A Strategic Vision for the Amazon Marketplace
A Strategic Vision for a Traditional Sport and Outdoor Brand Scaling in the Amazon Marketplace.
I have often pondered this question: What should be the strategic vision for a brand on Amazon, particularly for a traditional manufacturer with deep roots in offline retail and distribution networks?
For businesses and brands deeply rooted in traditional retail and distribution networks, several critical questions arise:
Alignment with Global Strategic Vision: How does the company and its leadership envision the Amazon Marketplace fitting into their overall global strategic vision?
Concrete Goals: Are there specific goals for the Amazon business and what data or assumptions are they based on?
Pricing and Differentiation (Channel Strategy): Is there a pricing and product differentiation strategy specific to Amazon compared to other channels?
Profit Margins: What is the target profit margin for Amazon sales?
Understanding Amazon's Vision: Does the leadership understand Amazon's strategic vision?
Understand the Customer: Does the brand have a primary focus on customer intent and purchase behaviors?
It's imperative that the brand's vision aligns harmoniously with Amazon's. Amazon should not dictate the vision, but rather, the brand should shape and adhere to the necessary strategies and tactics available on Amazon both today and in the future in order to execute that vision.
We intentionally refer to it as the 'marketplace' because, in many ways, it resembles a bustling bazaar with millions of SKUs, organized and delivered through a complex algorithm founded on fundamental factors. While we won't delve into the specifics here, we recognize factors like Price, External Traffic, Click-Through Rates, Conversion Rates, In-Stock Rates, Organic Sales, and Customer Feedback/Reviews as critica
Amazon is a formidable and agnostic force in the global e-commerce and retail landscape. It has no allegiance to your product or brand. It cares only that you adhere to its rules and Key Performance Indicators (KPIs). Amazon is however fiercely obsessed with its customers, viewing them collectively as its North Star. It is often said that Amazon is ‘customer centric’ and ‘seller agnostic’. Many traditional brands would do well to internalize this reality.
Several key areas that should be included in any high-level Amazon strategy are outlined below:
Customer Obsession
The #1 Principle for Amazon leadership out of all 14 principles is:
‘Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.’
Any brand that hopes to succeed in an outsized way on Amazon must take this to heart with their own customers. Customer engagement and service has to be top of mind.
Adapt and Evolve
Is the brand willing to adapt packaging, warehouse operations, marketing budgets, creative, internal teams and personnel to Amazon operating requirements ? Part of meeting growth objectives on Amazon is to move with Amazon.
Price and Inventory
Any traditional retail brand must design and manage a catalog of products with their entire global retail footprint and distribution in mind. The Amazon catalog must be managed in such a way which mitigates disruption due to price and inventory positions. Dynamic pricing is critical in maintaining a strong position in any category along with preventing stockouts and overstocking.
Selection
As a traditional brand/manufacturer it is not enough to simply sell a subset of your SKUs or even all your SKUs on Amazon. A unique and exclusive selection should be part of the Amazon catalog. It does not need to be a unique product but can be a variation, exclusive to Amazon which can be aggressively marketed and promoted only on Amazon. This mitigates price and 3P seller disruption. A ‘clean’ offer reduces customer confusion and creates an environment where performance can be accurately and confidently measured. ~10% of a brand catalog should be exclusive to Amazon if the Amazon channel is to be prioritized.
Innovate and Iterate Products
It is critical to explore opportunities to develop new products by leveraging manufacturing and design capabilities in order to deliver profitable high volume SKUs to the Amazon catalog. Any existing products that meet profitability thresholds should be promoted and focused on. These margins are critical for the brands ability to engage in advertising and the numerous marketing opportunities which are constantly being released on the Amazon platform.
80/20
Do not toil over the 80% at the expense of the 20%. Your top SKUs will lead the way and will sometimes be replaced by your innovation and iteration of new products but generally it will be the top 20% +/- where your efforts AND budget should focus.
Share Information with Automated Systems
Automation is taking away more and more tactical levers. This is true for the Google ad platform and the Amazon platform which eventually follows suit. In this spirit it is important to share as much information as possible with Amazon systems so that your business intelligence and your understanding of your audience can influence this increasing automation.
Advertising Incrementality
To succeed on Amazon, brands need to focus on measuring and optimizing for incrementality. This means minimizing ad-driven sales that would have happened organically while aggressively pursuing sales that require advertising.
Segment your advertising (branded vs competitor vs category) and focus on measuring and optimizing for Incrementality.
Amazon’s Marketing Mix or 4Ps
It is always instructive to learn from Amazon when building out a path for growth. Amazon’s growth strategy has revolved around the 4Ps which it has used to capture and dominate market share across retail.
Product Mix: Amazon offers a wide array of products, including retail goods, grocery, electronics, digital content, web services, publishing, and brick-and-mortar stores, like Whole Foods.
Distribution: Amazon uses both online platforms and physical stores to reach customers, with a strong emphasis on its websites and apps for most transactions.
Promotion: Amazon's primary promotional tool is advertising, backed by sales promotions, public relations, and direct marketing.
Pricing Strategies: Amazon employs market-oriented pricing, differential pricing, freemium pricing, and pay-as-you-go pricing to attract customers with competitive and flexible pricing.
Summary of Vital Focus Areas for the Amazon Marketplace
1. Build a Strong Amazon Brand Presence:
Create and operate a Professional Amazon Storefront: Set up an attractive and well-organized Amazon storefront that reflects your brand identity. Keep it fresh and update according to seasonality, your business objectives and your customer feedback.
Custom Brand Pages: Utilize Amazon's A+ Content or Enhanced Brand Content to enhance your product listings with engaging multimedia content and brand storytelling. Keep it simple, clean and easy to digest. Optimize for Mobile and Google Search.
2. Optimize Product Listings:
Keyword Optimization: Conduct thorough keyword research to ensure that your product listings include relevant keywords in titles, bullet points, and descriptions. Audit these keywords and product listings regularly.
High-Quality Images and Videos: Use high-resolution product images, infographics, lifestyle images and videos to showcase your products from various angles. Be creative and have fun. Remember, you are selling fun.
Detailed Product Descriptions: Provide comprehensive product information, specifications, and benefits to help customers make informed decisions. This is especially true for feature rich higher price point items.
3. Competitive Pricing Strategy:
Competitive Pricing: Offer competitive prices to attract price-sensitive Amazon shoppers.
Dynamic Pricing: Utilize pricing tools and algorithms to adjust prices based on market conditions, demand, and competitor pricing. Advantage of 3P is having this flexibility. 1P is more of a challenge and requires more channel management and communication with your vendor or category manager.
4. Inventory Management:
Fulfillment by Amazon (FBA): Use Amazon's FBA service for efficient and reliable order fulfillment. On the Vendor side, communicating and sharing information with Instock team is critical in getting POs right sized.
Inventory Planning: Maintain optimal stock levels to prevent stockouts and overstocking. It is not enough to rely on Amazon inventory forecasts. They may not see what is coming. Consider your promo and pricing plans and any off-Amazon promotions and advertising. For example, Google search/display ads often end in the Amazon buy box.
5. Customer Obsession:
Responsive Customer Support: Provide responsive and helpful customer support to address inquiries and issues promptly.
Reliable Shipping: Offer fast and reliable shipping options. Amazon Prime set the standard here. Certify your packaging for resistance to damage. Some packages are touched up to 30 times in the supply chain before they end up at the customer's doorstep.
6. Advertising and Promotion:
Amazon PPC/DSP Advertising: Invest in Amazon Pay-Per-Click advertising campaigns to increase product visibility and drive traffic to your listings. Leverage Amazon's growing global network and surfaces(kindles, Alexa TV, etc) to reach new audiences. Keywords are more and more challenging to rank for and often do not reach your audience. This is where Google and Amazon audiences and the AIs that are targeting them effectively come in. And it bears repeating .. Focus on incrementality for growth.
Messaging: Related to targeting audiences it is critical to form a message that actually resonates with that audience. The old days of messaging effectively will and are returning. Carpet bombing keywords or relentlessly pursuing keywords is often a frustrating exercise if not a fool's errand. Spend time A/B testing your messaging/call to action.
Promotions and Deals: Run limited-time promotions, lightning deals, and discounts to attract more buyers.
Cross-Promotion: Leverage Amazon's cross-promotion features to showcase related products within your brand.
Embrace Ad automation layering: Whether on Amazon or Google, advertiser controls are being reduced. Understand how to layer ad automations with your own business intelligence and objectives at a SKU level. Automation is replacing human button pushing. Human creativity with increasing machine intervention is the future. Fredercick Vallays of Google called it being the Teacher, Doctor and Pilot. It is important to have a more strategic mind set and layer in additional data and not solely rely on the increasing automation of advertising platforms. It is called Machine ‘Learning’ for a reason. Frederick’s post-Google venture https://www.optmyzr.com/ has been impactful in teaching brands the formula of Human+Machine > Machine.
“As online advertising becomes more automated, we believe that the KPI you ask machine learning (ML) algorithms to optimize and the data you share with these algorithms will become one of the most important competitive advantages to your online ads strategy” (Google Executive Summit)
7. Monitor and Optimize Performance:
Analyze Amazon Analytics: Regularly review performance data, including sales, conversion rates, and customer reviews.
Optimize Product Listings: Continuously update and improve product listings based on customer feedback and performance metrics.
Competitor Analysis: Keep an eye on competitors' pricing and strategies to adjust your approach accordingly.
8. Brand Loyalty and Trust:
Collect and Showcase Reviews: Encourage satisfied customers to leave positive reviews and address negative reviews kindly and effectively. Send engaging review requests, invite the customer to be part of the brand community.
Quality Assurance: Ensure product quality and consistency to build and maintain trust with customers.
9. Leverage Amazon's Advertising Tools and Third Party Tools:
Actively use Amazon's Brand Registry program to protect your brand and gain access to additional advertising and branding tools.
Evaluate and leverage PPC machine learning and management tools to quickly evaluate campaign performance and make adjustments as necessary.
10. Expand Product Range and Categories: - Explore opportunities to expand your product offerings within Amazon's guidelines to cater to a broader customer base.
11. Data-Driven Decision-Making: - Use data analytics and Amazon's seller reports to make informed decisions regarding inventory management, marketing, and product development.
12. Compliance and Legal Considerations: - Ensure that your products meet Amazon's policies and guidelines, including safety regulations and intellectual property rights.
13. Adapt to Amazon's Policies and Updates: - Stay informed about changes in Amazon's policies, algorithms, and marketplace dynamics and adapt your strategy accordingly.
14. Update:
Beyond Keywords: How Cosmo and Rufus Are About to Change Product Discovery
Cosmo and Rufus will impact product discovery on Amazon going forward. Rufus is a new shopping assistant rolled out to Amazon's US marketplace, providing interactive prompts and answering shopper queries directly. This new feature allows customers to ask detailed questions without having to navigate through entire listings, fundamentally altering how product information is accessed and understood. Rufus uses a large language model to offer personalized recommendations and compare products based on user preferences and browsing history. It simplifies the search process by understanding and predicting customer preferences and behaviors, moving beyond traditional keyword-based search to more contextual and intent-based interactions.
The brains behind Rufus is a system called COSMO. COSMO is a large-scale e-commerce commonsense knowledge generation and serving system developed by Amazon. It is designed to mine user-centric commonsense knowledge from user behaviors on Amazon's e-commerce platform, creating a comprehensive knowledge graph (KG) that enhances various online services such as search relevance, recommendations, and search navigation.
COSMO collects initial data from large language models (LLMs) and refines this information through human-in-the-loop annotations to ensure accuracy. The system utilizes an instruction-finetuned language model, COSMO-LM, which generates e-commerce commonsense knowledge that aligns well with human preferences and behaviors. This enables COSMO to understand user intentions behind search queries and purchase behaviors, allowing for more personalized and context-aware shopping experiences.
Compared to other knowledge graphs, COSMO offers broader coverage of nodes and edges across more domains, going beyond product attributes to incorporate a wider range of user behaviors and intentions. This makes COSMO more effective in understanding user needs and providing relevant search results and recommendations.
As we move from keywords to audiences, it’s crucial for brands to optimize their content and images for these new systems. This includes focusing on use cases, creating engaging visual content, and understanding customer personas to better match product offerings with shopper needs. Additionally, brands should prepare for more semantic and intent-based targeting in advertising, as well as enhancing product listings to be more informative and customer-centric.
The introduction of Rufus and COSMO represents a significant shift in how product discovery and customer engagement will evolve on Amazon. By leveraging user behavior data and advanced AI, these technologies improve search relevance, recommendations, and user navigation, ultimately enhancing the shopping experience. As these technologies advance, staying ahead of these changes will be essential for maintaining a competitive edge in the marketplace.