any channel conflicts that exist today
- Stabilising Amazon Market Price
- New SKU setup and promotion
- Enhanced Brand Content
- Listing Optimisation
- Amazon Marketing Services (Product ads, Feature Ads, Headline Ads, Deal of the day, Lighting Deals)
- Product rank increase
- Conversion increase
- Clearance of Excess stock
- Detailed reporting tool to tracks Buy Box price changes & who made them
- Rank & Conversion Tracking
- Product sales estimator
- Data based decisions & measurements
- And powerful reporting