Why Outsourcing Your Brand Presence on Amazon to a Bunch of 3P Sellers is Probably a Bad Idea

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.

Amazon HQ

Amazon HQ

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.

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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.

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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.

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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.

It's the Interface, Stupid

Amazon was once an online book store. Then it was the Everything Store. Now, it seems, it’s simply Everything. Amazon has expanded its footprint into areas that sometimes appear unrelated to its primary business (selling widgets on its website). The scale and breadth of these forays sets Amazon apart from other companies.

Illustration courtesy of the Verge

Illustration courtesy of the Verge

Some of these efforts have been a function of leveraging Amazon’s scale, such as the AWS division, which was hatched as a way to underwrite Amazon’s investment in its own website infrastructure by selling excess server capacity. Similarly, today Amazon is aggressively growing its logistics and delivery services, which are core functions that support Amazon’s ecommerce business.

But what’s the strategy behind these other, seemingly disparate investments? In my view, Amazon is good at selling things online, but at some point Amazon needs to escape the confinements of its website in order to grow. Even though these businesses may be different on the face, they nonetheless complement Amazon’s core competency, which is acquiring and leveraging consumer data.

Hence, it’s all about the interface. Amazon looks for ways to interact with customers across more touch points than the Amazon app or website.

Alexa, Ring doorbells, Fire TV, Go Stores, Whole Foods, Twitch, Sidewalk, Project Kuiper, Eero, Amazon Advertising, Amazon Studios…it’s a long list of ambitious projects and acquisitions. The common denominator is that they can engage the customer outside of the Amazon shopping platform. There’s evidence of another common thread, which is that they provide Amazon with additional opportunities to loop customers into the Prime membership program.

Meanwhile, on the website itself, Amazon is busy trying find ways to get customers to hang around a bit longer. Social sites like Facebook have an advantage over Amazon when it comes to advertising because their users spend considerably more time on the site (upwards of a half hour or more per day on average). That’s getting into the territory of the visiting relative who overstays their welcome and seems permanently rooted in your couch. Thus, Facebook has the luxury of ample time to surface multiple ads to its users.

Amazon “Posts” social-like blocks (left) and Amazon Live live streaming option (right)

Amazon “Posts” social-like blocks (left) and Amazon Live live streaming option (right)

By contrast, Amazon’s ruthless efficiency has taught customers how to “spearfish” for what they want and get off the site with one click. That’s great for convenience shopping but a disadvantage for Amazon’s advertising business, which has precious little time to surface ads to the customer.

Earlier, Amazon shut down one social wannabe program, Spark, that never really took off. Recently Amazon has introduced two newer options for brands to surface alternative content to Amazon customers. Amazon Posts is a simple, social-like block that brands can upload to Amazon for free and (in theory) Amazon will surface these Posts on relevant pages. The other program, launched this summer, is a reboot of a previous effort to introduce a QVC style shopping experience called Amazon Live. Brands can livestream demonstrations to hawk their products to Amazon customers and Amazon records and archives them as videos. You can see the Live page here.

As is common for Amazon, not much detail is yet available on these programs in terms of traffic, engagement, sales, etc. We’re looking at Posts as a potential way to complement advertising efforts (Amazon claims Posts will be shown on “relevant” pages, including those of competitors). Anyone who has invested in building a branded social feed (or blog) will tell you that it’s not something to to approach lightly, however, so we don’t recommend wading into this territory unless the brand is prepared to have a thoughtful, long-term strategy.

Whether Amazon can convince customers to stick around and consume more content remains to be seen, but after having trained customers on the value of speed and convenience, it seems to me it may be challenging to convince shoppers to watch a bunch of random videos. When discussing product videos with our team recently, one of our employees confessed he never clicked through the video links, stating “Hmm, I don’t know. A video is… it’s such a commitment”.

Relentless

As we look ahead to what will likely be another record-breaking holiday season for consumer sales at Amazon, we do so in the context of unprecedented developments at Amazon. Amazon’s relentless pursuit of growth has notched some incredible milestones. Amazon is the 2nd largest private employer in the US, the largest cloud computing company, the third largest digital advertising platform and soon-to-be the world’s largest shipping company. Amazon is expected to account for more than 50% of all online sales this coming Cyber Monday.

An estimated 12,000 retail stores are anticipated to be shuttered by the end of 2019, and analysts believe Amazon will reap the most benefit. Meanwhile, Amazon continues to push into grocery and convenience store formats, with rumors of Amazon Go stores slated for grab-and-go destinations like airports.

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Amazon revealed dozens of new devices at its hardware event in September, with most options focused on expanding the reach of Amazon’s Alexa voice technology. Now you can talk to Alexa through wireless Amazon ear buds and if you don’t like her voice, for 99 cents you can switch it to Samuel L Jackson instead.

All of this has some asking “Is Amazon unstoppable?” That’s the focus of a New Yorker piece that (after a rather meandering prologue) focuses on the fate of a company in the cross hairs of federal regulators. Some Amazon sources told the author that they weren’t particularly concerned about the investigations, in part because Amazon employs hundreds of thousands of people (i.e. voters) all across the nation.

Another #1 we can add to the previous list of Amazon achievements is lobbying, with nearly a hundred full time lobbyists in Washington DC - the most of any tech firm.

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Signs exist, however, that Amazon’s hubris is about to be checked. If not by federal regulators, then by consumers who question the value of one-day delivery relative to safety, or those who give pause to consider whether low prices are really worth the risk of toxic toys. As Amazon makes headlines for the wrong reasons, Amazon risks losing its most valued asset - customer trust.

By the way, the link still works - try relentless.com in your browser.

Trump, Tariffs, Target, Turmoil

This past week news leaked that Target CMO Mark Tritton issued a letter to suppliers saying the retailer will “not accept any new cost increases” and its “expectation is that suppliers will develop the appropriate contingency plans so that we don’t have to pass price increases along to our guests.”

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As of this writing, Amazon’s vendor website still included this message:

“We understand that tariffs can have a significant impact on the landed cost of your products and want our business relationship to be mutually beneficial. We will consider tariff-related cost increases that reasonably share the tariff impact in order to support and help you succeed.”

However, with Target taking such a strong stance, it seems less likely that other big retailers will be amenable to absorbing cost increases. As Scott Galloway put it “Amazon partners with companies the way a virus partners with a host - it always works out well for Amazon.”

To be fair, we don’t have much insight into the parameters of the Target policy relative to which suppliers are impacted (or not).

We’ve seen relatively few tariff-related cost increases get approved by Amazon so far this year, and I’d personally be surprised if many vendors successfully broker a satisfactory concession from Amazon at this late stage of the game.

Failing a sweeping policy like Target’s, the stick that Amazon will always use to blunt cost increases is market pricing. Assuming Amazon is amenable to increased costs, they are likely to approve them if and only if the market (consumer) prices for the affected products reflect a commensurate increase.

Given the lag such a change can take to manifest across the market, Amazon could potentially avoid cost increases for much of the 4th quarter.

Good, Fast, Cheap; Pick Any Two

The Wall Street Journal recently published a must-read, blistering investigation of products found on Amazon that posed safety issues, were not compliant with government regulations or contained illegal ingredients. Among the findings:

•116 products were falsely listed as “FDA-approved” including four toys—the agency doesn’t approve toys—and 98 eyelash-growth serums that never undertook the drug-approval process to be marketed as approved.

•43 listings for oral benzocaine, a pain reliever, lacked advised FDA labels warning against use on children under 2.

•80 listings matched the description of infant sleeping wedges the FDA has warned can cause suffocation and Amazon has said it banned.

•52 listings were marketed as supplements with brand names the FDA and Justice Department have identified as containing illegally imported prescription drugs.

•1,412 electronics listings falsely claimed to be UL certified—indicating they met voluntary industry safety standards—or didn’t provide enough information to verify the claim.

•The Journal analyzed 3,644 toy listings for federally required choking-hazard warnings. Regulators don’t provide databases of toys requiring the warning, so the Journal compared the Amazon listings with the same toys on Target.com and found that 2,324, or 64%, of the Amazon listings lacked the warnings found on the Target listings.

•In addition to the 4,152 items, the Journal initially found 4,510 balloons lacking required choking-hazard warnings listed. Weeks later, the Journal identified an additional 2,208 balloon listings without choking hazard warnings.

Unfortunately, for those of us working closely with Amazon this is not surprising. In fact, it’s more likely just the tip of the iceberg. Amazon does not operate like a traditional retailer that vets its suppliers (or, in Amazon’s case, it’s third party marketplace sellers). In fact, as I called out on the WSJ teleconference with the reporters of this story, Amazon doesn’t even require that sellers reveal their identity to Amazon customers, effectively making them anonymous. What could be better for unscrupulous actors?

Indeed, Amazon’s largely unregulated marketplace has eroded to become the junk bond market of retail. Ironically, the toxic co-dependency between Amazon and its millions of questionable sellers stands to erode the value that Amazon founder Jeff Bezos cherishes most – customer trust.

While the risk to consumers from toys with lead paint or illegal supplements is self-evident and unacceptable, we sometimes forget about the collateral damage that impacts otherwise reputable brands – both 1P and 3P – simply as a function of their association with Amazon. When customers receive a counterfeit product, they leave a negative review on the product page of the authentic product. When customers have a poor experience with a knock-off product, they may conflate it with a legitimate brand when considering whether or not to recommend the brand to their friends in the future.

Just to illustrate how bad things are at Amazon right now, even Amazon’s own private label product pages are getting hijacked by nefarious 3P sellers. Once again, we’re not surprised to see this given the number of website integrity issues our agency experiences on a daily basis with our client’s product listings on Amazon. It’s hard to reconcile that the company entrusted with cloud services for the CIA relies upon an inherently unstable and easily hacked website for the majority of its revenue.

Not surprisingly, the Journal article has prompted more politicians to demand answers from Amazon. Amazon can’t easily brush this one aside because the more light reporters (and regulators) shine into Amazon’s marketplace, the uglier it’s going to get. Amazon’s approach to managing regulated goods has largely been to use available intelligence to determine which items may be restricted and prompt sellers to provide Amazon with the necessary documentation to clear the items for sale. Unfortunately, this process is not foolproof at Amazon. Good items get mixed in with the bad, documents may be forged, and Amazon’s systems fail to keep up with the changing assortment.  

If I were in charge of any of America’s other great retailers, I would be doubling down on a PR campaign that touted the integrity of my company’s supply chain. Customers don’t want more “selection” from China. They want to have faith and trust that the products they buy won’t poison their kids. Retailers that build upon that type of trust may just end up being rewarded more than the retailers who bank upon 1-day shipping as their biggest value proposition.

See the WSJ video recap of the story here

Amazon News Round Up - August 2019

Another month, another tidal wave of new things to report from the Amazon front lines:

  • Last month, Amazon opened its latest “4-Star Store” in Seattle. The 4,000 square foot retail space is on the street level of Amazon HQ’s newest 37-story tower, called re:Invent. Despite the physical merchandise being (more or less) organized into themes, the assortment still produces an oddly random vibe.

Amazon’s 4-Star Store in Seattle

Amazon’s 4-Star Store in Seattle

  • On the other end of the retail spectrum, Amazon partnered with Kohl’s to offer Amazon customers an alternative to packaging up their returns and mailing them back to Amazon. Kohl’s CEO Michelle Gass called the program its "single biggest initiative of the year" and reported a 24% increase in foot traffic to the stores piloting the program, prompting Kohl’s to roll out the program to all 1,100 locations. Amazon-owned Whole Foods is also participating in the program.

  • What happens to the merchandise that customers return to Amazon? If Amazon deems the merchandise not suitable for resale, Amazon has to find a home for it other than its FCs. Third party sellers using Amazon’s FBA fulfillment services are accustomed to receiving “removal notices” from Amazon, for example, that require sellers to process inventory that cannot be sold to customers. The FBA program offers sellers an alternative to taking back the goods. Previously, this approach involved Amazon using a combination of liquidation efforts and, well, landfills. Amazon recently announced it was updating its policy and partnering with non-profits to donate the inventory instead. Coincidentally, the change in policy followed negative news reports - including a French documentary - that exposed Amazon’s dirty secret of turfing millions of products into garbage dumps. Unfortunately, this is another example where Amazon’s apparent altruism is revealed instead to be a counterbalance to corporate shaming. The only question now is who is eligible for the tax benefit for charitable donations?

  • Amazon’s shipping business continues to grow, and we’ve recently seen solicitations from Amazon promoting its freight services. Among the pitches from Amazon are offers to fulfill your brand’s ecommerce orders to customers. According to Amazon, “Amazon Shipping is a ground shipping service that will pick up packages from your warehouse and deliver them to your customers, 7 days a week.” The minimum volume requirement is said to be 15 packages per day.

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  • Amazon was defending itself from what appears to be a largely contrived PR effort to counter growing concerns over working conditions in Amazon warehouses. Active since last year, Amazon’s Twitter “Ambassadors” were recently outed for writing “propaganda” for Amazon that read more like corporate press releases. Historically, Amazon has stayed quiet in the face of criticism, but in recent times we’ve heard from Amazon spokespeople more frequently. Their form isn’t exactly polished, however, such as when SVP of Operations Dave Clark cried foul at John Oliver’s expose on “brutal” working conditions at Amazon FCs.

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  • Perhaps the boldest move we saw from Amazon this past month was a new option for Amazon 3P sellers called “Sold by Amazon”. Aside from yet another acronym being added to the lexicon, SBA is controversial for a number of reasons. The proposition from Amazon is that they will assume responsibility for adjusting and optimizing prices for products sold by 3P sellers - something that previously Amazon could only do for items it sold itself. As part of the arrangement, Amazon will offer the seller a guaranteed minimum return to protect them from Amazon erasing their profit margin entirely. From Amazon’s perspective, SBA will help 3P sellers (and vis a vis Amazon) be more competitive while alleviating the need for sellers to pay for automated pricing software. While this option may be attractive to a minority of sellers, it’s nonetheless a remarkable development considering Amazon is currently being investigated for antitrust violations on a number of fronts. The program is currently invite-only and is (so far) optional for sellers, provided they agree to the minimum return payment established by Amazon.

Apple, Amazon, Gating and Getting Rid of Counterfeits

As I’ve noted previously on this blog, the FTC is investigating Amazon over practices that may potentially be determined to be anti-competitive. Some have reported that at least one area of focus for the Feds may be the sweet deal that Amazon made with Apple. Understandably, Apple was concerned about the proliferation of counterfeits on Amazon’s site, and the arrangement reportedly provided Apple some safeguards from this threat in exchange for making its products available to Amazon customers.

Amazon’s way of limiting counterfeits of Apple products is through a process known as “brand gating”, which means that Amazon imposes restrictions on sellers that wish to list Apple branded product for sale on the Amazon marketplace. Gating has the effect of leaving Amazon as the only seller (or one of a very limited number of sellers) with Apple product for sale on the site.

It sounds good from the brand’s perspective, but gating by definition limits competition and thus attracts scrutiny from antitrust regulators. I can testify that while I worked at Amazon, the company was very reluctant to employ gating. Instead, gating was reserved for categories like jewelry or baby formula, where there was either a high risk of fraudulent product getting into the supply chain and/or high exposure as a result of such activity.

The nuance I’d like to see elevated in the FTC investigation into Amazon’s deal with Apple (and others like Nike) is why isn’t Amazon distinguishing between legitimate sellers of Apple products (who have a legal right to compete on the Amazon marketplace) and sellers of counterfeit goods. Can we not have one without the other?

Apparently not, or at least not the way Amazon approaches the issue of seller legitimacy. As antitrust expert Sally Hubbard recently commented,

counterfeits appear to be the stick that Amazon uses to get brands to agree to sell to it directly

I personally think it’s imminently reasonable, for example, that Apple demand (and Amazon comply with such demands) that the site be free of fraudulent sellers who peddle fake Apple goods. Employing Amazon’s gating hack, however, throws the baby out with the bathwater because it may shut down legitimate sellers in the process.

In my opinion, the crux comes down to whether a seller is legitimate or not, and Amazon’s ability (or inability) to distinguish between them. The concept of an “authorized dealer” has been around as long as wholesale / retail trade. Brick and mortar stores, by and large, are authorized by way of direct relationships with manufacturers or distributors. Signs may reassure customers that the store is an “authorized Nikon dealer”, for example, capable of supporting the customer with follow-on needs such as parts or warranty service.

Curiously, this distinction is entirely absent from Amazon.

In some cases, Amazon requires that sellers provide credentials to authenticate their goods, such as a copy of an invoice from a manufacturer, but this approach is not widely (or consistently) employed. Amazon has been stubbornly reticent to accept input from manufacturers in the vetting process for sellers. For sellers encountering gating restrictions, the authentication is managed entirely by Amazon, which has a track record of being easily fooled by forged documents that brand owners could otherwise easily debunk.

One simply policy change could massively disrupt the supply of counterfeits at Amazon...

but Amazon has steadfastly refused to entertain the option. If brand owners were allowed to authenticate and authorize third-party sellers wishing to sell products carrying their brand names, only the “good guys” would get to sell those brands on Amazon.

If a seller desires to list products for sale from a brand known to Amazon (e.g. Apple or Kitchen Aid), why not give the brand the option to weigh in on whether the seller is a known customer of the brand? Amazon could easily implement such a process (as other retailers have done), which would give customers more confidence that the goods they purchase are authentic and warrantied.

To those who say this would result in brands artificially limiting seller access to the Amazon marketplace and thereby stifle competition, I would counter by suggesting that a simple arbitration process to handle sellers claiming to have legitimate goods could easily remedy any such concerns. Proper vetting of sellers is precisely what’s missing in the Amazon equation today and is in large part responsible for the growing problem of counterfeits. Amazon expends vast resources trying to figure out how to identify counterfeits and rid their site of problem sellers who have already gained access to the platform when instead they should heed Ben Franklin’s “ounce of prevention” credo.

I’m curious if the regulators would agree or if they would still consider this variety of gating anti-competitive. If the trade-off meant that consumers were protected from counterfeits wouldn’t it be worth it? Perhaps this is a case where the regulations need to keep up with the times.

Even if Amazon allowed the sketchy, unauthorized sellers to continue listing their wares, customers should benefit from an additional layer of information that clearly indicates which sellers are authenticated (or not) as brand partners. That way, customers could still elect to shop from the grey market sellers but with the foreknowledge that risk exists, and the manufacturer cannot guarantee quality. In other words, buyer beware.

 

Amazon Policy Change Gives Sellers Free Reign to Market Customers (?)

UPDATE: After making multiple requests to Amazon to clarify this policy change, the responses (we always seek redundant confirmations) seem to indicate that Amazon’s position regarding re-marketing customers is unchanged, despite the mysterious changes to the boilerplate agreement. Amazon is instead pointing to the updated privacy policy, which supersedes the Use of Transaction Information section that was deleted and referenced in this blog post.

The privacy section of the agreement has indeed been updated, but no specific reference is made to re-marketing. The policy states “you will use Confidential Information [i.e. customer data] only as is reasonably necessary for your participation in the Services”. This can be interpreted to mean that sellers may not use customer data for purposes other than fulfilling Amazon orders. Still, it’s odd that the more explicit restrictions were struck and replaced with language considerably more vague.

More recently it has come to our attention that Amazon may be removing access to customer data for third party providers who ingest seller transaction data through Amazon’s API.

Original blog post:

Recently, regulators in Germany dropped their antitrust probe into Amazon after Amazon agreed to modify its “Business Solutions Agreement” with third-party sellers. Interestingly, the modifications to the policy will be adopted globally by Amazon on August 16, 2019.

Amazon announced the changes on its Seller Central site on July 17, nestled in between “Guidelines for Shipping Temperature Sensitive Goods” and “Long-Term Storage Fee Clean Up Coming Soon”.

Clicking through the announcement presented the reader with a summary of changes. Not least among the changes (and perhaps most widely-reported) was an update to the termination policy for sellers. Amazon is now required to provide sellers with 30-days’ advance notice of account suspensions. This had been a frequently cited pain point for sellers. Accounts suspended erroneously without notice required that sellers sacrifice sales while they scrambled to understand and appeal the suspension.

The summary page omitted one critically important update to the agreement, however. Reading a little further, I noticed a link to a redlined version of the original agreement. It’s not clear whether this was a requirement of the settlement with the German regulators, but I found it incredibly useful.

Section 14 of the original agreement, titled Use of Amazon Transaction Information, was redlined in its entirety with no new language superseding it.

For those unfamiliar with the mechanics of Amazon marketplace transactions, Amazon facilitates the sale of third-party seller goods to its customers. Amazon charges the customer and then provides the seller with the customer data, including name, address, email, etc. However, Amazon has prohibited sellers from using this data, except to fulfill obligations related to shipping and customer service. Amazon’s position was that the customer relationship belonged exclusively to Amazon.

Specifically, the previous agreement had prohibited sellers from:

  • Disclosing Amazon transaction data

  • Using Amazon transaction data for marketing promotional purposes

  • Contacting customers or targeting communications to customers

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So, what does this mean? Amazon isn’t coming out and saying it’s OK to re-market customers of Amazon sellers, but as far as I can tell, they are no longer saying that it’s not OK.

In short, this policy change (if not countered with a new and separate policy), will likely result in more Amazon customers receiving more emails and marketing messages directly from sellers they have purchased from. Similarly, sellers may now be looking at Amazon as a customer acquisition vehicle, instead of exclusively a transaction platform.

There are wide implications of this that are likely to manifest in short order. The fact that Amazon neglected to highlight the change in its communication to sellers is equally noteworthy.

We Are Writing Concerning a Problem. Amazon Investigations (That We Know About)

I’ve written previously on the curious coincidences of Amazon’s growing dominance, the politics surrounding “big tech” and increased scrutiny of Amazon by regulators. What’s especially interesting to me are Amazon’s responses - both in the form of PR strategies and policy adjustments.

Perhaps this trajectory is par for the course, but the curious part for me stems from (what seemed like) Amazon’s unlimited immunity from criticism, no matter how much Amazon bullied its business partners into lopsided agreements. That’s what makes any kind of policy concession from Amazon so remarkable. Amazon, it appears, has discovered its Kryptonite, and I’m fascinated by the shifting landscape that we’re currently witness to.

There are or have been at least five major inquiries into Amazon recently:

The FTC is currently questioning Amazon and seeking information. No formal statement has been made by either party, but what’s been reported of interest to the FTC includes:

  • Amazon’s deal with Apple that gated third-party sellers

  • Amazon’s pricing model of FBA for non-Amazon orders

  • Amazon’s private label practices relative to sellers on its platform

  • Bundling of Amazon Prime services and any advantages that gives Amazon

The US Federal Reserve is looking into Amazon’s cloud computing services, particularly data security in the wake of the Capital One data breach.

The Department of Justice is looking into “online platforms” (including Google, Facebook and Apple) to ascertain “whether and how market-leading online platforms have achieved market power and are engaging in practices that have reduced competition, stifled innovation or otherwise harmed consumers.” Attorney General William Barr is leading the investigation and Treasury Secretary Steven Mnuchin voiced his support, saying Amazon “ruined retail”.

While not formal investigations (yet), various members of Congress have raised concerns to Amazon over counterfeit goods and fake reviews, including Rep. Frank Pallone Jr. (D- NJ), Chairman of the House Commerce Committee, and Rep. Jan Schakowsky (D- IL), Chair of the committee’s consumer protection panel. A letter was sent to Jeff Bezos outlining their concerns.

The EU’s Competition Commission has opened a formal antitrust investigation into Amazon to investigate whether the company is using sales data to gain an unfair advantage over smaller sellers on the Marketplace platform. 

Recently, regulators in Germany agreed to drop their investigation after Amazon agreed to make certain changes to its Business Agreement with Amazon third party sellers (see my summary of this here)

Meanwhile, Amazon’s PR team wants you to know that they are really just a bunch of little companies.

Quick Recap: Amazon Q2 Earnings, 2019

Quick recap:

  1. We increased sales by 20% (better than Street estimate) but spent a lot on shipping.

  2. Advertising is a real business (watch out Facebook)

  3. Bezos says that 1-day shipping is “accelerating sales growth”

OK, I totally understand why Amazon would say that the 1-day shipping initiative is costing more than original estimates, but I’m having trouble processing the statement that suggests 1-day shipping is growing sales in its first quarter of implementation.

Bezos is known for playing the long game. 1-day shipping is supposed to be an investment in the future, designed to delight customers and distance Amazon from the competition. So why is Amazon saying that it’s (already) responsible for an uptick in sales?

I’m not suggesting that Amazon isn’t being truthful, but I’m genuinely curious as to how this works. Most people I talk to are a) not even aware that Amazon is now offering 1-day shipping and b) are surprised to learn that their package arrived so quickly.

As I’ve pointed out previously, many Amazon deliveries were already arriving in one day, so what kind of delta does 10 million items “eligible” for 1-day shipping have upon sales?

Could Amazon be taking credit for something that hasn’t actually happened (yet) and thereby calming investors about the massive price tag associated with the initiative, or should everyone pay attention to how well this really works?

Media Goes Gaga for Prime Day, 2019

Everyone was talking about Prime Day(s) this year, and that’s precisely the point. Amazon, naturally, said it was the “best ever”, and by most estimates Amazon managed to hit its goal of roughly $6 billion in sales globally for the two-day promotion.

The meta point of Prime Day, however, is locking in more Prime memberships ahead of the coming holiday season. Amazon has released no data on new memberships since it last announced that over 100 million were enrolled.

The fact that Amazon can artificially manufacture an event that snowballs into such a spectacle, drawing competitors and the broader culture into its orbit, is a testament to Amazon’s bold ambitions to operate at scale.

Lady Gaga leveraged Prime Day to announce the launch of a new line of beauty products, which quickly became the top-selling products in their category. Whether or not fakes appear on Amazon (and how long that takes) is currently the subject of an office pool.

Other retailers jumped on the bandwagon, promoting their own “Prime Day” deals. It’s estimated that Prime Day boosted spending at online retailers other than Amazon by ~ $2 billion. eBay was particularly cheeky with its “Crash Sale”, named after Amazon’s problems with website stability last year.

Amazon did experience some website functionality issues early on Prime Day this year, but the scope was not nearly as bad as 2018. Amazon was also in the news after workers at a Minnesota FC (Fulfillment Center) made good on their threat to strike over working conditions. The turnout was smaller than anticipated, however, and the complaints were largely focused on limitations imposed by Amazon on workers from east Africa who wished to practice religious observations. The media was less eager to amplify their story and instead sought more Amazon associates to tell them stories about peeing in bottles.  

Neither The Woman Nor Amazon Was Able To Locate The Furry Gang

Amazon may be facing a seismic shift with respect to liability. Amazon has long held the position that it operates a “free marketplace” and that it cannot be held liable for actions of its marketplace sellers. Amazon’s legal strategy has relied upon the Communications Decency Act, which protects online platforms from lawsuits over postings of users.

In Oberdorf v. Amazon.com Inc., the Third Circuit Court of Appeals in Philadelphia overturned a previous ruling and directly challenged Amazon’s application of the Act to Amazon’s marketplace transactions.

Judge Jane Richards Roth said, “Amazon’s involvement in transactions extends beyond a mere editorial function; it plays a large role in the actual sales process. To the extent that Oberdorf’s negligence and strict liability claims rely on Amazon’s role as an actor in the sales process, they are not barred by the CDA.”

If this position is adopted widely, it could radically alter Amazon’s relationships with third-party marketplace sellers, potentially forcing them to carry insurance and provide Amazon with some degree of indemnification. That, in turn, may weed out a large swath of the millions of 3P sellers that currently operate on the fringes. Pretty much all that is required of sellers by Amazon currently is an email address and credit card.

According to Bloomberg,

“The lawsuit was brought by a woman, Heather Oberdorf, who had bought a dog collar with a retractable leash sold by the Furry Gang through Amazon. When she took her dog for a walk, the pet lunged, breaking a ring on the collar, she claimed. That caused the leash to recoil and hit her face and eyeglasses, permanently blinding her in the left eye, she alleged.”

To me, perhaps most striking statement in the ruling was that “neither the woman nor Amazon was able to locate the Furry Gang (i.e. the seller) after she was injured.” That’s astonishing. A seller on the Amazon marketplace responsible for faulty product (which could just as easily have been counterfeit goods or poison dog food) could not be located by Amazon.

Clearly we have not heard the last on this subject.

FTC Announces Investigation into Amazon

The FTC is officially investigating Amazon for potential antitrust violations. It’s been interesting to view Amazon trends and policy in the context of this action, starting with Mr Bezos’ shareholder letter earlier this year. Will Amazon play nicer knowing that the Feds are snooping around?

One area the FTC is rumored to be investigating is Amazon’s pricing policy for its Fulfillment by Amazon (FBA) 3PL services. With FBA, Amazon will store your inventory and pick, pack and ship customer orders. Mostly employed by Amazon 3P sellers, many don’t realize that FBA is actually agnostic to order channel. It’s possible to use FBA to ship ecommerce orders from Shopify or even Walmart, for example. The reason most companies don’t employ FBA as universal solution for more ecommerce channels is because Amazon FBA fees are considerably higher (roughly 2X) for transactions that originate somewhere other than Amazon. This disparity may not pass the FTC’s sniff test for anti-competitive behavior.

While we’re on the topic of unfair behavior, here are my top 5 gripes with Amazon policy. They may not rise to the level of antitrust, but they nonetheless provide significant challenges for vendors and sellers.

1.       Amazon obfuscates the identity of third-party sellers, which promotes grey market commerce

2.       Amazon policy discriminates (at will) against brands wishing to employ the Amazon marketplace

3.       Amazon penalizes sellers that aren’t pricing their goods low enough

4.       Amazon does not allow brand owners to regularly authenticate or authorize Amazon marketplace sellers offering their products

5.       Amazon fails to offer transparency into the fate or identify of sellers caught selling counterfeits

FTC, if you’re listening, I hope you are able to look into these issues with Amazon. I think you would probably be rewarded mightily by our brands.

Amazon Advertising Rolls Out New Features

Amazon Advertising continues to evolve its toolkit for marketers. Many of the developments are simply aimed at leveling the playing field with its ad competitors like Google and are not necessarily innovative, but there are some noteworthy updates that differentiate Amazon’s programs. Amazon ultimately gains more share of budget from advertisers when it flexes its customer data muscle.

For example, Amazon has introduced valuable new options to define targeting segments for display advertising. It’s now possible to target consumers who have either viewed or purchased a specific product (ASIN). This opens up the possibility for much more granular competitive and cross-selling campaigns. For example, advertisers could show an ad to every customer who viewed a list of select, competitive products on Amazon in the last 3 days but has not yet made a purchase. Another use case would be to suggest a relevant accessory item to everyone who recently purchased compatible products.

These options complement the in-brand ASIN re-targeting option made available earlier, and help to make Amazon display advertising more attractive through better ROI.

Earlier this year, Amazon rolled out a “new to brand” metric for some campaign types. The metric is in response to requests from brands and agencies to better illustrate the value of advertising. Essentially, Amazon looks at the order history for customers that respond to advertising to ascertain whether they have purchased from the brand previously (on Amazon). While not perfect, this metric provides some insight into the effectiveness of customer acquisition and speaks directionally to the timeless question of incrementality.

Amazon has also added the option to create multiple “brand stores” under the same account. An application of this may be to segment product types into different stores or create a special splash page for a new line of products. We can already create multiple pages within brand stores, but this flexibility adds a dimension that can help us derive more value from stores, including A/B testing.

Finally, we’re busy testing the attribution beta from Amazon that purports to provide advertisers with insights on the impact that their non-Amazon advertising has upon Amazon customers. In other words, when you ran that Google campaign to drive consumers to your site, did those customers just go to Amazon instead?

If you want to learn more, contact the advertising experts at our agency.

The Spaghetti That Didn't Stick

Amazon recently shuttered its restaurant delivery service and its Instagram wannabe called “Spark”. Around the same time, Amazon made major cutbacks to its game development division. There’s a number of things that get green-lighted at Amazon that end up on the scrap heap. Amazon prides itself on rapid innovation and “failing fast”. Many of Amazon’s private label initiatives have been executed shotgun style without a lot of investment up front. There’s likely to be more failures than successes in this approach, but Amazon seems content with it.

What’s the takeaway here? Too much money to spend and not enough good ideas? Or perhaps good projects are starved of necessary resources? Maybe unnecessary spending is being cut in anticipation of the AWS cash cow being severed as a sacrificial lamb to the FTC?

Whatever the reason, we take note of news like this as a reminder to exercise caution in being first adopters of Amazon programs. Consider the current push for “Transparency”, for example, the counterfeit-killing barcode that is in its third iteration at Amazon. Do you really want to invest in overhauling your supply chain for something that Amazon may very well walk away from in another year and a half? What kind of experience will your customers have in scanning an obsolete barcode that Amazon redirects to its deals page once the program is defunct?

Too often, “special opportunities” offered to our clients by Amazon have proved to be disappointing in the long run. Call me a curmudgeon but there’s wisdom in not jumping on the shiny object wagon too quickly.

Mary Meeker Internet Trends 2019

Statistics geeks rejoiced as Mary Meeker released her latest annual report on Internet Trends. With topics ranging from China to health care to technology now exceeding our capacity to adapt to it, the 333 slides don’t disappoint. At the same time, there aren’t a lot of big surprises, either.

  • Ecommerce now makes up 15% of total retail sales, up from 12% last year

  • Companies are spending more on internet advertising, and Amazon’s share of this spend is growing

  • Internet usage has eclipsed TV

Meeker calls out trends like the rising costs of customer acquisition for brand marketers, with some interesting analysis of freemium models and their challenges in converting users to paid customers. With Amazon dominating ecommerce, many brands can relate to the steep costs of getting qualified traffic to their sites relative to the lifetime value of their customers.

A topic relevant to our focus as ecommerce merchants is Meeker’s call out of images as an “increasingly relevant way to communicate.” More than 50% of Twitter impressions, for example (which used to be exclusively text) now incorporate images or video. Visual platforms like Pinterest and Instagram are thriving. Meeker included this quote from Instagram co-founder Kevin Synstrom:

“People have always been visual – our brains are wired for images.

Writing was a hack, a detour.

Pictorial languages are how we all started to communicate – we are coming full circle.”

At our agency, we’ve been beating the drum on this topic for some time. We’ve seen a steady shift to visual communication on the Amazon platform, starting with the mobile experience and continuing to more recent developments like Style Snap. 360-degree images, mobile hero formats, video ads and new “x-ray” functionality for Brand Stores are just some of the signals we’re seeing from Amazon that suggest customers are responding better to images than text.

To have a fighting chance, all products on Amazon should be supported with a full carousel of images that are captioned and illustrate feature / benefits, relative size, applicable uses, etc. The multiple images not only improve conversion, but carry weight in Amazon’s search algorithms. Videos are becoming essential for key items, and Amazon Brand stores are poised to become the 2nd most important online real estate for brands behind their own websites.

We recommend investing in visual assets – not just for Amazon – but as a comprehensive storytelling strategy that can be employed consistently across your brand’s digital footprint. Brands should not only commit resources to this effort but make it integral to the product development process in order to avoid playing the catch-up game.

My Ex, Fed-Ex

Fed-Ex parted ways with Amazon in a preemptive move that surprised many analysts. At the same time, we learned details of Amazon’s expanding transportation infrastructure (including another 15 air cargo planes). Fed-Ex was not responsible for a large portion of Amazon deliveries, however. In fact, according to Rakuten Intelligence, Amazon already delivers the majority of its packages itself (although Amazon has issued a statement suggesting the Rakuten data is not 100% accurate).

Amazon Shipments.jpg

As Amazon builds out its logistics-for-hire business, there are additional reports that claim its truckers and shipping clients are bristling at meager wages and unfavorable terms. In other words, the same lopsided arrangements that Amazon vendors have endured for years.

As Benedict Evans observed “it's interesting how aggressive and systematic Amazon is being in expanding and experimenting in logistics (planes, drones, robots, remote door opening, stores) yet doesn't seem be doing the same around the shopping experience.”