In this edition I share thoughts for founders and decision makers about planning, budgeting, and prioritizing Amazon within your business.
I suspect your main goal is for you to grow profitably on Amazon. And to do that it’s more about overlaying principles of how Amazon works with your business goals. In simple words, for a decision maker it is all about the framework for better decision making in the context of where you are at, and what you want to achieve, and then calibrating via tactical decisions to work towards your goals.
Here are the main thought principles for success on Amazon in 2024 (and beyond).
1. Treat Amazon as a distribution channel, not as a business
Getting good at Amazon technical semantics, or understanding complexity of, and operating in that gigantic web of the ecosystem does not replace a need to run a healthy business.
Let me give couple examples:
A brand sets short term goals that are framed in Amazon terms. Example, getting to X reviews, getting X Amazon badge. Or creating a beautiful Amazon store. These are really part of the execution path that should lead to a business goal.
I suggest to reframe it: we know more 100 reviews is better than our current 20, because it will lead to better social proof and conversion rate, which helps organic rankings, and that will lead to more sales. Which is a business goal.
While it may seem just a semantic reframe, that nuance is important. Because I have seen too many times brands getting caught up in tactical ‘to do’s, and losing track of the North Star or business goals.
Side note: while a beautiful Amazon store is important for the overall brand presence and consistent look, but the majority of sales will never come from the store, they will come from keyword rankings and conversions on your product pages. Don’t get fixated on your Store.
2nd example of is a fallacy of wanting to build a brand on Amazon only. And I hear it mostly from DTC and private label businesses. Building a brand that will be worth something with Amazon as the only distribution channel is gone. Forever. FBA aggregators that bought bunch of FBA ‘brands’ built on easy flowing money in the economy, consumer pockets from stimulus checks, from ecommerce boost from the pandemic, from access to VCs, are filing bankruptcy one after another.
What does that have to do with you? You are not an FBA aggregator. But ultimately a brand can not make Amazon its’ only long term business without jeopardizing the health and future of that brand.
Amazon rewards healthy businesses.
That brings up the next thought principle.
2. The only 3 things that matter on Amazon: product, traffic, operations
Everything you do on Amazon needs to serve one of those pillars.
Do our customers like our product, buy more of it? Does our product stand well against others?
Do we get consistent good feedback from the market about our products?
Do we get enough shoppers to our product pages? How do we get more of them to click on our product pages? How do we come up more in organic search results? How is marketing supporting or traffic?
Do customers receive product as expected, as described? Do we take care of customers addressing their messaging, giving a refund or an exchange, addressing any negative feedback?
Those are fundamental questions a founder or a decision maker should ask his Amazon management team as a health pulse of their Amazon channel.
It’s simple. And the hardest part is not technical aspects of maneuvering advertising campaigns, or handling catalog issues, or product pages SEO. Yes, all of that requires certain skill sets, but now they are more accessible and cost effective than ever before. (More on that later)
What is the hardest part is stripping down the non-essential, non-business relevant noise, often showing up as data, to see the things that truly matter when it comes to product, traffic, and operations.
Healthy brand control, healthy unit economics, knowing your customer.
Healthy production and inventory management.
Good amount of grit that is a must to thrive on Amazon. But if you are in CPG business, you already have a high amount of grit.
3. Feed outside traffic to Amazon, to make more money on Amazon
Your Amazon business depends on your brand growth outside of Amazon, because Amazon is often a reflection of what is happening off Amazon. Whether it’s lack of brand control (resellers with crazy prices and all over brand presentation), or great Amazon reviews reflecting customers knowing your product from retail. Or a big spike in sales because you were featured on Oprah, some big morning show, or another PR event. Or a sales lift from your email marketing campaigns telling customers about a promotion on Amazon. All of that brand activity off Amazon impacts your Amazon sales and profitability.
In CPG margins are tight, and when you add the reality of what it costs to function on Amazon, between fees, marketing, resourcing, means that in order to to make more money on Amazon a brand has to be proactive in directing customers, audience, marketing campaigns to Amazon is rewarded.
Amazon also rewards off Amazon traffic with better returns on your Amazon advertising, and boost to your organic rankings. You can also track the direct impact of your off Amazon traffic via attribution links and promotion.
Lastly, Amazon expansion of its advertising to social media platforms (Facebook, Instagram, and Snapchat as of late 2023) for in-app shopping will result in more brands leading off-Amazon marketing to Amazon.
Brands do not drive off-Amazon audience to Amazon for the fear of cannibalization of their DTC website sales will simply be left behind, because their competitors wil embrace omnipresence of Amazon advertising in off-Amazon online platforms.
4. Work towards an operational Black Belt
This is the operations pillar of the 3 pillar Amazon (product, traffic, operations).
Marketing and top line is where growth comes.
But optimization, aka profit, often comes from below the line. So if we are talking about getting more profitability, it has to involve operations.
What that means in the Amazon context: inventory management, FBA forecasting, staying in stock, understanding and reconciling FBAs fees, reconciling inventory, taking care of product catalog issues.
Amazon’s CEO Andy Jessy is very focused on optimization of costs and improving profitability for Amazon itself. It is no longer a company that pursues opportunity projects if there is no concrete path to profitability. We see this on the 3P side of Amazon through penny pinching of fees: more tiers, more breakdown of fees (ex. Vine), restructuring to drive pockets of opportunities for fees for Amazon. Pushing sellers towards ‘self help’ with catalog and FBA issues, all to minimize Amazon resourcing needed for the so called seller support.
Running healthy operations and constantly looking to optimize operations is a sign of a healthy business in any environment. But in 2024 Amazon will continue pushing the burden of operational excellence, through the various changes I mentioned earlier, onto sellers, in order to optimize its own, Amazon’s operational expenses. That means anything less than operational excellence will cost brands lost sales and profits. Be vigilant and proactive in your operational areas of Amazon’s management.
5. Shift from taking care of customer to nurturing customer
In the last year Amazon has really given something useful to work with in the area of brand analytics, understanding customer journey, being able to market to customers on Amazon. We talked about this in the previous post.
In the past the only way to communicate to customers, outside of order related questions, was to ask them, once, for a review.
Now we see data that helps brands understand their Amazon customer. We can see segments of customers: high spend, frequent buyer, repeat customers, and how much repeat customers spend in any given period of time. Last one being especially relevant for CPG products.
We also can see search query results: what keywords led to customers clicking, adding to cart, and buying. We can also see customers’ demographic data.
That is a lot of visibility into the customer behavior that can be used in marketing, PPC advertising, brand messaging, and financial planning.
Then we move to the ability to target and follow up with customers to drive sales.
In Brand Tailored Promotions we can target various segments of customers: high spend, cart abandoners, frequent buyers, promising customers, brand followers, recent customers.
We have used these interaction, and post- purchase behaviors to get an almost immediate sales lift.
I strongly encourage you to leverage this data, because in food and beverage, we know how critical the lifetime value of a customer for profitability of your brand.
Lastly I want to mention the Amazon Store followers. An option to ‘Follow’ the brand’s Amazon store was rolled out few years ago. Similar to social media, following a brand means seeing brands’ updates and posts published on the Amazon store. We have been adding the ‘Follow’ button, and consistently publishing posts for our clients for years. But we just didn’t feel it was giving a tangible action-result link. But now, we can see brand followers, and we can target them in marketing campaigns.
All of the above is plentitude of data and visibility, which means an ability, and responsibility (to your business) to shift from simply taking care and acquiring a customer on Amazon, to nurturing them through engaging with them and understanding them.
6. Leverage the resourcing model shift
This thought principle is going to be perhaps the most surprising for you.
But I will argue that it will also be most important, because this is where you have an opportunity to get a lot higher returns on the required support for your Amazon channel.
However, I need to set the context first.
Next 12-18 months will re-define a lot of things in ecommerce, in economy, in the business world. Landscape of what and how business value, what matters, will shift. Fluff of superficial metrics will drop. Dashboard will become less relevant in decision making, and P&L and contribution margins will be what will drive decisions.
Why? Part economy, part flow of investor money, but biggest of them all: AI.
How will AI reshape Amazon management and Amazon agencies space?
It will collapse and consolidate it.
First areas that are already being delegated to AI: keywords research, optimization, visuals (images and video) creation, large parts of the advertising management.
All of that requires now fraction of human time and skill needed to give the same, or even better, quality of work, and thus return for your business.
Whether you run Amazon internally, or work with an outside agency, I am sure you are already starting to see how it directly give you more profitability on Amazon by changing how and by who work is done.
So what is the best way to leverage experts in your Amazon business?
By re-defining that value.
And re-defined value of an Amazon expert will be about not the technical aspects of running job, or optimizing pages and the storefront. It will be about helping you cut through the noise of data, metrics, issues to identify levers to move towards your goals, to understand the context of where you are at to assess risks and benefits and opportunities of the most important decisions. It’s a person that can see a story through the numbers, who understands both macro and micro picture of your channel landscape.
Who will ask right questions to help get to the solution.
Improving organic rankings through better optimization, through more efficient advertising management will be delegated to an intelligent machine. Smart brands will be at the forefront to reap the benefits and be ahead of their competition.
You maybe wondering, why am I telling you about this because in essence, I am actively working out of a job. Our business, Amazon agency, provide strategy and hands on management of brands.
But if I consider my ultimate value is to guide and brands make more money, and more sales on Amazon, I can not be attached to the model of how it is done today. I have to share what I believe will genuinely be right things for you in 2024.
Whatever you do with your Amazon, or whoever is supporting you Amazon, evaluate what is their value, are they thinking of working themselves out of that technical skill. And as a business, proactively explore what functions and processes within your business can be handled by an intelligent machine.
But the need of a human brain and expertise will not go away in 2024. So if Amazon is a strategic channel for you in 2024, and you know you will need an outside advisory or management expertise, then we can help.