Amazon is a mystery wrapped in an enigma wrapped in another mystery.
Expected to own half of the e-commerce retail market this year and with nearly 60% of consumers saying they’ll do more online shopping after the pandemic. Amazon is undeniably a beast.
So what is Amazon’s strategy and how can we all learn from it?
For one, Amazon sources directly from brands like Walmart and then sells below the cost of acquisition. In turn, the brand has a harder time selling items in-store.
Many are calling this a monopoly, especially since Amazon collects information from sellers to compete with them with Amazon Basics.
But Amazon isn’t just looking for profits, but control over brands’ supply chains. The sellers are just their middlemen. The real idea is to dominate the brand as a buyer, making it rely on Amazon in terms of its pricing power.
Ikea, Nike, and Birkenstock have all pulled away from Amazon. However, this doesn’t really stop their problem; shoppers can still buy their products from third-party sellers.
“To say the brand has won by walking away, they haven’t won at all,” Thomson said. “Amazon has a massive security blanket called the third-party marketplace. Those products sell at huge volumes, they’re Prime eligible and most customers don’t know any better,” James Thomson, a former Amazon manager and now partner at brand consultancy Buy Box Experts, told CNBC in 2020.
This evokes a feeling of being somewhere between a rock and hard place.
How is the Marketplace different?
Aside from featuring big brands like Walmart and helping them ship their products, Amazon places brands with lower profits in its Marketplace.
The Marketplace’s role is to fill up the site with products without having to directly rely on brands. Here, brands compete not only against third parties but also Amazon’s own products like Amazon Basics.
But what about smaller mom and pop type brands in the Marketplace? Unlike with the larger Amazon, third-party sellers are left to determine sale prices. They still pay fulfillment fees while also needing to match a price that doesn’t consider shipping costs.
Smaller brands that can’t compete with Amazon often don’t have much of a choice but to stay. Amazon even offers marketing support and prime product placement to small brands who agree to be bought out through a program called Amazon Accelerator.
“Amazon’s Marketplace platform for third-party sellers harms competition by penalizing merchants who sell products on other platforms for lower prices than they offer on Amazon.com, two new class-action antitrust suits against the commerce giant contend,” according to The Seattle Times.
Filed in federal court, the suits allege that “proposed classes of tens of millions of consumers who have bought merchandise on Amazon.com, describe Marketplace as a pay-to-play scheme in which Amazon is the only winner.”
How does Amazon Marketplace affect marketers?
In 2018, approximately 50 percent of consumers started their product searches on Amazon, with around 92 percent converting. As of Q1 2021, Amazon’s net sales were $108.518 billion, up 43.8% from Q1 2020. Net service sales, including Amazon’s fulfillment services for sellers on its marketplaces, reached $51.027 billion, a 51.8% bump from the prior year.
So what is Amazon’s marketing strategy that makes the company so successful? Amazon is obsessed with customer-service and putting the customer first. They care about preferences and updating them when they need to. They’re agile. They carefully track customer behavior. They adapt to new technology as it happens.
Greater risk-taking, innovation, and collaboration along with defining clear financial effects with short and long-term estimates are all strategies we promote and Amazon uses.
Amazon looks at its performance metrics such as product/market fit, targeted messaging, and investments in new acquisition channels closely. They predict their potential returns on each vehicle with real data and tracking.
Amazon also looks carefully at what customers buy to recommend similar items. Items it knows they want because they have the data. In today’s age, strategy and data are no longer nice-to-haves but absolute necessities.
Coined for the impact of ecomm on brick and mortar companies, “The Amazon Effect” is called this for a reason: there’s no way back. Only adaptation and constant evolution.
Companies that model Amazon’s marketing strategy will be Amazon’s future competitors. After all, ecommerce won’t always look the way it does now; the landscape (as with everything else) is always shifting.
The best advice: focus on your brand, your customers, and find the intersection of these.