How to Win on Amazon
August 8, 2017
Many of you have likely been following (or maybe even cheering on) David Kahan, the CEO of Birkenstock, as he’s publicly accused Amazon of launching an ‘assault on decency’ while concurrently warning retailers (third-party sellers) against selling ‘even a single pair’ of Birkenstocks to Amazon.
The prize quote from Kahan? “This is a middle finger to all brands.”
“The Amazon marketplace, which operates as an ‘open market,’ creates an environment where we experience unacceptable business practices which we believe jeopardize our brand,” Kahan wrote in a published memo. “Policing this activity internally and in partnership with Amazon.com has proven impossible.” (Taken from his insights in an article published in Rack earlier this year.)
I like to hold a place of positivity with the Channel Mastery blog; to support my believe that there’s always a way forward. In reading more about Mr. Kahan’s plight, I’m officially questioning that. Birkenstock is a very hot brand right now. Because of that, one could be led to believe that he and Birkenstock hold a lot of power with all retailers due to that fact that his brand is a profitable partner. Perhaps that’s how it worked in the old playbook.
Today brings a different – and continually changing – playing field. And the playing field is entirely foreign to how so many brands have grown up in the passion industries of outdoor, bike, snow, endurance and travel.
According to an article from Seeking Alpha, Amazon realizes huge benefits as its third-party marketplace grows. Some of these include:
1) Selection – Third-party merchants provide an incredible amount of selection and increase customer choice.
2) Competitive pricing – Prices come down to very attractive levels to most consumers due to intense competition.
3) Inventory ownership – Amazon does not own or take risk of the inventory that is being sold on Amazon.
4) Supply chain and logistic cost reductions – Third-party sellers increase the volume of packages being shipped and received thereby achieving greater economies of scale.
5) Amazon builds a huge moat around their retail business that’s extremely profitable.
Brands that are not commodity and lend themselves well to a specialty positioning, run an enormous risk when the 3PS paradigm is introduced.
Positioning a brand consistently across its points of entry in multiple channels calls for consistent pricing and brand presentation. That requires control.
This is why Kahan’s move was seen and heard globally. It implied that brands must take matters into their own hands to protect how their brands are presented on the behemoth marketplace. Is it that black and white?
I was delighted to read in the Business Insider article, in which a spokeswoman for Amazon was quoted as saying the company buys products from third-party businesses to offer customers “a wider selection of great brands,” and that those sellers can opt out at any time.
This weaves into the Amazon mission, which she offers: Amazon’s mission to be Earth’s most customer-centric company.” And, “Amazon strives to provide our customers with the largest selection, at the lowest price, and with the fastest delivery.”
Consumer-centric, according to Amazon, is about selection, lowest price and fastest delivery.
We’re all reading insights from retail and consumer-behavior analysts who are reporting that consumers are very much preferring deals these days. Matt Powell with the NPD group, noted this in Episode 1 of Channel Mastery, said that ‘yesterday’s consumer used to find value in buying from Nordstrom’s, today’s consumers have a badge of honor buying from Nordstrom Rack.
Still, I find it hard to believe that ALL consumers can be bucketed as driven to have access to the best deals, the fastest access and the biggest selection of stuff.
I can see how Amazon’s mission could be well suited to ongoing purchasing of commodity items like toothpaste and toilet paper.
But passion brands?
Full disclosure. … I believe passion brands are a special snowflake and we need to police how our snowflake is engaged with by our target end consumers (taking a page from Kahan’s playbook).
Birkenstock is not a commodity. Nor are the amazing products manufactured and distributed by the passion-driven brands comprising Verde’s client family.
Passion brands and commodity brands cannot share a consistent, reliable experience across the Amazon marketplace.
Passion brands have been tied to specialty retail and building tribes of end consumers who share a strong love for a similar experience.
As specialty retail (and retail at large) corrects, passion brands are faced with giving into the drug that is Amazon (far-reaching visibility and ‘distribution’). I get why brands are going there, but, if you do, realize that it’s not a one-size-fits-all solution.
Instead, consider going back to what made our passion industries great in the first place – being incredibly remarkable to our target end consumer. Providing a consistent, remarkable experience across all points of entry in our platforms, and literally becoming a part of the identity of our consumers.
It’s a choice today – and likely one that will hurt in the short term – position yourself for a short-term gain today and flame out tomorrow, or, run the marathon and not the sprint.
Remember, many very well respected CEO’s from our markets just advised Emerald Expositions to do the exact same thing just a few weeks ago when the show was deciding between Las Vegas and Denver. The word on the street is that Emerald’s IPO was prioritizing Vegas for a short term return. Should that have driven the decision, the CEO’s said collectively, the show very likely would have gone away.
Like everything, the best part about Amazon is also the most dangerous, and scariest for brands and taking the marathon route, but in a creative and nimble way, is the best approach.
ONE SIZE DOES NOT FIT ALL
Episode 7’s podcast guest, Elaine Kwon, co-founder of Kwontified.com, thankfully offers a bit of a template for being successful on the Amazon marketplace.
She pointed out how brands get lost in the shuffle as Amazon works to continually scale (in a recent Racked article).
Amazon Fashion (division) has a large team dedicated to its wholesale business, she says. And like so many other tech-first businesses, Amazon is focused more on stats, sales, and profits and losses (P&L) than on building relationships.
“It’s not how a traditional retailer like Macy’s functions. At [Macy’s], each buyer comes with a team, and they each have accounts. At Amazon, it’s more like one person focuses on the P&L of 300 brands, so you can imagine the sheer volume. Half of those brands emailing you every single day is too much on one person’s plate, and so there are quite a few that don’t even get to talk to Amazon on a monthly basis!”
You may want to read that again.
The reason? Kwon points out that relationships (and the reciprocity that stems from it), are what’s driven and will continue to drive the relationships our brands have with end consumers. Same goes for retailers to their home-town communities.
Richard Kestenbaum, a partner at Triangle Capital LLC, and guest No. 3 on the Channel Mastery podcast, nailed it:
“Amazon might be a big fat pipeline into consumer’s homes, but that’s not the same as creating inspiration.”
WHAT’S A BRAND TO DO?
There are two things that should govern everything you do in your business and with your brand:
1 – Get as close to your end consumer as you possibly can
2 – Work tirelessly, relentlessly, to create remarkable brand experiences for that end consumer through product, brand storytelling, brand experiences and creating brand community.
And, as Elaine discusses in this week’s podcast, choose the right partnership with Amazon. If you’re curious about whether or not to choose wholesale partnership vs. Amazon’s marketplace, seek outside help from a person or team who knows what they’re doing. This is an incredibly important choice that will make a strong difference if you get correct, and create a shit storm if you do not. And PS? Kwon greatly advocates that brands set up Amazon Marketplace.
For more tips and for a downloadable Playbook that will show you the top five steps to best position your brand for visibility, engagement and conversion on Amazon, head on over to www.verdestrategy.co/6, and download ALL of the goods that were created just for you.
Let us know what you’re committing to with your Amazon business.
NOTE: There’s a great article here in Business Insider that goes deeper on Mr. Kahan’s plight and fight, and you can also read the “brutal, five-page email” he composed right on the Washington Post, which interestingly, is owned by Jeff Bezos, the founder and owner of Amazon.com. Additionally, there’s an article from Seeking Alpha that provides a very solid overview of Amazon’s third-party selling approach.