Established Brands are Updating Their Workflow to Compete in the World’s Largest Digital Marketplace
It’s no secret that Amazon has transformed the way we shop online. The retailer has permeated into so many aspects of our lives, influencing the things we buy, from household items to electronics to groceries. According to their investor report, Amazon sold more than $285 billion in goods in 2019, which was an 18% increase over the previous year.
Amazon has forced CPGs to adapt their workflows to compete for (or preserve) market share and tamp down competition from disrupting brands. The beauty and personal care industry has been particularly affected, as the Seattle-based retail giant has given a world-wide platform to anyone who wants it.
The challenges for beauty and personal care brands to sell on Amazon can be complex. Consumer reach, inventory management, SKU proliferation, stock buyouts, third-party sellers, and packaging constraints are just a few of the difficulties CPGs need to monitor when adding Amazon to their existing retail store sales strategy.
From the consumer’s point of view, most people understand the basics of how Amazon works. Their website offers quick and easy searches for nearly any product imaginable, one-click buying, and famous 2-day delivery for Prime members. To maximize success, Amazon invests a great deal of money in its interface design, so that the user experience is as intuitive as it can be.
The mechanics behind the storefront however, are a lot more complex. Amazon works much like paid advertising, with its keyword bidding, cost-per-click metrics, and paid priority placement. The more a company pays to be at the top of a product search, the better chance they have at harnessing the shopper with a half-second attention span.
The platform’s underlying search functionality operates under something known as the A9 algorithm. In a general sense, A9 is an iterative search methodology that analyzes all the data crossing through the Marketplace.
Digging deeper, A9 is a sophisticated collection of consumer behavior and seller strategy designed to offer a competitive market with cost-effective pricing and ample upsell opportunities.
What affects a brand’s ranking within A9? In short, everything. However, there are some key components that can bump a product up in the listings:
The more popular a product is, the more likely Amazon recommends it. This makes sense since the ultimate goal is to make money. Keep in mind that Amazon is also in the service business, so if they know a product is wanted, they like to make sure it’s available.
Which gets us to inventory. Amazon hates when a product is listed as out-of-stock, so keeping the supply flowing is essential to success. Multiple layers of the distribution chain complicate the process, and every brand works towards obtaining the exclusive ‘fulfilled by Amazon’ label. Being FBA means that excess inventory is stocked within Amazon fulfillment centers, allowing for a path towards high-volume sales and shipments.
If a brand hasn’t established their bona fides with Amazon and is constantly playing catch-up with product supply, Amazon is going to push those companies to handle inventory themselves. They might require only the minimum amount needed at fulfillment centers to keep pace with existing sales. It can be harder then, for products to drive growth, since inventory isn’t guaranteed.
Not only does Amazon want to offer customers a good deal, but they want to make sure they’re not being undercut on external channels. If a product is offered at a lower cost outside the platform, it can prevent Amazon from displaying the all-important ‘Buy Box.’ This one-click buy now button appears for products that are priced appropriately and sold by trusted sellers.
It may sound counter intuitive, but untrusted sellers end up with a link to ‘see all buying options.’ It’s a lot like being stuck at the leftovers’ table at your cousin’s wedding.
Finally, Amazon rewards those who play the game, and that means paying for all of those promotional spots mentioned before. Plan on investing in Amazon’s sales workflow.
Amazon’s Future of Packaging
Another challenge for CPGs is how to handle packaging for the products they sell through the Marketplace. It can be particularly hard for established brands that developed products with a retail strategy in mind to revamp an entire product line with separate packaging for Amazon’s customer base.
Part of the Amazon’s success is their thirst for continuous improvement along every step of the supply chain. The company strives to make good on their mission for great customer service (which they believe is just as much about things like packaging as it is for speed of delivery).
In the past five years, it is estimated that Amazon used more than 23 billion square feet of corrugated cardboard.5 If you’ve ever gotten a package within a package within a package, you know this phenomenon.
Now, Amazon has been encouraging CPGs to create ‘frustration-free packaging,’ which are made from 100% recyclable materials, easy to open, and designed to ship without secondary or tertiary packaging. The company claims this approach is now seen on 750,000 of the products they sell.
It sounds simple, but can be a tricky feat to accomplish. Brands don’t always have the luxury of separate packaging lines just for Amazon. Instead, many utilize third-party repackaging centers, which literally rip open the packaged goods, leaving all of the retail display packaging to waste. Looking forward, more and more brands are adopting packaging that can work for all retailers.
So what can a company do to ensure success within Amazon? There are several first steps brands big and small can take:
Hire a Consultant
Understand that Amazon breaks the mold of traditional retail. After all, what brick-and-mortar store changes hour by hour? Therefore, it’s best to approach Amazon with the right brain trust. An AMZ consultant can conduct organizational reviews, recommend changes in operations, and evaluate pain points before they hamper your efforts in the Marketplace.
Make sure you identify clear objectives and goals for the platform, so that you are better able to evaluate any success or missteps. If you utilize an outsourced manufacturing workflow, choose one that can recommend the right kind of packaging and production schedule to work across all channels of distribution. After you’ve got all of your ducks in a row, you’ll be more successful on your eventual product rollout.
Make sure your internal operations reflect your commitment to Amazon by devoting specific personnel to this channel. A successful Marketplace operation is more attainable when there is a single point person at your company funneling all of the project needs. This person will be more effective at solving unforeseen issues as they arise, than they would if this responsibility were distributed across multiple roles within the company.
Brands can have better success if they’re strategically choosing which products they sell on Amazon as compared elsewhere. If you’re just starting out, start small and concentrate on a few SKUs specific to Amazon. Measure success and use it as a case study towards other products when you decide to expand.
Invest in the User Experience
Amazon offers sellers the ability to create custom storefronts — a landing page of information and products. Just because it’s a digital store shelf, doesn’t make it less important than a physical shelf.
Prevent Brand Hijacking
One of Amazon’s underbellies includes third-party vendors who buy your product on closeouts, reselling it through the Marketplace. Legal or not, Amazon can sometimes trip over themselves policing this, leaving brands to take care of it themselves. By managing inventory off of the Marketplace, you can help eliminate the possibility of competing with other sellers selling your own product.
Subscribe & Save
If your product is something that’s a part of someone’s daily personal care routine, consider participating in their ‘Subscribe & Save’ option. This allows customers to automatically reorder product on a set schedule, leaving the worry that one will run out of toothpaste and need to make a quick run to the grocery store. Subscribe & Save also helps to build brand loyalty and increases profits over the long term.
Keep an Eye on the Competition
If you’re an established brand, make sure to watch what’s happening with disruptors and other emerging brands. If you’re an emerging brand, recognize that one day you won’t be. Part of personal care’s success on Amazon stems from the fact that anyone can reach a network of consumers without the investment of building a network of stores. That means that there will always be brands trying to build on the success of others.
Amazon has clearly positioned itself as the leader in online retail and will continue to revolutionize how we shop online (and integrate purchases into our daily lives). Pretty much every consumer brand — particularly those that came before Amazon — need to identify and address ways to evolve their own internal operations to work efficiently with online retail.
As a society, the way we make purchases online is always evolving, and it will continue to do so forever. Future innovations similar to the smartphone or Echo will continue to push commerce in a new direction and it will be the companies that resist this change who are left out in the cold.