Given the rise of Amazon’s Prime customer base that now includes over 20% of the entire US population, marketers are working full speed ahead to solidify Amazon into their Omnichannel strategy. This isn’t to suggest that brands in the IR500 have neglected the Amazon marketplace altogether. In fact, many Enterprise and SMB brands alike have been selling on Amazon for 10+ years generating hundreds of millions of dollars of revenue in the process. These brands have profited largely through vendor relationships with Amazon Retail, the division of Amazon that secures wholesale relationships with brands through salespeople and brokers. But only recently have marketers, as opposed to sales people and brokers, been tasked with growing sales on the channel.
Amazon Prime Hits Critical Mass
This shift is a byproduct of many factors, most important of which is the critical mass of Prime customers on Amazon. Amazon has increased the number of Prime customers in the US by 38% year over year, now totaling 65 million Americans. This scale has the attention of every C-level executive for brands that sell physical products, who see both the macro level shift in retail and their own performance metrics for sales volume on Amazon. With pressure from boards, shareholders and executive teams who are tasked with growing sales, other departments are burdened with the responsibility. This includes the marketing department.
1P versus 3P and the Evolution of Amazon
If you’re one of those marketers, you will soon learn (or already know) that Amazon has its own set of nuances that are entirely unique to other digital channels. For starters, Amazon has a number of ways companies can sell products on Amazon.com, Amazon.co.uk and other international markets. Amazon is both a third party (3P) marketplace, like eBay.com, and also a first party (1P) e-retailer, like Target.com. The genius behind Amazon’s e-commerce model is its shopping experience, which creates a seamless fusion of both 1P and 3P in a manner that is almost entirely invisible to customers. Simply put, customers can’t tell the difference between products sold by Amazon Retail versus products sold on Amazon by a reseller who may very well be selling products from their basement. Can you tell the difference?
The combination of these 1P and 3P dynamics has created a massive product selection that entices virtually every customer segment in the physical goods market. This combo also creates competition between resellers (including Amazon Retail), which reliably provides customers with the best prices available. Combined with the A-to-Z customer guarantees and free 2-day shipping for Prime customers, it’s not surprising that Amazon has amassed such a following.
But those same 1P and 3P dynamics also create challenges for marketers who want clear metrics on their marketing investments. It is actually very difficult for marketers to learn how much of their marketing budget is driving sell-through for resellers vs. sell-through for their Amazon Retail inventory. To make matters more complicated, over the past several years, brands have increasingly been using the 3P marketplace to sell their products in order to increase net profit margin and to deploy tactics that are unavailable to 1P vendors. Nowadays, Vendor Central, Seller Central, and Vendor Express are all utilized as part of the Plan-to-Sell mix for mature state brands selling on Amazon. And they each have their own set of features, terminology and limitations.
Amazon Metamorphosis Into a Search Engine
For Enterprise and SMB brands looking to grow sales on Amazon (which is arguably everyone except Birkenstock right now), sales and marketing departments will be tasked with the challenge. Unfortunately, the salespeople and brokers who paved the way for sales on Amazon with Amazon Retail no longer understand how to perpetuate year over year growth. This is because Amazon.com is no longer an online marketplace but rather it is now first and foremost a search engine.
According to a study conducted by BloomReach, 55% of consumers turn to Amazon when searching for products online. Even Google has acknowledged Amazon as a search engine. Eric Schmidt, former chairman at Google, said in 2014 that their, “biggest search competitor is Amazon.” Search engines require Search Engine Marketing (SEM) tactics, which is absolutely a marketing initiative. Due to the nature of search engines, which provide a limited number of search results on the first page to customers who are extremely likely not to search beyond the first page, the difference between being on page one and page two is enormous. And marketers are rapidly trying to figure how to implement SEO and PPC strategies that work.
Omnichannel Today vs. Omnichannel Tomorrow
As of today, Amazon should fit into a marketer’s Omnichannel strategy as part of the customer acquisition program. We will address fears of cannibalization in another article later on, but fundamentally Amazon should be approached as a customer acquisition channel with untapped growth potential. This can occur in several ways.
First, spend money on PPC advertising in Amazon’s search results by using Amazon Marketing Services (AMS) or the Campaign Manager in Seller Central. It’s very unlikely that resellers will do this work for you, and Amazon Retail certainly isn’t doing that out of the kindness of their heart. Even if you are going direct with your own Seller Central account, you are probably underutilizing the bottom funnel, high performing ads available. Maximize your results here with the same kind of rigorous PPC effort you’d apply to Adwords and you’ll find ROAS numbers in the 600% - 1,000% range for most categories.
Second, deploy media budget on Amazon.com and its other owned and operated properties. Buying media through Amazon Media Group (AMG) or with an agency that has access to the Amazon Advertising Platform (AAP) will also enable you to layer in Amazon’s 1st party data, which includes hyper-targeted customer segments. Amazon’s customer data is unmatched by any other provider, and e-commerce brands should absolutely be leveraging this. Carve out a portion of your ad budget to buy media programmatically through Amazon – you won’t regret it.
Third, use Amazon as a reputation platform. The review system on Amazon has been subject to a great deal of scrutiny, and customers are paying closer attention to reviews now more than ever before. Use the platform to conduct sentiment analysis and find out what customers want (and don’t want). Reputation focused brands will use Amazon as a customer engagement portal by commenting on reviews, answering FAQ’s and reporting potentially fraudulent reviews.
For the Omnichannel strategy of tomorrow, marketers will need to work more closely with sales and operations teams. Because of the nuances of the Amazon marketplace, multiple departments of an organization will need to work in harmony. Getting to the top of search results will inevitably require collaboration and successful execution across every department of an organization. This will ensure that brands are maximizing top line, capturing the most bottom line possible and leveraging Amazon as a customer acquisition channel. Companies that start adopting these approaches today will solidify their place in the search engine while increasing profits on the sale of their products on Amazon.