When the CEO of a new client informed us that his business had exceeded their yearly sales targets, shown double digit growth, yet this caused him sleepless nights, we were intrigued as to WHY?
Another client told us revenue in their biggest channel had tripled in 3 years, but that this caused them huge concern, again we asked "WHY"?
The answer in both cases? AMAZON.
Many Brands that sell on Amazon will tell you similar stories in what can only be described as a "Love/ Hate" relationship with the Marketplace giant.
There is no doubt if a Brand successfully engages with Amazon Retail, or Amazon 1P as its more commonly known in the industry, they will successfully increase sales, acquire new customers and leverage Amazons high traffic volumes.
However, more and more brands are finding it increasingly difficult to manage their presence correctly on Amazon; and are finding that the long term impact to overall business can be detrimental.
Take the example of our 2 major clients above, although their sales on Amazon were up, they struggled to achieve the profit margins they expected.
The key challenges that these clients, and many similar big brands now face when selling on Amazon are typically:
- Lost control over pricing (which impacts pricing on all channels);
- Margin pressure from Amazon; the squeeze can mean no profit on certain product lines
- Managing returns can be a significant overhead; and
- Amazon can push competitors’, or Amazon own products, if there is more margin in it for them.
Control over Pricing
You will often hear complaints from Amazon sellers that the products they have been buying directly from a Brand to sell on Amazon appear elsewhere on Amazon at a sell price that they simply can’t compete against.
Upon challenging Amazon on why they are selling at such a low level, Amazon will state that they simply match the buy box price that is being set by Amazon 3rd party (3P) Marketplace vendors, or other online or offline channels. But as Amazon has dramatically grown and become a major retailer in its own right, we increasingly hear from vendors that this is no longer always the case.
Many Brands are finding themselves under extraordinary margin pressure when selling to Amazon directly (1P), which is generally triggered by the activity highlighted above, i.e. the price war to win the buy box.
Amazon will, of course, seek to maximize their margins and push what is selling best. They then make it clear to the Brands that they need better prices or they will stop ordering some or all of the products.
This can equate to millions in lost revenue if the “demands” aren’t met. That is what is keeping our CEO friend awake at night.
So, what can Brands do?
We have seen huge success if Brands use a 3rd party Vendor ( 3P/Amazon Marketplace Seller) like Luzern, to sell on their behalf. This enables the Brand to build up listings and history, growing sales and margin across 3P as well as with 1P with Amazon, avoiding channel conflict or any “race to the bottom” pricing battles.
Luzern successfully works with many major brands including Fossil, Petsafe, Fellowes and Jacob Douwe Egberts enabling them to take control of their Amazon strategy and improve the overall profitability of the channel.
Now is the time to take back control of your Brand!
If you are an ambitious Brand looking to optimize your online brand strategy and maximise marketplace sales, we can work with you to actively manage and control sales margins, position against competitors, and drive conversions across multiple channels.
By Orla Power, Marketing Director, Luzern
For more information: email@example.com