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Amazon is vital, but a challenge: how retailers are making marketplaces work for them

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Amazon: great for consumers, a challenge for retailers (Image: AdobeStock)
Amazon: great for consumers, a challenge for retailers (Image: AdobeStock)

More than half (51%) of ecommerce decision makers find Amazon hard to navigate, while more than two in five agree that gaining control of their brand on Amazon is difficult – but there are ways to make it work.

 

These are just some of the key findings of a new European survey conducted by Censuswide on behalf of leading ecommerce platform and services provider Luzern. The research provides detailed insights into Amazon sales strategies from brands across the UK and Europe.

 

The Coronavirus crisis has fuelled an online shopping boom. Amazon’s profit soared 220 per cent as the pandemic drove shopping online. Luzern’s new survey confirms Amazon’s power and significance – with nearly nine in ten (86%) decision makers stating that Amazon is crucial to their sales strategy to survive in 2021 and beyond. In addition, three quarters (75%) believe that ambitious brands must have a presence on Amazon in order to meet customers on their platform of choice.

 

However, as more brands adopt an Amazon sales strategy, new trends have emerged that are key to understanding and outpacing the competition in a marketplace-driven economy. Despite the ecommerce boom, over three quarters (76%) of respondents agree that simply selling on Amazon is no longer enough. Instead, brands need the right Amazon strategy to sustain their profitability: If shoppers can’t find a brand’s product on Amazon, that brand is unlikely to survive, according to 71% of respondents that work in companies of 500 or more employees.

 

Moreover, in a crowded marketplace, standing out and succeeding on Amazon is becoming increasingly difficult. This is true even for the most established brands. The research identified five of the most pressing challenges faced by businesses selling direct to Amazon (1P). Respondents cited gaining control of their brand (45%); setting a competitive pricing strategy that sustains profitability (42%); navigating the constantly changing ecommerce landscape (40%); pricing products competitively (39%) and advertising products effectively to reach their target customers (39%).

 

“Amazon is an important channel for brands, but the survey highlighted some common pain points, such as the competitive nature of selling while making a healthy profit margin, and positioning and pricing products correctly. All of this is exacerbated by a constantly changing ecommerce landscape,” comments Alan Chester, VP, eCommerce, Luzern.

 

Price war to win buyers results in lost revenues for brands

Many brands are finding themselves under extraordinary margin pressure when selling to Amazon directly, generally triggered by the price war to win the buy box. Acting as a retailer, Amazon seeks to maximise its margins and pushes what is selling best, then demands better prices. This can equate to millions in lost revenue for a brand.

 

On top of this, nearly half (46%) of surveyed ecommerce decision makers stated that avoiding list suppression and stock outs is a key challenge for them. When Amazon deems a product not-profitable, referred to as “CRaP” (Can’t Realise a Profit), it can de-list the item and cease to re-order.

 

“Due to Amazon’s inherent complexities, businesses are increasingly feeling that they are losing control of how their brand is presented and how their products are sold. Nowhere is loss of control felt more acutely than when it comes to pricing. With far-reaching implications, a brand’s diminishing control of pricing can squeeze margins and negatively affect profits across channels, as well as create channel conflict. When combined with stiff competition, brands are facing the very real risk of making little, and in some cases no profits on certain product lines,” Alan adds.

 

Those selling directly to consumers via Seller Central on Amazon (3P) face tough competition from rival vendors too, as well as an ongoing battle with Amazon’s constantly evolving algorithms to achieve high-ranking listings.

 

Hybrid 1P and 3P model becoming more popular

To address these issues, brands are increasingly turning to a hybrid approach. This enables them to build up listings and history, grow their sales and margin via Amazon’s 3P model, while at the same time protecting their 1P relationship. Luzern already works with some household name brands via a 3P hybrid model that allows more price autonomy over products and facilitates independent price changes, handing more control back to the brand. A third (32%) of survey respondents said they are already selling both directly and via a third party.

 

As part of this, brands are also investing in third-party ecommerce solutions. Three quarters (75%) of ecommerce decision makers expect their budget to increase for tools to support their ecommerce strategy, while over three quarters (77%) agree that their company needs to invest more in e-commerce expertise.

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