This is the Amazon flywheel, also known internally at Amazon as the “virtuous cycle.” It’s the founding model for growth of the Amazon marketplace, and it’s been largely great for both Amazon and its consumers. Unfortunately, the dynamics of the Amazon flywheel have left brands and sellers holding the bag, and they need a better option. We’re going to discuss how the Amazon flywheel works, where it falls for short for brands, and a superior flywheel model—the Marketplace Flywheel®—that we use at Buy Box Experts to help brands succeed on Amazon.
How the Amazon Flywheel Works
By opening up its marketplace to third party sellers, Amazon significantly increases its product selection and, in turn, improves the experience for Amazon customers. This great customer experience drives more customers to Amazon, which motivates more third-party sellers to join the marketplace, adding more new products which, again, improves the customer experience. At the same time, more sellers means more competition. This competition forces lower product prices, which further improves the customer experience—leading to more customers and sales.
The platform’s growth also creates economies of scope and scale, leading to lower overall transactional costs for Amazon, savings that Amazon passes on to consumers by driving prices even lower, further improving customer experience.
These factors continually feed each other and drive growth, all of which feeds customer experience, traffic and sales.
How Amazon’s Flywheel Hurts Brands
While Amazon’s flywheel works well for Amazon and its customers, it creates a significant challenge for brands. Amazon’s hands-off approach results in huge numbers of unauthorized resellers offering your branded products on Amazon, often undercutting your brand’s desired price points. Third-party sellers can also use Display Names on Amazon to easily disguise their identities, making it harder for brands to identify these sellers and police the sale of their products.
The Amazon Flywheel presents 3 main challenges:
- First, because of Amazon’s preeminent visibility to customers and retail partners, products sold below retail price points upset retail partners and customers who acquire the product in a store or on the brand’s site at a higher price. This lower price drives down the perceived value of the brand.
- Second, poor product photography and product content is pushed to Amazon by unauthorized sellers, devaluing your product and brand in the customer’s mind.
- Third, customers assume they are purchasing a genuine product directly from a brand or from Amazon but many are surprised to receive poor or negligent customer service from unauthorized sellers while some receive counterfeit product sold under the brand’s name.
A Better Option for Brands: The Marketplace Flywheel®
If you want to leverage the Amazon channel for brand growth without devaluing your brand and your products, you need to implement a solid Amazon strategy, based on three pillars: channel governance, branding optimization, and growth-based advertising.
Harnessing these factors will help you create your own Marketplace Flywheel® that drives sales and organic growth for your brand on Amazon.
Here’s how the three pillars of the Marketplace Flywheel® work together to help you gain control of your brand on Amazon and improve sales.
Channel Governance: Taking Control of Your Brand and Distribution on Amazon
First, your brand must develop policies and procedures to manage the distribution of your products on Amazon, as well as on other channels where your products could be sourced then diverted to Amazon. This means implementing legal measures to help your brand enforce its trademarks. It also means aligning your sales goals, responsibilities, and incentives around not just selling more product but protecting your long-term brand equity across all channels. This approach leads to consistent pricing across Amazon and all other channels. It also ensures your brand is the seller of record or Buy Box winner on Amazon.
Branding Optimization: Presenting Your Brand and Products Effectively and Consistently
Next, you need to take control of how your brand is presented in the Amazon product catalog. No reseller cares about your brand’s message as much as you do. That’s why you need to make sure your content on Amazon’s product detail pages is correct and complete and aligns with your product messaging on all other channels. Customers need to know why they should purchase your product versus a competitor’s product, and on Amazon they have several hundred million products competing for their attention. Creating the best product images, titles, descriptions, video and other enhanced content increases the chances that your product will show up at the top of search results and that customers will click on your product and purchase it.
Growth-Based Advertising: Driving Organic Growth Through Smart Advertising
Finally, you need an Amazon advertising strategy that helps your brand get more attention from Amazon customers.This strategy incorporates keyword research, discovery testing and keyword isolation to scale your advertising effectively and drive paid and organic sales. This is what we call a growth-based advertising strategy.
Once you are the Buy Box winner and your listings are optimized to convert customer traffic into sales, your advertising is equipped to drive more product sales, which Amazon will reward with better search results. This gives you “free” organic sales which drive even better positioning and more sales growth.
As your brand invests consistently in growth-based advertising on Amazon, you’ll continue to improve your placement in Amazon search results, driving more organic sales. That will make your product more attractive to resellers, necessitating further investment in channel governance, branding optimization, and growth-based advertising.
Put the Marketplace Flywheel® to Work for Your Brand
All of these factors come together to help you create your own flywheel, where good channel governance, branding optimization, and growth-based advertising help drive sales and organic growth for your brand.
If you’re unsure how to put these factors together to create an effective Amazon strategy for your brand, let’s talk. Together, we’ll develop and implement a plan to maximize your growth on Amazon while protecting your brand long-term.