Too Big for Amazon?
Amazon.com represents a complicated relationship for many consumer brands. The e-commerce giant, which has grown to be the largest online retailer in the world, leverages its vast scale to collect data, optimize revenue, and refine operations — while luring third-party sellers with access to the world’s most important online marketplace.
Big brands in particular have sometimes proven reluctant to partner with Amazon, despite its amazing capabilities. Nike famously refused to work with Amazon for a long time to avoid relinquishing control of its brand and data. Amazon has been known to use its dominance in data collection and analytics to develop private-label products that undercut its legacy competitors.
However, Amazon’s incredible scale and established position in the e-commerce ecosystem means that the benefits for brands on Amazon far outweigh the potential pitfalls. Consider, for example, Amazon’s conversion rate — the percentage of ad clicks converting to sales. Amazon listings typically boast a 15 percent conversion rate, and in many cases, much higher.
Compare that to a "traditional" e-commerce website, where conversion rates are — on average — 1 percent or lower.
For many e-commerce sellers, this conversion rate delta represents a performance differentiator that's difficult to argue with. What a brand may lose in margins it will more than make up for in volume as a simple result of more sales.
Furthermore, Amazon’s advertising options are effective enough that they remain an invaluable channel for reaching consumers, despite increasing competition and expense. The average cost of sales — the total ad spend divided by total ad sales — has increased from 22 percent early in 2021 to 30 percent in June. The average conversion rate has remained the same, however, decreasing the return on advertising spend from 4.5 to 3.1, according to data from Marketplace Pulse.
Amazon has also added new features that promise to further enhance customer engagement and drive sales. Amazon Live, for example, is a livestreaming/shopping hybrid feature that enables influencers and brands with established audiences to connect with consumers since COVID-19 lockdowns transformed people’s media and shopping habits. Brand-registered Amazon sellers already have access to most Amazon Live features.
Larger brands can likewise make particular use of Amazon’s newest advertising opportunity, the Amazon Demand Side Platform, or "DSP." Amazon DSP allows brands to retarget shoppers who have already visited a product page on Amazon on their extremely wide network inside and outside of the Amazon.com platform. If the goal is to drive brand awareness and customer acquisition, a brand could run video ads introducing a given product on any number of third-party websites, apps or mobile devices according to a broad array of audience targeting options.
For these reasons and more, the truth is that consumer brands can scarcely afford not to be on Amazon. That’s especially true since the outbreak of the COVID-19 pandemic. Consider that as of February 2021, the number of brands on Amazon has increased more than 42 percent.
Amazon is where people begin most shopping journeys, research products, and make decisions, even when their eventual purchase takes place outside of the marketplace. The features Amazon provides for managing operations outweigh the occasional strong-arm tactics on Amazon’s part. Brands are finding that if they don’t have a presence on Amazon they usually have plenty of competitors that are more than willing to take their business on the world’s largest e-commerce marketplace.
Brian Burt is CEO of CANOPY Management, a full-service marketing agency that's the force behind many of the most successful brands on Amazon.
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