By Janus Boye
Amazon has been changing how we shop online for years and every move of the online marketplace giant seems to have everyone’s attention. But why is that? And what is it that makes Amazon special?
Jeppe Hamming is Head of Marketplaces, Amazon specialist and Partner in the Danish agency, Nørgård Mikkelsen and in a recent member conference call he dived into how Amazon does business and what that means for businesses looking to sell their goods via the platform. He also shared key insights into how you succeed on Amazon based on his vast experience onboarding and optimising the Amazon presence of multiple large enterprises.
Below I have shared my notes and highlights from the call, and towards the end you can also download the slides and view the entire recording.
What is Amazon today?
Amazon has quite a few different things going on today, and when you see Amazon deliveries all over town in many US cities, the original roots as a digital bookshop seem far away. Moving from having the largest selection of books, without having any physical shops, to today, Amazon is now also streaming, cloud computing, supermarkets without check-out counters and consumer hardware.
In our call, Jeppe focused on Amazon as a marketplace and advertising platform. Let’s start by looking at the marketplace:
Actually, Amazon is not just one giant marketplace, it is 19 different marketplaces around the world with US, UK and Germany being roughly 83% of revenue. In the US, 55% of all product searches start on Amazon and Jeppe mentioned that Amazon in the US has a staggering 26 million different items (SKUs) for sale and 560 million globally. That’s compared to just 12,000 at IKEA or 200,000 at Danish retail giant Salling Group.
Amazon’s strategic framework is illustrated in this Amazon flywheel created by Sam Seely back in 2016. Since then the platform has grown rapidly - notice also the color coding to illustrate the control capabilities for brands.
Some of these items are sold by Amazon itself, while others are sold on the platform by third-party sellers. Interestingly, only about 20% of the products on Amazon have any sales in a given month, which also makes you rethink how to do retail today.
Furthermore, Jeppe also pointed out that Amazon doesn’t only make money on the marketplace by selling goods. They also earn on storing goods for retailers, and delivery services - including Amazon Prime subscriptions. To put things in perspective, he had this memorable quote from Scott Malkin, Chairman of Value Retail in his deck:
“The war is over. Amazon won.
That means physical retail is no longer about distribution of goods, but building brand equity”
In terms of being an advertising network, it’s fair to say that while Google and Facebook pull in more advertising revenue, Amazon totally dominates retail media and Amazon advertising revenue is growing rapidly. Advertising on Amazon has become a huge source of revenue for the multinational tech company.
A slide from the member call: You don’t really buy on Google or Facebook and that’s why advertising on Amazon is so incredibly valuable and growing quite rapidly
If you want to utilise Amazon’s knowledge about consumer purchases and get going with advertising on Amazon, there are two options. You can either leverage their managed services and book directly through Amazon with a minimum spend of €35k or you can do the self-service route through an agency partner where you pay as you go.
How does Amazon work?
If you go on Amazon and search for say, LEGO Star Wars, you can select some of the precious and famous bricks from quite a few different options:
Dispatched and sold by Amazon
Sold by a 3rd party that could be toy shops or other retailers offering their price for the product – some of these products dispatched by Amazon, while others by the 3rd party retailer
A search for LEGO Star Wars on Amazon in early May 2022 gives you over 1,000 results
A quick search when these lines were written, showed a mix of results and an impressive amount of options to find exactly what you were looking for. Some sponsored results, other with free shipping and then the possibility to narrow the search by price, age range, number of pieces, customer reviews and much more. You can even search for used LEGO Star Wars.
In the call, Jeppe also briefly touched on Seller Central and Vendor Central, which are two different ways to work with Amazon.
As shown in the illustration below, the key part of the vendor model is that you individually negotiate the price with Amazon, while via the Seller model, costs can be estimated in relation to fees and logistics.
Jeppe’s advice was that being a ‘seller’ might be better than being a ‘vendor’ and for most, being a seller will be the best choice.
How do you utilise Amazon as a seller?
Towards the end of our member call, we almost ran out of time, but this is where he shared his 5 step process and also quite a few onboarding pitfalls. Here’s just three of them:
Do you know if you will be able to make a profit when you consider all the costs?
Over 99% of the companies that sign up for selling gets declined or use many months signing up – getting help is a good idea
You are not going to get the positive feedback loop started (sales – reviews – search ranking – more sales) unless you advertise
In brief: You need to deliver a specific product to stand out.
In his work, Jeppe looks for these 4 attributes when getting started:
Do you have a strong brand?
Any special product features?
Is the pricing competitive?
Can you deliver superior content and presentation of products?
Finally, consider whether you are willing to do advertising to buy yourself into your category on the marketplace.
Jeppe divided his work with Amazon into 4 categories:
Data analysis, which includes looking at the potential and performance for different products
Onboarding, which tends to begin with a strategy and business plan and then moves onto account creation, product registration and advising about VAT, tax and logistics
Content, which is the product texts, localisation, SEO and pictures
Marketing, which is all about search engine marketing, brand advertising, effect optimisation
A proof-of-concept typically takes 3-6 months of testing in a market with 10-20 products. After a successful proof of concept, expansion can then be considered through more products and/or additional markets.
As any good and experienced consultant, Jeppe finished with a few good questions for you to consider:
Amazon is changing the way we buy – infrastructure is becoming a commodity and you need to focus on how you provide value – do you even need a webshop?
Could you sell via Amazon today and would that boost your organisation's knowledge about how to compete amongst so many competitors?
How will the growth of Amazon as an advertising channel change the way you do advertising today?
Learn more about how you succeed in selling on Amazon
The Jason & Scot Show on retailgeek.com is an amazing podcast according to Jeppe and they often talk Amazon.
If you speak Danish, then Jeppe and his colleagues have also created a 5-step guide to Amazon, which you can download free of charge.
Finally, you can also download the slides (PPT) or lean back and enjoy the recording below