Internet sales giant Amazon has become something of an online King Kong towering over the commercial sales world as the retailer of choice for many of us.
Twenty years after its launch, it is serving more than 200M customers in 13 countries across the globe selling products ranging from cloud-based web services to pet food. Amazon seems determined on selling everything to everyone and the recent opening of a 12-storey office in central London is testament to the company’s UK expansion plans.
The many thousands of brands supplying to Amazon face a wealth of opportunities and a few issues. So what is it like to trade with one of the prime movers of the online retail revolution?
The Quantic Group and CPM – two UK companies that help brands grow their businesses through improved sales effectiveness and efficiency – conducted research among 12 leading British Amazon suppliers and retailers to discover how to deal successfully with Amazon in order to deliver profitable future business.
Tony Stratton, chairman of both of the sales development organisations, explained the rationale behind their research. “Both companies list Amazon suppliers among their client base and we wanted to give them some useful insights into online retail, focusing one of its pioneers and prime movers.
“So we conducted confidential interviews among a number of suppliers, retailers and other interested parties, including ex-Amazon executives. The length of the trading relationship between our supplier interviewees and Amazon spanned from new to more than 10 years, which gave us a sense of how expectations and results evolved over time.”
The researchers quickly concluded that Amazon’s business model, the obsession with the shopper experience, the drive for innovation and the preparedness to invest behind it, set it apart from traditional retailers, making it an exciting but challenging account for its suppliers.
Interviewees universally recognised Amazon as an important customer and one that would become increasingly valuable in the future. Some sectors, such as domestic appliances and home entertainment, have enjoyed significant business through the Amazon channel for a number of years and now fast-moving consumer goods and food sectors are starting to experience both the potential reach of Amazon and the challenges of dealing with a major retailer that has never owned physical outlets.
430 olive oils
Some suppliers were excited by the ability to offer their total range within a category, while others were concerned that the “we’ll list every item you make” approach taken by Amazon, would put severe pressure on stock inventories and internal systems as well as generating concerns from other trade customers. Amazon has a commitment to offering extensive choice; some would say at the risk of shopper confusion. For example, the ability to choose from over 430 different olive oils may be a bit more than most shoppers want.
The length of the suppliers’ relationship with Amazon also coloured their views. Those with a more mature relationship were much less certain about Amazon’s ability to drive real growth than those who are just starting to build a trading relationship.
Said Stratton: “Everyone we spoke to, however, told us that their business with Amazon was growing fast. One organisation reported that sales were growing at low double digit numbers, even while Amazon believed the organisation to be under-indexing.”
One of the strongest themes to emerge from the conversations is that Amazon is information-hungry: demanding, pragmatic and forward thinking. Not surprisingly it expects a correspondingly high level of service from its suppliers.
Stratton explained: “The people Amazon employs think and behave in a different way and will move at a pace that most account handlers will not have experienced. They were described as “bright, good people” and, unsurprisingly, extremely tech-savvy. Making sure that the supplier’s Amazon account team are the best, with the resources to develop the relationship and optimise the opportunities, will pay back. This will increase creative marketing and technical expertise, delivered by task-oriented, analytically capable individuals.”
A number of conversations highlighted the strong marketing element that is required to trade successfully on Amazon. “You must have A+ content” was a recurring theme and one trading director commented that he needed to add marketing and a research expertise as part of his Amazon development team.
The quality of visuals and photography, along with well-written copy and full product specification, is paramount if suppliers are to make the most of the Amazon opportunity, as is recognition that product reviews drive sales. There is a prevailing view that anything less than a three star rating is “pretty useless” and Amazon Vine – a marketing service that enables suppliers to test shopper reaction to new products – is particularly influential. Reviews from Vine Voices (top Amazon reviewers) are extremely influential with other shoppers. Amazon says that more than two-thirds of its customers research online and check out reviews about products before making a purchase.
The ability to communicate with the growing list of Amazon communities – families, mums, special interest groups – represents a huge opportunity and Amazon wants to work with suppliers to actively market their brands in a targeted way. Although access to data can be expensive and not all data is readily available, Amazon does offer a unique window on shopper behaviour and this understanding can enable sales directors to engage more effectively with their marketing colleagues to develop goals and strategies that are accurate and aligned. The ability to reach a wider shopper universe, with a full and extensive range of products, is attractive but the shopper journey needs to be understood and carefully planned, from NPD to eventual consumption.
Amazon jealously protects the data that it gleans from its systems and the subsequent insight delivered. Its ability to track the shopper journey, completely and in real time, is the powerful advantage over bricks and mortar retailers. Other retailers believe one of the greatest threats to be Amazon’s ability to convert data into something that is ‘spot on for most shoppers’. Data- driven enterprises like Amazon, Google and Facebook all started from a different place but are converging in a common ambition to own the customer relationship.
Traditional retailers are clinging to the belief that the interpersonal relationships fostered between their staff and shoppers, as well as the wider social interaction during the shopping experience, still gives them a clear point of advantage. But their confidence could be misplaced. Richard Cuthbertson, senior research fellow and research director at the Oxford Institute of Retail Management at the Saïd Business School,
University of Oxford, said: “The same was said about the village store but a social relationship doesn’t count for much added value. People do have relationships with Amazon.
Any retailer who thinks that a digital interaction cannot have an element of social interaction doesn’t understand how Amazon’s “you might like this” or Google’s search/Facebook’s connection powers are all based on an analysis of social networks.”
The conclusion that the smart bricks-and- mortar retailers will draw is to mix online with their physical infrastructure and stores such as John Lewis are proving to be highly adept at this.
The supplier research conducted by CPM and The Quantic Group formed part of a wider project which embraced retailers, written media, case studies and even Amazon itself. It also included a survey among 900 shoppers – all of whom were employees of sales development agency CPM. While not a scientific or demographically designed sample, the responders spanned all age ranges from 18 to 65+, lived in all regions of the UK and included a mix of single and shared households and families. Most of the shoppers researched – 91% - stated that they use Amazon; 35% of them at least once a month. The research also showed that the supermarkets with online offering are gaining ground, with 56% of recipients having used them.
While price was given as the primary reason given for shopping at Amazon, trust, choice and speed of delivery were also important. Other reasons included the retailer’s easy to use website, excellent customer service and a simple returns process. Reasons for not shopping at Amazon included “tax dodging” (Amazon paid just £3.2M in UK corporation tax on sales of £4.2Bn in 2012), high cost of delivery and an inability to touch or feel the product.
High quality experience
Clearly Amazon provides shoppers with a high quality experience and there was a universal intention to continue or increase usage. As shoppers become more comfortable with Amazon services and marketing techniques that build loyalty, speed the purchase process and target the needs of specific groups, their spend is likely to increase.
Concluding the report, Stratton said: “Amazon is powerful, effective, ambitious, well-financed and prepared to take a long term view. Any supplier organisation that does not recognise the growth potential that this offers will lose out in the mid/long term. For most categories, Amazon is a baby gorilla. Suppliers need to work out how they are going to live with an adult gorilla before that baby grows up.”
Whatever digital strategies suppliers espouse and however sales and marketing functions align, it is clear that no one can afford to ignore Amazon. The analysts are convinced that Amazon will continue to pioneer new, ground-breaking products and services (Kindle and media production for example) and acquire organisations that help them to deliver more online services to their growing customer base.
So Amazon’s suppliers can confidently plan for growth and, in many cases, significant growth. Whilst there may be challenges with other channels and the burgeoning relationship may cause traditional sales directors a few sleepless nights, organisations can expect a real return on investment from their Amazon business. Suppliers can rest assured that their consumers will increasingly wish to purchase their brands from Amazon and so understanding how best to serve shoppers through this medium should be an important pillar in the sales strategies of the future.