Amazon - Friend or Enemy?

Very few have managed to stay updated on e-commerce development without running into the giant, Amazon, in recent years. The internet giant has been the center of attention in both news, various blog posts, and at large e-commerce events. And not without reason. Jeff Bezos and the rest of the team behind Amazon are storming ahead on the global market capturing an increasing share of the e-commerce market with a combination of headless e-commerce, intelligent use of AI and data, hardcore conversion, a comprehensive logistic set-up, and a strong business model.

Even though a specific date has not been set for Amazon's entry on the Danish market, our neighbor to the south, Germany, is still an increasing market where Amazon's foothold keeps getting bigger. This means that while we are waiting, more and more are getting ready for Amazon's arrival and more have also already utilized the waiting time by trying out Amazon as a sales channel on the German market. 

You might also want to read: Amazon is coming

A picture begins to emerge of two overt strategies when talking about preparing for Amazon. In some cases, the strategies are expressed as "either-or" strategies whereas they are a combination in other cases. Regardless of your current situation, our recommendation is to take a look at both strategies before deciding on your next step.

Strategy 1 is a strategy based on "How a company competes with Amazon" and has positively been a part of speeding up the expansion of the digital infrastructure, the utilization of data, and the digital services within the Danish e-commerce companies. The primary driver is to minimize the advantage Amazon is blessed with and by that making the Danish webshops less vulnerable to giant's entry. I have collected multiple examples of services/tools that we have experienced an increasing interest in here at Kruso.

• Customer data platforms e.g. Segment that allows data to be used across platforms like web, pim, commerce, customer portals, and SoMe, etc. to create a refined customer experience.

• Recommendation engines e.g. Raptor that via AI delivers buy recommendations based on your customer history and by that mean creates a customer-adapted buying experience.

• Headless e-commerce e.g. Commercetools that allows fast changes in the setup, supports a unified commerce experience across touchpoints and allows adaption to a rapidly changing competitive situation.

• Delivery service e.g. Coolrunner that eases the process of finding the right delivering method. 

• Same-day-delivery on web shops like it is known from i.a. some Danish marketplaces like E-supermarket and others.

• Subscription management software e.g. Upodi that supports phasing in services and products on subscription in your business and thereby ensures retention. 

And far, far more...

No matter if you are arming up against Amazon or just excelling within e-commerce, you should take a closer look at the types of services/tools above. There is no doubt that one of Amazon's biggest forces, besides their logistic setup, is their ability to utilize behavioral data from their thousands of users to predict buying patterns and then use this in their approach to the customers. For that reason, it is also unrealistic to think that you can outmatch a giant like Amazon, but by correctly utilizing some of the mentioned tools, you can gain a strong position on the market. 

Strategy 2 is a strategy based on "How to join Amazon and start selling on their platform". It is an area I will try to make out below.

What do you actually need to know and what do you need to get control of before you are ready to sell on Amazon? I have gathered five key areas that you should focus on when venturing into a partnership with Amazon:

1. Is Amazon the right choice for your company? 

There is no clear answer to the question above but there is a number of things you should think about when deciding if Amazon is the right choice for you. Some of the most essential points are understanding Amazon and what it takes for your business to become a success. 

But regardless of the conclusion being strategy 1 or 2, you should as a minimum consider registering your brand?

Registering a brand on Amazon has a long list of advantages. The advantages are of course most if you wish to use the platform for selling. By doing so, you will experience better rankings as Amazon has seen the value in brands along with a number of other advantages like being able to create dedicated brand stores on Amazon, market on entire categories, and much more. However, most importantly, you can register your brand regardless of choosing to sell on Amazon or not. This gives you the right to protest if you find copy products as well as the right to edit product texts at possible distributors of your brand on Amazon if they don't live up to your brand-guidelines. 

If you are more curious about your other options, there is a number of basic things important to understand about Amazon. Firstly, Amazon only cares about customer experience (CX) and not about the supplier experience. Therefore, you should be prepared for a long list of requirements as a supplier before being able to and allowed to sell on the site. (More on this in section 2).

Secondly, Amazon's role in the buying experience is comparable to Google's. The difference is, however, that you will experience the customer being further along in funnel on Amazon than on Google. The reason is that many customers on Amazon are a step further in the recognition of needing a specific product. You can compare Google with a shopping street and Amason with the specific store. 

Additionally, it is important to note that Amazon's algorithm is built with a factor more than known from Google. Besides relevancy, sales also plays a key part in the equation. When you want to affect your ranking in the search on Amazon, it is not only content but also the degree of conversions that plays a role. Naturally, this means tough competition of winning the customers - you will not succeed without putting in an effort. Therefore, it can be a significant advantage if you are able to identify a niche within which you have a strong offering and start focusing on this through carefully prepared USPs.

2. What does it take to get started? 

Rules, Rules, Rules. As mentioned before, Amazon only cares about customer experience. Based on that, you should take a good look at the rule before starting to ensure that you are able to deliver on every criterion set by Amazon. By not being able to do so, the customer will get a bad experience and you will either get a lower priority by Amazon's algorithm or your account will simply be closed. Both consequences are difficult to bounce back from if get in bad standing. It is said that it takes five good reviews to outweigh one bad on Amazon. The mantra is to ensure a good customer experience as this makes Amazon successful and therefore also makes you so. 

As a part of the many rules, you also need to decide on a sales model. There are different models you can choose between

One of the models "Fulfillment by Merchant" is build on the structure of you selling your items through Amazon's platform but taking on the responsibility for the logistic, warehouse, and service yourself. Typically, this model is an advantage for product groups with a low rate of return as you avoid being forced to carry double stock at both Amazon and yourself. Additionally, this gives you the advantage of both your's and Amazon's platform helping you sell from the same central warehouse that you are responsible for. However, this makes demands on your logistics and customer setup as it is expected that you deliver on the equal terms of the service Amazon offers itself.

Another model "Fulfillment by Amazon" is based on you letting Amazon take care of all the trouble of service, warehouse, and logistic. Typically, this model is an advantage for product groups with a high rate of return because you don't have the same risk of carrying double stock at Amazon and yourself in addition to not having the same costs of having the inventory stored at Amazon. One of the main things in this model is cost. You pay for both order handling, packaging, shipment and warehouse storage. This means that products with long storage time in the warehouse naturally has a higher cost. In return, you get very lucrative shipping prices because you can utilize Amazon's attractive logistic setup. This means that it is worth taking the time to sit down and calculate if the savings in shipment, customer service, and order handling compensates the extra costs.

3. Do you have the resources to maintain it?

When you have your products are on Amazon your success depends on your ability to optimize in addition to the previously mentioned. You will experience that the work is very similar to what you might know from SEO. This especially refers to the product map which is an area where you write your product text as well as naming your products that once again should be based on what you in SEO-terms call "keyword analysis" of relevant keywords on Amazon. 

Consequently, it is resource-demanding, like known from SEO, to optimize and maintain your products on Amazon and it is obvious that the more product you have the more work it takes. 

Besides the product map, factors like brand, Amazon ads (that is like Google ads), as well as reviews on Amazon are also essential factors determining whether you are found or not. 

Therefore, it is important to consider which resources that are handling what before starting. When the process has begun you want to stay ahead in the game. 

4. Have you considered that Amazon owns your customer data?

This is a critical point for many companies which in some cases can be worth the investment and in some cases is not. You need to consider what it means for your business as well as what advantages and disadvantages this causes.  

With the use of Amazon and especially fulfillment by Amazon, Amazon will not only own the logistical value chain. It will also own something much more valuable - customer data. 

This is also described in one of our previous blog posts: Stay close to your customers 

Today, customer data is not only the main element in many digital services but also when building a brand, in products, and in communication strategies. It is not an irrelevant asset you are handing over. Therefore, it is recommended to carefully consider how to continuously ensure the connection and contact with the customers when a part of the customer data, taken by Amazon, is removed from the equation.  

5. Do you have all the knowledge needed?

A final but important point is to make sure to surround yourself with the right people. 

There is no doubt that you can get far by jumping right into it and testing things yourself, but it can also be expensive lessons. 

Regardless of you leaning towards strategy 1: extending your digital infrastructure or strategy, or strategy 2: beginning to sell on Amazon, it is a good idea to ally yourself with a bureau or consult with some of the companies that already have experience in this area.

By doing so, you avoid the major pitfalls and ensures prioritizing your resources in regards to the efforts giving you the most value on the journey.  We wish you good luck!