How to Succeed in the Age of Amazon
To kick off the 2018 Path to Purchase Summit in March, retailers, brands and solution providers gathered to discuss the elephant in the room during a symposium entitled "Succeeding in the Age of Amazon." Read on for highlights from each of the presenters.
Start with Your Reason for Being
In this changing market, all companies must learn to compete on many fronts. Walgreens senior director of U.S. insights Luke Rauch advised meeting the challenge head on by determining where you have permission to win and making strategic choices on that particular battleground.
“You have to start by figuring out who it is that you are,” Rauch told attendees. "You can’t be everything to everyone, so you have to figure out what you stand for."
First, ensure your customer value strategy marries up to clear corporate and brand strategies. Define where you want to win as well as your key competitors and customer targets prior to setting goals and objectives, grounding decisions in strategic thinking rather than a reaction to the marketplace. Zero in on what makes you unique and use that as your basis for advantage, developing a corresponding value strategy.
Although price can come into play for select items or categories that both align with what you stand for in the market and are purchased frequently, Rauch instead advised a focus on differentiated products and services.
For Walgreens, that means prioritizing a unique assortment and customer experience (such as stores with elevated beauty offerings), strengthening customer value (via the Balance Rewards loyalty program), and improving omnichannel and clustering efforts (integrating across channels and getting the right assortment in the right stores).
The drugstore chain also differentiates its offerings with private labels and known value items unique to its company and competitive set. Another very successful strategy for the retailer has been personalized offers for loyalty cardholders that enable an increased focus on key customers. Walgreens also has embraced fewer price zones and cut back on complex promotions in favor of more generally inclusive offers, Rauch said.
Defy E-Commerce Price Gravity
These complex promotions can fuel price gravity, a "natural" force of competition at retail that causes prices to fall in the marketplace. Price transparency, retailers' competitive and auto price-matching policies, "tactless" retailer and manufacturer promotions, clearance/closeout sales, and the absence or inability to enforce MRP/MAP policies all push down prices, Kellogg Co. senior director of e-commerce Chris Perry told attendees.
Operating under the philosophy that its platform exposes the "real" marketplace price, Amazon perpetuates price gravity by demanding the best value. Third-party sellers have an advantage when it comes to pricing negotiations because they have more options for enforcing minimum standards with Amazon, including strategically choosing to delist an item or, most effectively, withhold trade spending.
"[However,] just because you start selling on the third-party marketplace doesn't mean all those [pricing] leaks go away," Perry said.
Managing pricing across online distribution channels requires companywide support for a gross pricing and trade fund strategy that takes into account the MRP as well as promotions that could drive down a product's price across channels. Perry steered attendees toward promotional efforts that do not erode price.
"There are strategic deal structures that retailers and brands can launch that don't actually trigger price drops because they're not on an individual product, they're on a basket of products," Perry said. These include dollar threshold deals, quantity threshold deals, first-time order offers, hidden coupons targeting only certain groups of people (such as via Amazon Virtual Private Cloud) and cause offers.
Be the Best Amazon Partner
Amazon sees itself as a platform, not a retailer, stressed Ideoclick vice president of client services Andrea Leigh. That relationship is going to look different than one with a traditional partner, but it is possible to work together if you understand Amazon's goals and how to negotiate, the former Amazon employee told attendees.
Leigh explained that while big brands get a joint business plan and live negotiations with a senior manager that can last for months, small brands are a different story. They only get a single point of communication that is likely based on an algorithm, only get access to limited data and are pressured to close quickly after just a few emails.
For the most part, when a small brand is partnering with Amazon, it's partnering with a robot, artificial intelligence and data science. The key to succes is making sure you know your KPIs and can speak Amazon's metrics language: approach discussions armed with data, be educated about your current terms with other channels, know your relative size in the category, your product rankings, vendor lead time, damage rates, return rates, Subscribe & Save penetration, etc.
Leigh advises smaller brands resist the pressure to close and instead ask for a call, more time and more data to essentially drive a stalemate. Extending the negotiation process can propel a small brand beyond the typical email exchange to escalate the relationship to human interaction and reach a more senior person at Amazon.
Ask questions about the category to figure out where your leverage point is and focus on a win-win area where you can help Amazon and your business, and never give any information or money away for free. Always ask for something in return, then move fast and iterate, Leigh said.
Insider Tips for Crushing It
Chief executive officer of day1digital Melissa Burdick and chief marketing officer of Clavis Insights/One Click Retail Danny Silverman shared their Build/Drive/Earn Amazon strategy:
- Build (the fundamentals): right assortment, in-stock availability, content SEO, enhanced content, consumer reviews
- Earn: social sharing, share growth, search rank, sales growth, more reviews, opportunity
- Drive: AMG media, AMS search, merchandising, promotions, etc.
The presenters boiled the broad strategy down to a plethora of quick-hit tips.
Among best practices for optimizing product listings, for example, is baking the most relevant keywords into the title, which is key when it comes to organic search. Bullet points should list details such as product benefits, ingredients and nutritional value but the brand story and "PR speak" are better placed in the product description. Hidden search keywords should include common misspellings. Images need to be correct and full to prevent any third-party images from creeping in, and everything should be optimized for a smaller screen as more and more traffic comes from mobile. Shopper-generated content must also be considered, including the amount of questions and answers available, what kinds of questions shoppers are asking and what keywords they are using. The latter two can be baked back into the SEO strategy.