Many brands understandably want to capitalize on the opportunity presented on Amazon without upsetting their existing brick and mortar resellers. After all, these resellers may have helped the brand grow and reach successful heights. Unfortunately, the Amazon channel works so differently from other channels that brands need to evolve their way of thinking when it comes to their Amazon distribution strategy. In this article, we examine why brands are only hurting themselves when they put the needs of their resellers over the needs of their customers, and how they can chart the best path forward.
Amazon Distribution Strategy? What Distribution Strategy?
Once your brand gets serious about building an Amazon channel strategy, one of the initial challenges is figuring out your distribution strategy on Amazon. If a given brand already has a number of its brick and mortar resellers selling on Amazon, we often see the brand’s leadership team hesitant to rock the boat with those resellers. Whether driven by fear of upsetting significant business with those brick and mortar resellers, or guided by the sales mantra “the more, the merrier,” in nearly all cases, this approach seriously undermines a brand’s ability to grow its business on Amazon.
There are two main approaches brands typically pursue on Amazon:
1. A retailer-first approach
If the brand is focused on keeping the peace with its brick and mortar retailers, it’s likely to spread the Amazon opportunity across a number of those retailers, offering each one the chance to grow its total sales of the brand by selling additional units on Amazon. This approach initially seems logical if your brand doesn’t want to make the tough decision of declining an existing retailer’s request to sell on Amazon. You may also be reluctant to tell an existing retailer to stop selling your products on Amazon (for instance, if a retailer has been selling on Amazon without your explicit permission). However, there are serious consequences to a brand handing control of the Amazon channel to another party, as we’ll explore later in this post.
2. A consumer-first approach
Amazon has become one of the world’s most popular shopping destinations partly thanks to its practice of recruiting multiple resellers to individual product listings. This leads to intra-product retail price competition, driving prices down. While there are several factors that define which reseller’s offer will get added to a customer’s shopping cart (the “buy box” algorithm), low price is one of the main ones.
But if you want to grow your Amazon sales while minimizing this price erosion and generating high-converting consumer traffic that enables your brand to grow faster than its competitors, a different approach is needed. The typical brand will encounter many times more competitor brands on Amazon than in any traditional brick and mortar channel, so it must figure out how to present itself consistently and clearly to Amazon consumers, while beating out competitor brands also vying for Amazon consumers’ attention.
The Vicious Cycle Caused by Lack of Brand Control
With 78% of all product search today on Amazon being unbranded, your brand needs to make sure that its product listings contain the appropriate search terms (e.g., SEO) that improve the likelihood that Amazon shoppers will find those products. In addition, if the product is being sold by a seller that makes the item Prime eligible (either the product is sold by a third-party seller using Amazon’s Fulfillment by Amazon program to fulfill orders, or Amazon is the seller of record), then that item is likely to surface much higher in a customer’s organic search results. As a result, it’s crucial for your brand or its resellers to contribute SEO-friendly search terms to their product listings and to use Fulfilled by Amazon for those products if it wants them to rank well on the site.
To compete for visibility on the first page of search results for generic search terms, your brand may also need to rely heavily on Amazon advertising. Paid slots are featured within organic search results, but to qualify for placement, those ads need a sufficient bid above their competitors, and the seller needs to have won the Buy Box for that particular item. Without the Buy Box, their advertising becomes inactive. Consider two scenarios:
- Scenario A: There are multiple sellers on a listing that Amazon is rotating through the Buy Box, and not all of those sellers are spending adequately on their ads to win out over all other ads for the same keywords.
- Scenario B: Your brand’s product is being offered by only one seller that is also spending aggressively enough for its ads to win placement on Amazon.
The brand in Scenario A is simply not going to get as much paid search traffic as the brand in Scenario B. This is a distinct disadvantage to allowing resellers on Amazon.
So that’s search traffic. What happens next in the customer’s journey?
Well, when she clicks on the product listing from search results, she will skim through the images and text to learn about the product and seek answers to her questions. If this listing content adequately addresses those questions and highlights the product’s unique value proposition (why to buy that product vs. a competitor’s) then it’s more likely that this customer visit will convert to a sale.
In an ideal world, this is the outcome you’ll experience more often than not. Unfortunately, it’s much harder to consistently achieve when you take a retailer-first approach. Let’s continue to explore why—and what you should do instead.
News Flash: Retailers Don’t Care As Much About Your Brand As You Do
Every brand that wants to succeed on Amazon needs to make sure it can:
- get decent placement for its product listings in organic search results,
- add high-quality listing content to drive customer conversion,
- ensure its promotions can surface as expected,
- ensure its paid search/advertising effort will result in additional traffic,
- keep products in stock, so as not to lose its sales rank on Amazon
In order to make sure these five drivers are in place, the brand needs its Amazon distributor(s) to load and lock down high quality SEO and product listing content, to invest in advertising and promotions on Amazon, all while winning the Buy Box without cutting retail prices.
But here’s the issue. Most retailers want to sell units—sometimes at discounts—and they’re good at it. But these retailers are not skilled at or interested in developing high-quality listing content, or managing competitor pricing.
In addition, most retailers carry multiple brands, so the effect of being out of stock on one brand is offset by carrying other brands in the interim. Most retailers are focused on their own performance, not the overall performance of the brands they carry. If the retailer is primarily a brick and mortar retailer, it is likely not very interested in splitting inventory to send some into Amazon’s fulfillment centers (in order to make that Prime-eligible inventory). The savvy Amazon seller must consider and balance all these issues in order to capture competitive shares of both sales and advertising.
To succeed, brands must also have the ability to effectively execute promotions on Amazon at specific times, and this is where your brand may encounter further disadvantages to allowing other retailers to sell your products. If your brand (or one of its authorized sellers) is approved to run a promotion on Amazon that discounts the price by a certain amount, you also have to ensure that the product isn’t unexpectedly discounted on Amazon (or another channel that Amazon monitors) before the start of the promotion. We’ve seen cases where the brand ramps up inventory at Amazon, anticipating a sharp increase in demand from a promotion, only to have Amazon cancel the promotion because the promotion’s new price no longer meets a minimum threshold below a current price being offered by some random seller.
It’s simply hard to rely on an external reseller to check all the boxes you need to make sure your products are consistently found and purchased on Amazon.
Four Amazon Distribution Options—and the One We Recommend
So the question then becomes, what distribution option makes the most sense for your brand?
If the brand wholesales products to Amazon (a first-party/1P relationship), Amazon has the ultimate decision of how to set retail prices for the products, which parts of your brand’s catalog to carry, and how much inventory to carry on each product.
Another option is to supply third-party resellers with your products (a third-party/3P relationship), whereby the resellers make pricing, selection and inventory decisions.
A third option is to set up your own third-party seller account, and sell direct to consumer on Amazon; this option gives your brand maximum control in making pricing, selection, and inventory decisions. As a result, this is our recommended option.
Each option has consequences and limitations. If your brand has a minimum advertised pricing (MAP) policy, it is typically much easier to police that policy through third-party resellers than through Amazon 1P. With Amazon 1P often not restocking quickly enough to avoid stockouts or deciding to no longer carry the full catalog of the brand, you can be left with temporary or permanent stockout issues on portions of your catalog. If your brand is selling through other third-party sellers, strong and regular communication with those resellers should help to optimize proper selection and inventory coverage. Your brand, however, is still dependent on the reseller(s) to accomplish your selection and inventory goals.
There’s also a fourth possibility, which is that your brand may also be sold by unauthorized third-party sellers. These are sellers with whom you may or may not have open, direct channels for communicating regularly or effectively on pricing, selection, or inventory issues. Due to the lack of ability to communicate with and influence such resellers, we do not favor an Amazon distribution strategy in which a brand tolerates unauthorized reseller activity.
Here’s the bottom line: Your brand’s ability to control pricing, selection, and inventory levels on Amazon—to adopt a consumer-first approach—is maximized when you are the seller of record.
Your freedom to administer the Amazon channel and control your own outcomes decreases in order as you choose either a single reseller, multiple resellers, or Amazon 1P as your seller of record. And if you find yourself with unauthorized resellers in the mix on any of these distribution options, your ability to control these key levers quickly becomes limited. That’s why we strongly recommend using Brand Registry for anyone trying to protect their carefully built brand equity on Amazon.
Be Willing to Say No to Your Retailers
What’s best for your brand is rarely what’s best for your individual retailers, and the mechanics of Amazon make this gap in incentives even more apparent. Brands that want to do what’s best for their long-term equity—growing profitable through control of the Buy Box, pricing, inventory, selection, advertising, and branding—will inevitably need to periodically say “no” to their retailers, even when it’s difficult.
If you’re looking for more guidance on the best Amazon distribution strategy for your brand, send us a note.