At the start of the pandemic, there was a rush for brands and retailers to start selling on Amazon the instant their high street shops were shut down. But this was largely emergency measures rather than a coherent ecommerce strategy. Today, Alan Chester, VP of eCommerce at Luzern takes a look at the challenges and the opportunities that selling on Amazon offers brands with strategies for maintaining brand control whilst embracing the marketplace:
The challenges and opportunities of selling on Amazon
Fueled by the pandemic, online shopping is booming. In the UK alone, approximately 75% of consumers have swapped the brick and mortar stores of high street for e-shopping. This change in shopping behaviour has driven many brands to step up their ecommerce sales strategy. However, brands are encountering challenges, as well as opportunities – and nowhere is this more apparent than for brands that sell on Amazon.
To better understand the challenges, Luzern recently partnered with Censuswide to conduct a survey of over 250 ecommerce decision makers across the UK, France, Spain, Italy, and Germany who have or had experience working with Amazon. This article explores their experiences, as well as the strategies needed to boost sales and increase profitability.
Critical challenges of selling on Amazon revealed
While the survey uncovered numerous challenges that brands face when selling on Amazon, the most difficult to overcome include:
- Gaining and retaining control of their brand
- Establishing a pricing strategy that sustains profitability
- Navigating the dynamic ecommerce landscape
- Reaching target customers through effective advertising
- Pricing products competitively
Almost half (45%) of ecommerce decision makers agreed that gaining and keeping control of their brand on Amazon is challenging, and more than 50% revealed that navigating Amazon is extremely difficult. The implications of losing control of your brand have far-reaching consequences, including diminished margins, channel conflict, and the risk of making little and sometimes no profit on certain products. While the pandemic may have facilitated some brands to sell online, that doesn’t mean that they need to lose control of the brand image they worked so hard to create. And nowhere is loss of brand control felt more than in pricing. Regardless of whether the brand is selling direct to Amazon (1P or 1st party sales) or selling through 3rd party vendors (3P), a blended 1P and 3P) sales approach with a trusted 3P partner, like Luzern ecommerce is becoming more and popular as, done right, it can provide brands with the autonomy needed for brand control.
42% of respondents highlighted the importance of being able to set an average order value (AoV) that aligns with their pricing strategy. Selling on Amazon often results in diminished price control, which can have a negative effect on margins and profitability. With both short- and long-term plans, ecommerce decision makers are looking to reduce margin pressures, enter new markets, and add new products to their Amazon offerings.
While more than 80% of ecommerce decision makers agreed that ecommerce is an important aspect of their digital transformation, 40% cited that navigating the constantly changing ecommerce landscape as problematic. At the core of this challenge is technology advancements such as artificial intelligence (AI), virtual reality (VR), algorithmic measurement, customer experience management (CEM), etc., which are changing the online shopping experience. In order to keep pace with today’s dynamic ecommerce environment and improve their customers’ digital shopping experience, brands need to stay on top of technology advancements.
Although high quality content is a requisite for successful trading on Amazon, competing listings mean more brands are looking to reach new buyers and convert more sales with effective advertising. According to the survey 40% of respondents find it problematic when trying to reach their target audience. To improve content and listings, brands need to consider increasing their Amazon advertising and Demand-side Platform (DSP) budgets. By advertising on Amazon, brands can decrease sales cycle time, improve brand awareness, enhance product visibility, capture customer insights for more precise and targeted campaigns, gain a better understanding of the shoppers’ journey, know when shifts in buyer behaviour is taking place, and track advertising results.
Largely due to stiff competition and Amazon’s ability to demand the brand to price match competing products and/or they can and will independently implement pricing adjustments, over one-third (39%) of ecommerce decision makers encounter difficulties in being able to competitively price their offerings.
The challenges of selling direct to Amazon is one of the primary reasons that ecommerce decision makers agree that while selling on Amazon is an essential part of their ecommerce approach, their future profitability relies on a wider ecommerce strategy.
Turn challenges of selling on Amazon into opportunities
Although more than 86% of ecommerce decision makers agree that selling on Amazon is critical to their long-term survival, the complexities of Amazon’s platform are creating barriers for brands to reach their goals. To survive and thrive in the ecommerce world, brands need the right Amazon strategy.
To address the issues of selling on Amazon, brands are increasingly embracing a blended 1P and 3P sales approach. By harnessing the power of a combined 1P/3P strategy, brands are gaining a level of autonomy not always afforded by 1P selling alone. The flexibility of this sales model provides brands control over their products and pricing, while protecting their 1P relationship. As part of this strategy, many brands are partnering with an Amazon specialist. With the right partnership, brands are able to adopt the latest technologies to remain competitive, future-proof their business against the ever-changing ecommerce landscape and take back ownership of their Amazon business.
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