SEATTLE, July 1, 2020 /PRNewswire/ — Ideoclick, Inc., the provider of the industry’s leading e-commerce optimization platform, today announces the promotion of Jonathan Ferrell to VP, Business Development. Ferrell will lead Ideoclick’s business development team in the expansion of Ideoclick’s service offerings to existing brand manufacturer clients, new clients, and through new partner organizations.
“Jon is a passionate and skilled Amazon expert with a strong background in building extremely successful sales organizations,” said Ideoclick CEO Justin Leigh. “He’s been a driving force at Ideoclick and I’m excited and honored that he’s taking this leadership role. Jon is committed to supporting our partners and clients through the business development process and has already built out a top-tier team to help deploy new business growth initiatives.”
Before becoming the Ideoclick VP of Business Development, Ferrell served as Director of Business Development and was responsible for the creation of sophisticated business growth models and tremendous business growth. Prior to Ideoclick, Ferrell led organizations in digital transformations at Verizon, Amazon and Amazon Web Services (AWS). Each of his roles focused on providing clients the best possible buying experience while equipping sales organizations with flexibility and scalability. With over 20 years of retail, B2B, and e-Commerce experience, Ferrell is recognized as an industry leader who leverages his breadth of experience to guide client organizations to success through leading solutions in today’s business world.
“As a comprehensive Amazon managed services provider, Ideoclick delivers the platform and industry-leading expertise to create sustainable brand success,” stated Ferrell. “Especially in this era of unprecedented e-Commerce adoption, I am proud to be at the helm of a team and charter that seeks to pair Amazon success strategies with bold brands and partners.”
Founded in 2009 by former Amazon executives and harnessing over 200 years of Amazon experience, Ideoclick provides the industry’s leading e-Commerce Optimization Platform, delivering a unique combination of cloud-based software, subject matter expertise and insight to businesses that sell on Amazon. Today, Ideoclick helps hundreds of brands achieve transformative results, representing more than $4 billion in annual e-Commerce product sales. For more information, please visit: www.ideoclick.com.
Copyright © 2020 Ideoclick. All rights reserved.
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.
Is this sustainable? What’s going to happen?
No, it’s not sustainable. Why do we rarely see third-party sellers eating the cost of shipping? Because they know that a business built on negative profit margins is generally not a good business.
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.”
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.
- Products in-stock
- 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.