Amazon is not the elephant in the room of retail. It is the room.
Amazon boasts 310 million active shoppers worldwide. In 2016, the Seattle-based giant chalked up $136 billion in U.S. sales (1P+3P), representing 34 percent of all online retail sales. By 2027, its share of the online market is projected to approach 55 percent, representing almost 13 percent of all retail sales, excluding autos and gas.
That's a remarkable story with significant impact for the future of brands both big and small. No doubt many ailing retailers with brick-and-mortar presence will not survive the decade. But stop and think about the flip side of that coin - what would it mean for Amazon if brands that customers covet so much disappear or selection dries up? Don't both sides in fact need each other?
They do. Amazon may have little reason to tinker with its formula for success, but with a few accommodations that enhance brand partnering, it could potentially create an environment that benefits everyone.
Power of Amazon Marketplace
Consumers clearly love Amazon.com for its convenience. They love the ability to view a variety of products, to sort by pricing and to click-to-ship instantly. They love that convenience so much, in fact, that many pay to shop on the site through Amazon Prime. Survey data shows that Prime members spend about three times as much as non-Prime members. About one-half of all U.S. households are currently Prime members.
Of course, brand retailers need Amazon as part of an overall strategy of reaching customers wherever they shop. That's where the traffic is, after all. To that end, Amazon Marketplace, the e-commerce giant's third-party (retailers, wholesalers, manufacturers, resellers, etc.) selling platform for individual brands accounted for roughly 70 percent of the estimated $340.71 billion of all merchandise sold by Amazon this year. Those sales went directly to the third parties.
Amazon Marketplace provides strategic advantages to brands (inventory stocking, order fulfilment, web front end, and access to consumers. Its fee is an estimated 15% of sales on the Marketplace, plus charges related to inventory and fulfilment. That may be a steep price to pay for those brands that have invested in their own website as part of their omni-channel strategy.
Finding Common Ground
Surveys show that most consumers begin their online product searches on Amazon - not on a search engine or retailer's website - and use Amazon to verify prices before making a decision to purchase. That's especially true for Prime members and demonstrates a major advantage for Amazon.
However, research also shows that most customers come to Amazon to find products from specific brands. That means that Amazon must keep its Prime customers satisfied by offering not just the brands they want, but a wide selection within those brands. Without those options, Prime customers can and will go elsewhere to find what they want - like the brand's own website.
Given these practices, one key to a win-win might be for Amazon to enhance the shopping experience for its customers on the Marketplace and by extension, improve brand presence. Here are some suggestions:
- Create more brand splash pages
- Splash pages (think microsites) allow brands to show a curated assortment of new products to customers and give the brands first dibs on fulfilling an order. Once on the page, customers could have the option to view a wider variety of choices and pricing fulfilled by others. Amazon has already demonstrated the success of this strategy with examples such as furniture giant Ethan Allen's "Design Studio" page. Promoting this option to smaller retailers and brands would be a cost-effective option for brands that haven't already invested in the expense of launching and maintaining their own website or that are facing expensive upgrades to their sites.
- Make suggestions
- Like a knowledgeable sales associate, suggestions for outfits and complementary adds a personal touch to the shopping experience and can open the customer's eyes to other products. Further, research shows that customers will shop within a retail brand more often when they receive suggestions based on their purchase history. Beyond the brand itself, suggested products can include brand-approved affiliate brands.
- Add more filtering capabilities
- Since consumers tend to know exactly what they're looking for, why not give them the option to filter selection? Amazon can take a cue here from sister company Zappos, which allows shoe shoppers not only to narrow by brand, but by style, size and material. An option for "newness" would let customers view only the hottest trends.
- Take the guesswork out of pricing
- Amazon posts the lowest price available for an item even if it's just one size and color combination within a wider assortment. That can lead to disappointment for consumers when they discover a higher price tag upon selecting a different combination. More clarity on prices would better serve customers, and, allow sellers to better manage pricing and create a more level playing field.
Brand Partnerships Emerging
While Amazon could do more for the brands, both sides are already taking steps to strengthen their partnerships, which in turn can boost exposure and brand exclusivity while attracting the best customers. Here are some recent examples.
- The Children's Place is teaming with Amazon on a new marketing program intended to increase brand exposure that will likely also improve the company's business.
- Sears agreed in July to begin selling its Kenmore Appliances on Amazon, including those enabled by Alexa, Amazon's voice-activated "digital assistant."
- Nike, after eschewing Amazon for years, extracted favorable terms from the giant last summer to better control counterfeits and authorized resellers. In return, the highly-coveted brand agreed to begin selling some of its merchandise on the site.
- Kap 7, a Water Polo equipment and swimwear company in California, offers only select products on Amazon to focus sales there while offering different products through its own website. By exploiting SEO specifically, the seven-person company appears number 3 in searches for "water polo swimwear" on Amazon behind industry leader, Nike.
The Next Decade
Kap 7's approach to selling a value assortment on Amazon is an appealing strategy for other brands that depend on the same kinds of sales, such as Nike and Ralph Lauren. Working with Amazon would simplify their go-to-market strategies. To all intents and purposes, this is the digital outlet mall.
In the meantime, Amazon will continue to grow. There is no magic bullet for brand futures, but developing an omni-channel strategy that makes greater use of the world's most famous e-tailer might offer more light at the end of the tunnel.
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