I’m continually surprised by the number of large, reputable brands that entrust their Amazon presence exclusively to a handful of third-party sellers. I frequently hear them speak about the discipline they’ve introduced by keeping the number of sellers to a modest figure, as if somehow that’s the best they can do to exert control over their brand on the largest and most influential ecommerce platform in the US.
Let’s be clear - Amazon will likely produce more impressions, more shopper interactions and wield greater influence over consumers than your branded website, social channels and all other digital marketing efforts combined. It’s not exactly the channel where you can afford to take a back seat with respect to a brand marketing strategy.
This is not to say that some 3P sellers aren’t good at what they do - many are. However, even the best seller will tell you that there is such a thing as too many cooks in the kitchen.
Here are ten arguments against outsourcing your Amazon presence to a group of retail dealers with 3P accounts.
1. Strategy. Amazon is a complex platform and it’s important to have a strategy on how to approach it. If your business is split between 5 or 10 3P sellers (or more), how are you going to effectively devise and execute a singular strategy? The answer is that you can’t, and if I’m your competitor I’m going to eat your lunch.
2. Competitive Conflicts. Do the 3P sellers that represent your brand on Amazon also sell products from your competitors? If so, what’s their incentive to promote your product over another brand’s product? Roughly half the sales on Amazon go to products in the top two or three rows of search results, meaning real estate on Amazon is highly competitive. The brick and mortar retail mindset is not transferable to the digital marketplace for this reason. A hosiery specialist may be a good retail outlet in which to feature your sock brand alongside other sock brands, but they are going to be a lousy Amazon 3P partner if they are not going to execute with a bias toward your brand.
Pro tip: Introduce non-compete agreements with authorized 3P seller partners.
3. Customer Experience. Multiple 3P sellers on Amazon mean multiple content contributions submitted to Amazon, which in turn means that your product pages are at risk of being displayed with gross inconsistencies. One seller may label a shirt “XL”, while the next seller calls it “X-Large”, which can result in duplicate listings that confuse customers and diminish conversion. Unless you are syndicating authoritative copy and digital content to all sellers, you’re likely to end up with hodgepodge interpretations of your products that can dilute brand equity. Three quarters of customers that view products on Amazon ultimately make purchases from other channels, so promoting continuity in product presentations and ensuring Amazon customers have a great experience of your brand will strengthen your NPS score and reverberate positively across multiple sales channels.
Pro tip: The customer experience of your brand on Amazon should be commensurate with your own branded website, including a well crafted Amazon brand store.
4. Advertising. Amazon is essentially a pay-to-play platform, and the rise of Amazon Advertising has elevated the importance of a disciplined and strategic approach to Amazon. On average, 10% or more of sales on Amazon are attributable to advertising, with some brands paying for as much as 50% of their impressions. If your Amazon business is in the hands of a few 3P sellers, that means your Amazon Advertising options are not only limited, but you are disadvantaged relative to your 1P competitors. Most 3P sellers can only advertise if they are winning Buy Box. If you have 5 sellers (and all things are equal relative to price and availability), that means that one seller can only advertise your brand ~ 20% of the time. Having more than one seller advertise your brand is counterproductive because search advertising is a live auction and multiple sellers can drive up keyword bids. It’s virtually impossible for brands to coordinate the advertising activity of multiple sellers on Amazon. This is a serious handicap that should not be underestimated.
5. Data. If your Amazon business is outsourced to 3P sellers, who has access to the data? What products are selling, how well is content converting, who is bidding on your branded keywords, where are your products being shipped, what’s your return rate on any given product…? Amazon’s scale means that it produces meaningful amounts of data that can (and should) be analyzed. Data can help optimize presentations, provide feedback loops on product attributes and identify market trends. Smart brands pay close attention to what’s happening with their brands on Amazon.
6. Customer Service. Amazon customers write reviews and ask questions about product features in Amazon’s Q&A section. Is your brand’s voice present in these important forums? Are Amazon customers getting authoritative answers and are problem issues being referred to your warranty department? Who is responsible for the satisfaction of your customers? 3P sellers can perform some of these functions, but again the best customer experience is going to result from direct engagement by the manufacturer. Similarly, analyzing customer feedback can provide valuable insights to issues with product design or opportunities for line extensions.
Pro tip: Amazon customers rarely contact sellers for support issues. Make sure your products and packaging clearly reference your branded website, customer service phone number and warranty information.
7. Inventory Forecasting. If you’re a seller on Amazon, and you are competing with several other sellers for the Buy Box, anticipating your inventory needs will be clouded by the unpredictability of your sales relative to the other sellers. You might win Buy Box 70% of the time. You might lose Buy Box 70% of the time. The more sellers that offer the same product, the more uncertainty they will have with respect to how many units they will sell. This aggregates into multiple sellers all writing orders to the manufacturer (for the same product) with low confidence in sell-through. This, in turn, may produce high volatility with in-stock rates due to risk-adverse sellers, the impact of which is a diminished customer experience and lost sales. At minimum, the manufacturer will be subject to multiple, low-quality inputs that will compound risks to forecasting accuracy in their supply chain.
8. The Buy Box Motive. There are two primary ways that 3P sellers can win Buy Box and achieve sales. Either they have inventory when no one else does, or they have the best prices. In the event there are multiple sellers with inventory and prices are identical, Amazon’s algorithms start taking into consideration things like Prime eligibility, inventory proximity (i.e. delivery speed) and seller ratings in order to establish a “winner” of the Buy Box. The element in this equation that is most easily affected by the seller is price. Hence, the temptation always exists for a seller to manipulate the price of your products in order to win Buy Box and sell through their (poorly forecast) inventory. Another tactic that can help sellers win Buy Box is to create a new product listing by bundling or relabeling product in a unique configuration, thus eliminating competitors. This practice is brand dilution pure and simple, and no seller that engages in this behavior should be trusted with your brand.
9. Eligibility. How did you decide on your 3P partners? Was it because your wholesale sales team says they are a “good partner”, or was it because Amazon is their core competency? I would argue that entrusting your brand’s biggest digital marketing initiative to a wholesale partner who’s primary business is not Amazon (and likely actively promotes your competitor’s products) is to underestimate what’s at stake for your brand on Amazon. Again, many 3P sellers do a good job, but there’s a clear difference between specialized Amazon experts and trade partners that also happen to have an Amazon seller account. If a retailer says they can’t carry your product in their store unless you also allow them to sell on Amazon, perhaps that suggests their core business isn’t viable.
10. A Seat at the Table. The best way to engage Amazon - whether you are picking a fight or brokering a partnership - is to have a seat at the table. Brands that distance themselves from Amazon and then subsequently complain about Amazon are not going to be effective in achieving their objectives. As Jeff Bezos famously said, “complaining is not a business strategy”. For this reason, brands not working with Amazon are disadvantaged relative to competitors who are. While it’s true that Amazon does not afford many smaller brands the luxury of direct engagement even if they are a vendor, mid-tier and larger brands generally stand to benefit from a direct retail relationship.
There are a lot of different strategies brands can take with respect to Amazon, and these arguments won’t necessarily apply to everyone. Some brands may find success working with a dedicated 3P seller that is savvy and functions like a partner, for example. Some brands may operate their own 3P business (provided they adhere to Amazon’s policies). Other brands may be working with Amazon as a 1P vendor but are still dogged by too many 3P sellers. Each of these scenarios may have its own considerations.
I respect a brand’s decision not to engage with Amazon directly. However, that stance is incompatible with an approach that authorizes retailers with 3P accounts to sell their brand on Amazon instead. If your brand is going to be on Amazon it only makes sense to manage Amazon as you would your DTC efforts, like a flagship retail store, social channel or branded website. For those who do not want to relinquish control of retail pricing to Amazon Retail, I would first challenge whether the risk of price erosion has been accurately assessed with actual data, and whether that risk is actually worse than the disadvantages listed above. If the analysis concludes that a risk exists because Amazon will mirror an undisciplined marketplace with respect to price, I would argue that the brand has a different set of problems that should be the focus of a prioritized effort to remedy.
For help on finding the strategy that’s right for your brand, reach out to our team at Indigitous.