Amazon: easy on the front-end, a different story on the back-end…
Amazon is the simplest and most practical way to shop online, so much so that 50% of internet product searches happen on Amazon, not Google, WOW! If you are a company selling online and applying a multichannel strategy, you are almost obligated to sell on Amazon. The good news is that it is easier to get placement on the Amazon marketplace than in traditional brick and mortars since there is infinite shelf space. However getting products to move “off the shelf” is no less of a challenge than in the physical world.
Last month, as part of NBA’s Educational Series, Lynn Graham the founder of Beekeeper Marketing, a Full service Amazon general management agency, provided incredibly insightful information on how selling on Amazon works.
A few data points to start:
- Online sales made up 90% of growth in CPG in 2018
- Natural and Organic products are growing at 3x the rate of conventional
- 49% of consumers shop for CPGs online. Up from 23% last year.
- By 2025, online grocery sales projected to make up 20% of total, $100B market by 2025
There are two main options in selling on the Amazon platform: the Seller Central and the Vendor Central:
Under the Seller Central you’ll be a 3rd party and either “hiring” Amazon to do the fulfilment of the orders or you ship direct. In short, the product is on consignment thus you take the inventory risk. Inventory management is up to you which gives you better control in avoiding the out-of-stocks. You have the advantage of controlling the retail price and the customer communications.
The Vendor Central is where you are a direct vendor. Amazon buys from you and either fulfills, gets you to do direct fulfilment (dropship) or places your product on one of their platforms (Pantry Fresh, Prime Now, Go). You still control content but benefit from additional marketing opportunities than on the Seller Central. In this case, you leave it to Amazon to control inventory (out of stock can happen, especially in the beginning while their algorithms are trying to figure out your product’s velocity) and they control the price. Keep in mind that Amazon is a price follower, not a price leader, and they make sure your items are sold at the lowest price. Expectedly, being that they buy upfront, they help themselves to a higher margin. Now comes the kicker: it is harder to get onto the Vendor Central shelves. It takes a minimum of $1M in online sales for a product to be part of the Vendor Central.
Lynn Graham recommends a hybrid strategy if you are able to pull it off. The bulk of sales will be driven through the Vendor Central and you’ll be using the Seller Central to place the items Amazon doesn’t, to provide a back stop to out of stocks and to help your margins.
Within Amazon, 90% of purchases begin with a search and 80% of clicks remain on the first page of search results. Lynn addressed how critical content creation is to sell successfully on Amazon. She said content should be accessible, comprehensive, in brand voice, crisp, unique and consumer friendly, while it must be feeding the algorithms, be optimized for search, competitive as well as driving high conversion. She says content creation and management is both an art and a science, which feels like an understatement.
In addition you have to be good at optimizing for good and numerous reviews, merchandising (multipacks, MOQ (minimum order quantity) and the likes), using keywords and so on. What will however be familiar to most of you readers are the beloved chargebacks, which are bound to add up just as in the conventional channels.
There is clearly quite a learning curve for those who are not familiar with the process and then a challenge to maintain and keep up. There is a huge pay-off to be part of a platform that is not only the largest online retailer by a very long short, but is also constantly innovating through their “unafraid to fail” approach. You can expect programs to change, expire, resurface,… not to mention those new ones that are in the works (people in the know like Lynn say that a new program called One Vendor is coming next). It doesn’t sound like a bad idea to be partnering with experts such as the Beekeeper Marketing team to relieve the stress and free-up time and resources to produce great products and manage the rest of your business.