Amazon Strategy

There are some elements of Amazon strategy that are specific to individual businesses and brands, but there are also some which are reasonably universal and have relevance for most brands in most circumstances.

Some strategic decisions about your business are important to get right at the start of your trading relationship with Amazon. A wrong turn can be changed over time, but some of these changes are difficult to execute and can create significant interruption and loss of momentum in your trading pattern.

However, once these core strategic decisions are taken, then we find that the real difference between businesses that grow quickly on Amazon vs those that struggle depends on relentless execution.

Initial Strategic Choices

The key strategic decisions when embarking on your Amazon journey are:

1. Your choice of platform. You may have no choice, but for those that have one, the choice of Vendor or Seller is important to get right
2. Your choice of delivery option. For Sellers, this is usually around whether to choose Fulfilment by Amazon (FBA) or Fulfilment by Merchant (FBM). However, your choice of Logistics Partner (3PL) is also crucial in managing costs and ensuring availability for Vendors
3. Your choice of resource. Businesses can choose to run their Amazon business internally or to use an Agency for part or all of their Amazon execution. Alternatively they can work with a Distributor who will manage their Amazon business as part of their standard offering
4. The product range that you choose to list.
5. Your price and promotion strategy across all channels. Amazon checks prices across channels. This will impact your choice of platform as well as the way that you execute pricing and promotion on the Amazon platform
6. Total cost structure including Amazon advertising and promotions investment.
7. For Vendors further into their Amazon relationship, the decision as to whether to pay for AVS support.

Amazon Strategies in more detail

1. Platform choice

Any business is able to open a Seller account, but an invitation from Amazon is required to become a Vendor. For businesses of significant offline scale, an invitation to a vendor account can often be secured without first trading on a Seller account. The key difference between a Seller and a Vendor account is around stock ownership. For Seller accounts, the trading business still owns the stock until a shopper purchases a unit. Amazon charges a marketing fee, fees for storing the products in their warehouses and fees for shipping them to the shopper. However, in a Vendor relationship, Amazon buys the stock much like any other retailer. Terms are agreed (again, like any other retailer) but the stock, when shipped into an Amazon Fulfilment centre, is owned by Amazon.

The key points to consider when making this decision are:

• The cost structure of your products
• The size, weight and price of individual key selling products
• The rate of sale
• How well distributed the products are beyond Amazon and their pricing in other channels
• Agreed promotional plans with other retailers

There are sometimes options to have both a Vendor and Seller trading relationship with Amazon. However, this is complex and carries some risk. For more information on all selling models, click through here.

Essentially, this is mainly a question about how profitable your business will be based on the fees applied via the seller model compared with the likely terms you would need to agree as a vendor. However, the different ways that Amazon treats cheaper prices in the market vs their own price through the different selling models will also be a factor.

2. Delivery choices

For Sellers, this comes down to a choice between having Amazon fulfil your customer orders (Fulfilment by Amazon, FBA), and doing the fulfilment yourself (Fulfilment by Merchant, FBM). If your business already operates a strong direct-to-consumer offering then you may be well placed to wrap the Amazon fulfilment into this process at a lower cost. Typically, bulky or heavy products are expensive for Amazon to fulfil. You might find that for these products it’s worth developing or improving your direct-to-consumer fulfilment and going FBM.

Alongside this sits the choice of delivery promise to the shopper. Amazon shoppers are frequently motivated by speed of delivery. The Amazon Prime badge is a shortcut for quick delivery. Fulfilment by Amazon gives you a Prime badge automatically, as Amazon is in charge of your fulfilment. It’s possible to achieve ‘Seller-fulfilled Prime’ using the FBM model, but you will need to hit certain hurdles to attain this.

3. Resourcing choices

Your choice of resource will depend on the existing skills within your organisation.

It will be your responsibility to make sure that you are able to effectively supply stock. For Sellers, This is about your FBM or FBA model. For Vendors, it’s accepting and supplying purchase orders. In all cases above, you will need to be aware of the different Amazon charges that may apply and manage these. An agency may be able to help with this and flag for you where charges are being incurred unnecessarily.

You will need accurate product listings. Previous experience of the Brand Registry is invaluable to make sure that you have brand protections in place to make sure that third party (3P) sellers aren’t able to damage their intellectual property via incorrect branding, out of date packaging etc. Previous experience is also helpful in completing the long and detailed New Item Setup (NIS) forms and ensuring accuracy when the products are set up. If you are selling an item available to other sellers, you will need to be aware that you may not be the Featured Offer at all times. This needs monitoring. When the Featured Offer changes, sometimes so do the product listing details. We advise regular/daily monitoring of your content.

Driving traffic to your listings via promotions and Amazon advertising are additional specialised skills. If you have this already within your organisation, great, but if not, a specialist will be helpful, and the same for promotion planning participation and reporting.

Finally, Amazon provides numerous opportunities for expansion. This can be through different channels such as Amazon Fresh, Garage or Business, or internationally. If you’re looking to take advantage of these to expand the availability of your offering, then again, specialist advice will be helpful.

Internal Resource

It’s possible to hire in these skills. Just be sure to interview against the skill sets that you require and make sure that your hires have all the relevant knowledge and experience. You might need more than one person to be able to deliver everything you need and to enable skill sharing and trouble-shooting within the team.

Specialist Amazon Agency

Agencies come in different shapes and sizes, and with different prices for different activities. Check that the agencies you’re considering cover all the elements that you need help with and that the pricing structure aligns. You want a remuneration structure that motivates both you and your chosen agency toward the same end results.

Distributor

Distributors tend to specialise in their own Vertical (product category) and work with several brands with similar outlets. They provide expertise and will usually cover a number of Retail and Etail channels. A distributor can be a good choice if they are expert in Amazon and an appropriate choice for your brand.

4. Product range choices

In all but exceptional circumstances, we would recommend listing every product you can supply. Amazon overperforms in so many niches, that it’s hard to predict which your top-selling products are going to be. The only way to know for sure is to list everything well and then look at the conversion rates.

5. Cross-channel pricing and promotional choices

You will need to clearly understand Amazon’s pricing strategy and the impact of your pricing choices in order to design the ideal pricing and promotional strategy. Some businesses choose to prioritise Amazon and align promotions in other retailers. Others choose to accept price suppressions as a necessary cost of their other retail customers. There’s more on this here.

6. Total cost structure

When budgeting for your Amazon sales line, it’s important to consider all the costs involved. It’s definitely best to do this prior to listing the products (and therefore setting prices). You will need to factor in the charges associated with a Seller account or the terms associated with a Vendor account, together with the costs of your promotional plan. However, Amazon is increasingly a pay-to-play environment. Amazon advertising can be a highly effective growth engine, but you need to allow for the advertising costs. You will also need to allow for the cost of any Agency or Distributor relationship that you enter into in order to deliver the Amazon sales line.

7. AVS choices

Amazon Vendor Services (AVS) provision is offered to Amazon Vendors as they grow. There are different types of AVS (eg Pan EU vs single market) but broadly the service is designed to support suppliers with non-commercial growth opportunities, for example increasing the selection offered via Amazon. We find that they are most effective at maximising the benefit of participating in Marquee Events (Eg Prime Day). They may help with Andon Cord issues (where products are taken off sale) and order cycle issues. They may also help with some problematic product listing issues or with some new product listings.

A broad outline of the different areas of responsibility in the Vendor relationship is shown below:

The AVS service typically has a hefty price tag. It’s important to clarify (ideally in writing) what services will be included before you sign up.

Amazon strategy changes

So, what can you change later, and which choices are set in stone once you’ve made them?

1. Platform Choice – you can move from Vendor to Seller at will if it better suits your purposes. However, beware of selling on both platforms simultaneously (more here). To switch from Seller to Vendor you will need an invitation to open a Vendor account. In either case, please don’t actually close down the account you’re moving away from (more here on this).
2. Delivery option choice – This is also something you can change. Just be sure that you’ve done all the calculations and you’re making the right choice for both ease and cost.
3. Resourcing choices – This is of course something that you can change. It may take time to find the right partners or hires, so be aware of contractual notice periods. Make sure you have your new solution in place before you end the previous one!
4. Product range choices – you can add and pause products at will. However, if you don’t add them all at the start you may waste valuable investment on products that convert less well than the alternatives.
5. Cross-channel pricing and promotion choices take a long time to change. It’s difficult to re-negotiate with one retailer, let alone many. It’s worth being fully aware of your choices here before engaging on Amazon, as suppressions can bring Amazon sales to a sudden halt.
6. Cost prices are hard to change on Vendor. Once you have agreed a cost price with Amazon it’s very difficult to agree a cost price increase. You will need to be prepared for significant business disruption to get it through. It’s definitely better to get this one right up front. On seller, you control the retail price charged and can change this. However, there may be an impact on your Featured Offer ownership.
7. AVS choices – Once you are subscribed to the AVS service, it will be wrapped into your terms. You may be able to renegotiate, but it’s highly likely this would involve making a similar level of investment in another area of your terms. This choice is difficult to reverse.

Conclusion

It’s important to be aware of the long term implications of the strategic choices you are making. Getting some of these wrong, will impact your long term success.

However, many of these choices are reversible, and trial and error is a legitimate strategic choice.

Importantly, the difference between success and failure on Amazon is often more about relentless execution rather than making the right strategic calls up front.