People around the world are responding to the threat of coronavirus/COVID-19 in a multitude of ways, and as a seller on Amazon, it’s likely Coronavirus is creating an impact to your Amazon business. In business, those that plan ahead and react quickly are more likely to be in a position to get vital items to customers during this time.
Remaining vigilant with your own health as well as the health of your employees and business is the best course of action. For brands selling on Amazon, it’s critical to stay constantly informed and strategize for the changing marketplace landscape.
We’ve compiled four ways your Amazon business is likely impacted by the coronavirus/ COVID-19 pandemic, and strategies for how you can best plan for them (click here). The paper includes initial operational changes, speculation on continued buyer behavior, and covers the many Q&As we’ve already faced. The advice within has proven to be useful to our clients and we hope you can leverage them as well.
Amazon free shipping isn’t actually free. Many consumers and brands are unware of just who foots the bill when it comes to “free” shipping provided by Amazon. Someone pays for the shipping – and it’s not who you think. Discover if the consumer, brand, or Amazon ultimately pay for the cost of free shipping.
“There’s scarcely tastier bait for American shoppers than free shipping,” according to a recent Atlantic article, “and it’s been transformed from an occasional incentive into something that closely resembles a consumer requirement.”
As consumers, we expect delivery. We really, really, need delivery. But pay for it? No way.
When is shipping truly free for the customer? When is it not? Who pays, and why? Is this sustainable? Let’s find out.
The History of Amazon Free Shipping
Back in the olden days, people rode their horse and buggy to the physical stores for all our needs. If the physical store didn’t have what we needed, we’d go without (a concept my kids still can’t wrap their heads around). The product price was a “box price” which is the price of the item only. Alternatively, people could order from a catalog. For the privilege of ordering a seemingly endless assortment (often from a rotary phone or fax machine), we paid a “landed price”, which is a box price plus a shipping fee.
Then along came eCommerce – where competing for sales is hard, and the delivery fees for space heaters, diapers, and big screen TVs are expensive. However, shipping costs are a major deterrent to online shopping (still the largest driver of all cart abandonments.) If customers were responsible for the actual, itemized delivery fees, they would feel guilty and lazy for paying to shop in their pajamas. They would go to the store.
Barbara Kahn, Professor of Marketing at Wharton, calls this the “pain tax”: “If the shipping price is incorporated in the price of the good and customers don’t have to think about that pain tax, they would definitely prefer it.”
To get people to shop online, retailers must make shipping free. So, who pays for it?
Does the Customer Pay?
Let’s say an item’s retail price is $20, and it costs $5 to ship. If the retailer charges $25 and announces, “free shipping”, then the customer is paying.
This approach is still common among many third-party sellers on sites like Amazon and eBay. These sites have toggle buttons to help customers filter for items with “free shipping”, and you want your products to show up. (On Amazon’s web site heatmap, for example, those filters are the hottest places on the page.)
Alternatively, retailers or sellers will charge shipping overtly, in the form of a shipping charge (i.e., Land’s End). Order minimums (i.e., Free Super Saver Shipping) are also a way of having the customer share the burden. Larger orders drive incremental revenue and profits for the retailer.
In these cases, the customer pays for the benefit of having products delivered to their homes.
Does the Retailer Pay?
Many eCommerce players got their start this way, matching competitors’ in-store, box prices, AND offering free shipping. In this case, the cost of the shipping comes out of the retailer’s profit margin. This helps the retailer buy customers, but it is not sustainable as a long-term strategy. If you operate in a margin-rich category, this works. It also works if your shipping costs can be reduced over time by economies of scale. Yet Amazon’s retail business is profitable…likely even before advertising.
However, cat trees, toilet paper, and Campbell’s soup carry high shipping costs. Contrary to popular belief, Amazon and Walmart have moved away from this. While Amazon has economies of scale, it would be difficult for them to ship most of their merchandise profitably – especially with One-Day shipping – without some help.
Doesn’t Amazon’s Prime Revenue Help?
It helps, but it’s likely not enough. It’s estimated Amazon spent $5-6B last year on digital content for Amazon Prime, or $40 per Prime customer. That leaves only $79/customer to allocate to Amazon’s shipping costs. This probably doesn’t cover the 24 orders per year that Prime customers place. Of course, the math is more complex, LTV, etc., but you get the picture…
So, you guessed it, someone else is subsidizing shipping.
The Manufacturer Pays (ding ding!)
Amazon is in the middle of Annual Vendor Negotiations with vendors. This year’s top request by Amazon? To increase funding, especially freight, to help pay for Amazon’s launch of One-Day shipping.
Manufacturers heavily subsidize the cost of both the pricing war between Amazon and Walmart AND their free shipping programs.
Manufacturers are also feeling the squeeze of Amazon and Walmart.com to keep on subsidizing.
Years ago, these (1P) manufacturers happily loaded their products onto Amazon with minimal trade funding. Amazon came to represent their primary eCommerce customer and a profitable growth channel.
However, in the past five years, manufacturers have consistently told me that Amazon’s gone from their least expensive channel to their most expensive – by a long shot. That’s because over time, sites like Amazon have shifted the burden of price matching and shipping costs to the manufacturers.
Amazon reports vendor profitability numbers back to vendors, requesting to be compensated when their item-level profits aren’t hitting targets. They receive this funding in the form of margin guarantees, freight allowances, accruals, CRaP allowances, straight payments, AVS/SVS programs, and Amazon Advertising. If Amazon can’t get subsidies for these products, the products are often deemed CRaP – in which case, you can’t advertise, you fall out of search, and Amazon may stop ordering. Why would Amazon drive sales of unprofitable products?
If you’re a typical manufacturer that does more than half of your eCommerce sales on Amazon or Walmart, they yield a tremendous power over your business.
In Amazon and Walmart’s defense, I don’t think anyone could have predicted how technology would drive such a pricing race to the bottom. Price matching in-store box prices carries a huge burden for an eCommerce retailer, who must ship products. Not being beat on price is an expensive proposition. On the flip side, not being competitive on price is a major trust buster for someone like Amazon or Walmart.
Please, please have a channel strategy
Manufacturers’ channel strategy – or lack thereof – plays an integral role. If you’re tied to an old-school promo calendar that gives each retailer their “turn”, you’ll always be on sale online.
If you think Amazon is your most expensive channel, take a hard look at your promotional strategy.
Also, pay attention to which retailer drives pricing in your category. Consider whether you want everyone to have the same assortment. Best-in-class manufacturers are differentiating. If you give everyone the same thing, expect a race to the bottom and a bunch of emails from eCommerce retailer buyers asking for help with profits.
Major retailers are still competing over eCommerce customers. However, over time, manufacturers are going to run out of money to subsidize retailer profits. When that happens, I believe we’ll eventually see eCommerce pricing adjust up to reflect the true cost to serve customers. (Sorry, customers.)
In the meantime, the customer wins
Unless it’s clear the customer is paying shipping, someone else is. Therefore, the customer wins. Yay customers!
One thing’s for sure – you’ve got to appreciate Bezos’ customer focus. In a recent shareholder letter, he said, “There are two kinds of companies: those that work to try to charge more, and those that work to charge less. We will be the second.”
Success on digital marketplaces requires an increasingly integrated and automated strategy. While many manufacturers have great products and strategy, most lack the integrated system to thrive in the coming digital transformation.
Traditionally, strategy and execution were separated by function and channel. The supply chain team didn’t communicate often with the advertising team, and the sales team for one retailer was not connected to the other channels. In modern marketplaces, everything must become connected. Advertising in social channels needs to be tightly coupled to retailer-specific strategy and product design, while pricing and supply chain directly impacts the effectiveness of marketing investments. Keyword bid strategy is more impacted by content relevance, in-stock rates and reviews than by bid amounts. Digitally native brands know this well and use it as an advantage to lower their customer acquisition costs and win in retail environments like Amazon.
Partnership Delivers Holistic Solution
To enable manufacturers to thrive as the retail landscape shifts, we have formed an alliance with Accenture Interactive. Ideoclick’s e-Commerce expertise and technology, combined with Accenture Interactive’s digital marketplace services, creates a cohesive agency ecosystem that equips manufacturers to achieve brand success on leading marketplace platforms.
For brands, this alliance provides an opportunity to create transformative solutions to proactively address the challenges of changing consumer behaviors and technologies. It’s worth mentioning that Accenture Interactive is known as the Experience Agency that drives sustainable growth for clients by creating meaningful Experiences that live at the intersection of purpose and innovation. They are ranked by Ad Age as the largest digital agency network worldwide and are recognized as a Leader in the latest report on global digital experience agencies from Forrester Research – but most importantly, Accenture Interactive has the expertise and resources to tackle any challenge, and their clients swear by them.
The Importance of Integrated Experiences
Digital marketplaces now account for half of all global online retail sales, and the e-commerce market is expected to be worth $24.3 trillion by 2025. Digital strategy influences far beyond what can be measured online: product content on Amazon influences how consumers shop at Home Depot. Social media content and strategy impacts sales at Kroger. The way products are managed through the supply chain and how well critical product data is managed determines if customers will be able to see those products at all (on the infinite digital shelves that are created in real time in the modern shopping aisle of personalized search results).
Marketers can no longer afford to be siloed or make decisions in one channel without coordination across their own organization and retail ecosystem with constantly changing data. Brand manufacturers must shift to demanding a more holistic approach to content and brand experience. Brand strategists who move toward cross-functional teams, customizable content, and data-driven automation to leverage the full range of insights will uncover and capture growth opportunities.
e-Commerce without compromise™
Ideoclick is the provider of the industry’s leading e-Commerce Optimization Platform delivering a unique combination of comprehensive cloud-based software, expertise and insight to businesses that sell on Amazon. Ideoclick’s alliance with Accenture Interactive is an exciting step forward in enabling brands to achieve transformative results and seize the opportunity to connect with customers in new and more effective ways.
Justin Leigh is the Co-Founder and CEO of Ideoclick, a managed services firm that helps manufacturers set and analyze winning, sustainable strategies on Amazon. He has worked with countless large manufacturers and CPGs to understand and solve their strategic eCommerce challenges. Prior to his 10 years running Ideoclick, Justin worked at Amazon, launching the Grocery category, leading efforts to analyze customer search behavior and traffic to drive sales, and launching the Subscribe & Save program.
This article from the Harvard Business Review details a years-long research project from the University of Washington studying the holistic specifics of how to create an effective, well-designed product web page that will yield best conversion results for customers shopping on Amazon.
We’re excited to see that the field experiment and research results support the current best practices that have already been put in place by the Ideoclick content team.
The whole article is worth a read but here are some of the main takeaways:
Carefully orchestrating the content on your product’s Amazon page is the key to boosting sales
The type of page design that will most resonate with your customers depends on two primary criteria: (1) the trustworthiness of your brand and (2) the degree to which customers can evaluate the product by reading about it rather than experiencing it.
The study found that found that a single design element (such as bullets, images, etc.) on an Amazon page, when used effectively, can increase purchase intentions up to 10% — a substantial amount in today’s competitive online retail environment!
The overall strategic recommendations offered by the results of this article affirm what we on the content team are already doing for our clients:
Using multiple research sources to create written content that is not just SEO-rich but also reflects the brand voice and prioritizes customer education
Rather than taking a straight up cookie-cutter approach to all content, our strategy is dynamic and reflects the varying needs and priorities of different product categories
Both visual and written content strive to elevate the brand voice to convert shoppers. Our Visual Strategists also often include lifestyle images that resonate with consumers and design elements that provide customer education, which is key to conversion.
We look forward to continuing to be ahead of the curve in delivering high-quality, responsive content to our clients!
We recently outlined some perspectives and tips on the AVS (Amazon Vendor Services) vendor-funded support service. Whether you are considering the value of the service or have already signed on and want to ensure you’re making the most use of those funds, this video provides information on how to avoid the six most frequent mistakes brands make when utilizing the AVS program. Also, this chart explains the possibilities for utilizing your AVS resource:
As a brand manufacturer selling on Amazon, your approach to the holiday season may be tried and true. However, Amazon and the competitive landscape continue to evolve – and a basic refresh of last year’s approach may not yield the results you’re projecting. Therefore, it’s important to consider lessons from Prime Day in planning for Holiday on Amazon.
The holiday season has many things in common with Prime week. Amazon puts significant efforts into sourcing deals and driving traffic to the site. As the marketplace becomes crowded and more competitive, driving success and sustainable growth require a laser focus on the correct strategy for your business. At Ideoclick, we have distilled several critical Amazon Prime Day (July 15th & 16th) takeaways into applicable strategies to help prepare your brand for the holiday shopping season:
1. You must have a winning and coherent strategy
This is not the time to throw things at the wall and see what sticks. The difference between client success and failure during highly promotional times depends on the effectiveness of the strategy. Identifying goals and setting tactics to meet them is critical, as is ensuring that your approach addresses other eCommerce players and their reactions, pricing or otherwise.
For example, a robust promotional calendar isn’t effective if downstream pricing implications aren’t considered, and products end up back on Amazon in third party, creating pricing compression and headaches for months. A strategic Amazon Advertising plan won’t be successful if demand forecasts aren’t addressed and Amazon runs out of stock. An ad campaign focused on differentiation is less effective if your competition is focused on the same message. Work with your team, agencies, and/or solutions providers to create a plan that incorporates a cross-functional and cross-retailer approach.
2. Ensure rock-solid inputs (boring but essential!)
Your products must be retail-ready to have a chance at success: Properly and accurately set-up, financially viable for both you and Amazon, and in-stock and buyable. Regardless of the promotions you run, if your products will not be adequately in-stock, for example, your ASIN will be suppressed and sales will suffer.
Search optimized titles in product listings
Optimized bullets, listed in order of most important product features
Robust images that highlight selling points and product variations, including a hero image that calls out the core differentiator of your product –
Large number of product reviews with favorable ratings
Ensuring products are profitable for Amazon, so they can be advertised
3. Get your marketing budgets approved early to cover pre-holiday, during-holiday, and post-holiday season advertising
Use share of search data to develop a cohesive strategy. What keywords do you need to win, and how often? What role will DSP play in your strategy? Other Amazon media?
Create an Amazon Advertising Pro-forma to assist in budget planning
Create buzz and interest in your products before the holiday season. This is when people are putting together their wish lists and when competition for ads is lower
Ensure your items show up in search (both on Amazon and in search engines) during crucial holiday shopping dates
Continue increased spend levels well after the promotional period. Other advertisers begin to dial down spend so the inventory can be less expensive
4. Remember that deals create sales growth and juice the Amazon flywheel
The most successful products selling on Amazon during the Prime Day period were those that sold via Lightning Deals, Vendor Powered Coupons, and Deals with a significant discount. By significant, we mean over 20%. It’s not a surprise that the 41 – 50% discount range created the best boost in unit sales during Prime Day. Also, bigger budget items with discounts sold better than smaller ticket items with discounts.
In deciding the items most likely to succeed in this environment, start with products that are already top sellers (unless you plan to launch a new product, see below). We observe that regardless of the discount, if an item is less desirable, it just won’t move as well on Amazon. Essentially shoppers want their choice items, but at a discount.
Speaking of discount, a key observation of Prime Day activity is that shoppers will look both on and off Amazon for the best deals on items they want. Which leads us to:
5. Leverage the off-channel stratosphere to direct traffic to your deals
Inspire and capture your shopper regardless of where they’re shopping or spending their time online. Many of our clients saw increased success with this strategy. Also, this approach is likely less expensive!
Leveraging off-channel traffic and bringing those shoppers to your deals on Amazon can improve your sales velocity – and you won’t be competing (or paying the price tag) for the finite traffic on Amazon. Consider Google sponsored products, temporary campaigns on your branded web sites, and advertising on social media – all directing customers to your Amazon deals.
Prior to Prime Day, many of the top-selling products participated in affiliate programs with the “Products you Don’t Want to Miss During Prime Day This Year” type articles. Affiliate marketing with influencers also created steady traffic on Amazon during Prime week. At the least, consider social media and Google ads that will lead people to Amazon for the likely conversion.
Amazon’s DSP (Demand Side Platform) campaigns prove to be a highly successful approach as well, targeting shoppers that have shown previous interest and bringing them back to your product detail pages.
6. Get creative
During Prime Day, those brands that had new product launches (Lady Gaga’s HAUS Labs, for example) or unique stories and offers (LifeStraw gifted a year of clean water to a student in need for every LifeStraw purchase) experienced impressive sales. Consider an exclusive offer, a new product bundle or launch, or tell a story associated with how your product is the ideal gift.
This is the time to consider your products’ differentiators and fully promote them. And, if your product does not have a “hang your hat” worthy differentiator, you will want to develop one or create a product-adjacent activity or lifestyle angle that enables your brand to stand apart.
As an Amazon managed services firm advising over 200 clients on Amazon strategies, operations, and marketing, we are here to help. Reach out to your client success manager to discuss holiday planning. Or, if you are not already an Ideoclick client, contact our business development folks to discuss how we can help.