Its a dilemma facing a growing number of brands: in the event you sell your goods on Amazon? Its probably the most visited e-commerce platform in the U.S. and the dominant retailer in 28 other countries. But that reach comes at a cost. You can find downsides like costs, competition, and insufficient data. Ayelet Israeli can be an associate professor at Harvard Business School and a coauthor of the HBR article WHEN YOUR Company Sell on Amazon? She talks through step-by-step how businesses can decide whether Amazon is right for them.
CURT NICKISCH: Welcome to the HBR IdeaCast from Harvard Business Review. Im Curt Nickisch.
Its a dilemma facing increasingly more brands nowadays. In the event you sell your goods on Amazon? Initially, the answer needs to be yes, right? Amazon may be the most visited e-commerce platform in the usa. Two-thirds of U.S. customers start their product explore Amazon. Plus, its the dominant retailer in 28 other countries. Also it grew so big because of its fulfillment speed and quality of the buying experience. How will you say no compared to that that sort of reach?
Works out, there are a great number of reasons. Theres costs. Theres more competition, even from Amazon itself. And theres the info and feedback from customers you quit by not selling directly. Exactly what is a brand to accomplish? Our guest today is here now to greatly help businesses which are fighting that decision.
Ayelet Israeli can be an associate professor at Harvard Business School. As well as her HBS colleagues Leonard Schlesinger and Matt Higgins, and also consultant Sabir Semerkant, she wrote the HBR article WHEN YOUR Company Sell on Amazon?
Ayelet, how are you currently? Thanks for coming on the show.
AYELET ISRAELI: Im great. Many thanks so much for having me.
CURT NICKISCH: Now, you write in your article that, Every brand should think about selling on Amazon. Why?
AYELET ISRAELI: In the decade roughly that Ive been researching retail, everyone mentions Amazon at some time. In the last days, companies basically had a yes or no, clear cut strategy. And nowadays, we hear more in what can be your Amazon strategy instead of for anyone who is on Amazon or not.
Amazon is merely so huge. I believe the most recent estimates Ive seen is that roughly 40% of most online retail in the U.S. is on Amazon. So its quite large. And weve observed in modern times also the upsurge in e-commerce generally and how important it really is for brands to possess their very own online presence in order that customers will get them, making Amazon a significant consideration as you have to be somewhere online, you have to serve your visitors. And Amazon does this type of congrats in both having customers arrive to the web site, along with providing them with amazing service. Then every brand should, at the minimum, consider should they could be on Amazon or not.
CURT NICKISCH: This whole debate reminds me plenty of debates during the past of big box retailers like Walmart in the usa. Like in the event that you were a consumer goods product, you basically needed to be there, right? But those exact same companies really complained about the amount of the margins got squeezed. They really lamented how hard that they had to help keep driving costs down rather than enjoying bigger profits because Walmart made them take action.
AYELET ISRAELI: Yeah, and its own an extremely similar story, the only real difference is merely the web presence. So Walmart is needless to say, still an enormous retailer in the U.S., but their online presence out of total U.S. e-commerce sales, Walmart is roughly 5% to 6%. So theyre much smaller than Amazon once you consider online presence.
However they are still a large player and brands still have the struggles where they essentially recognize that to become where customers are searching for you, in the U.S., about two thirds of product searches start Amazon instead of on se’s. In order that means most customers dont even head to Google or Bing or perhaps a internet search engine where theyre searching for something, they just directly head to Amazon. And for that reason, if you’re not there and when youre not just a brand that folks definitely need it, you then probably will not be found by nearly all customers.
CURT NICKISCH: But this comes at a large risk too, right? What exactly are a few of the top line complaints about Amazon, if people used to complain about margins getting squeezed at Walmart?
AYELET ISRAELI: Yeah. So definitely margins getting squeezed is among the big ones, especially nowadays when Amazon does much more with regards to advertising. I believe this past year, their revenues from advertising were roughly $31 billion and theyre increasing those revenues. They will have an extremely large media platform. They are able to use not only the retail section of Amazon, but additionally Amazon Video or Amazon Music along with other channels for his or her advertising. Therefore not only you obtain squeezed on margins in exactly the same traditional way like Walmart i did so it, nevertheless, you likewise have additional costs with regards to advertising. You intend to be featured in the web site in a prominent place, you intend to have the ability to function as first brand in the buy box where consumers see you because the default brand. And for most of these things, you essentially need to give up a few of your margins.
CURT NICKISCH: Now, your article includes a really thorough scorecard that you could follow. If youre a brandname, it is possible to answer questions and score whether you ought to be selling on Amazon or not. So lets feel the key great things about selling on Amazon plus some of the considerations there.
AYELET ISRAELI: Among the items that we consider apart from margin, which we just discussed may be the product category. Needless to say, there are several categories which you cannot sell online.
CURT NICKISCH: Pretty simple answer if youre selling tobacco, right? Yeah.
AYELET ISRAELI: Yeah, exactly. Additionally, there are categories which have experienced what we call commoditization. Essentially, being on Amazon turned them, even though they werent considered by consumers as commodities before, turned them into complete commodities. As you can easily see so many brands and also unknown brands and sellers sell a version of the product. Theyre all hand and hand. They sort of look exactly the same. There is absolutely no big differentiator. And youre basically price shopping and due to the fact everything is sort of exactly the same, which turns every product into almost a commodity rather than a brand. And for that reason, if youre in an exceedingly commoditized market, its hard to stick out on a platform like Amazons.
CURT NICKISCH: Are batteries a good example of this? As you search AA, type of a typical battery in the usa there on Amazon and you also get name brands, nevertheless, you get a large amount of competitors you wouldnt even understand about. So you have Amazon Basics brand competing hand and hand.
AYELET ISRAELI: Yes. So Amazon has several private label brands. One of these is named Amazon Basics which you mentioned, and batteries is really a category where Amazon Basics did phenomenally well and could get consumers to get their batteries. Their batteries are as effective as others and consumers just bought involved with it. Just a few weeks hence, Amazon announced that theyre likely to reconsider their private label strategy. In order that might change as time passes. But a very important factor that’s exciting for me personally as someone that researchers retail and especially online retail is how things constantly change. And its own exactly the same with Amazon.
CURT NICKISCH: Now, youve surely got to be considering what youre shipping, right? Because Amazon has, for many individuals, really incredible shipping service and you can find an incredible number of Prime members. So individuals who can order something and also have the promise to getting it delivered free of charge with that membership inside a few days. But if youre selling stuff thats hard to ship, or if its oddly sized or needs customization, that becomes more of an issue.
AYELET ISRAELI: Yeah, and thats likely to cost you much more. Now, needless to say, if youve never developed a technique to ship your product and you also only worked through distributors, then perhaps Amazon solution can work for you for those who have sold online and another platform.
CURT NICKISCH: And just why? Because youre used to paying somebody to ship it for you personally essentially?
AYELET ISRAELI: Yes.
CURT NICKISCH: Okay.
AYELET ISRAELI: Yes. So are there differences. For instance, if youre selling ice cream or a thing that requires refrigeration, you typically use distribution which has trucks which are freezers and things such as that. And converting that into selling online is really a tiny bit harder because now its not really a huge truck likely to a physical store or going from also to a warehouse, but instead you have to ship to individual consumers, you must have individual solutions from their website. Maybe they cant pick it up immediately once you deliver it, which means you need some type of freezer. So most of these are additional costs that could be a lot more expensive than shipping via an established traditional distribution system.
CURT NICKISCH: Yeah, because section of why is Amazon so affordable is they standardize plenty of that.
AYELET ISRAELI: Right. If you have something which can be completely standard and utilize the standard boxes, standard shipping, youll have a easier time than with complex products. In the same way, products which are highly personalized, you would like to match for each and every individual consumer will be tougher on Amazon because they’re, as if you said, they just use more standard products with items that can fit mass market. You merely choose one, and thats it.
CURT NICKISCH: This brand question is interesting, right? As you need to know whether I dont know, it feels as though you should know how differentiated your product is and how strong your brand is before you sell on Amazon, as you have the chance of, if its not strong enough or it doesnt stand apart enough, it is possible to really dilute your brand.
AYELET ISRAELI: Absolutely. There’s this interesting conundrum here where if Im a large enough brand and that I’ve enough customers that like me and can head to my website anyway, i quickly dont have to be on Amazon because my customers will see me and purchase my product. Simultaneously, Im a solid enough brand that may actually survive on Amazon. THEREFORE I can perform both things, right?
We’ve examples of perfectly known brands which have done well even being on Amazon. For instance, Apple. We’ve other brands like Nike which have piloted selling on Amazon and just made a decision to quit the platform following a year or two and instead develop and double down independently direct-to-consumer channels rather than use Amazon.
AYELET ISRAELI: Therefore section of the question could be, just how many customers would actually prefer my brand over other brands, or possibly an Amazon basic brand, like we discussed earlier with batteries? Maybe there are several people that really have confidence in Duracell or Energizer, and thats what theyre likely to buy whatever the price, whatever the offerings. But plenty of other individuals are just likely to say, Batteries are simply batteries. It gets the Amazon name, its probably sufficient, and thats what Im likely to use. Which means you need to find out predicament as a brandname and whether it is possible to stay strong on Amazon or be completely diluted.
CURT NICKISCH: Anytime you join a fresh platform, you need to be concerned or focus on reviews, right? Just how many stars you have. And when you havent in love with Amazon before and when your products dont have listings or reviews yet, what do you have to consider?
AYELET ISRAELI: Yeah. You should work out how do I get reviews, right?
CURT NICKISCH: Yeah. Its interesting, Amazon can be careful that folks dont juice their reviews plus they have lots of restrictions about how exactly you gather reviews.
AYELET ISRAELI: Yeah. So recently, they actually had major crackdown of fake reviews and in addition Facebook groups that pay people for reviews and things such as that. Youre not at all allowed to purchase your reviews and you also cannot provide a free product for the reviews. Although I believe most of us as customers have observed brands do this? Actually the question is then, how do you get reviews? Because reviews are so powerful. And there are many solutions for that.
One of these actually Amazon itself provide. When you have hardly any reviews, Amazon includes a program called Amazon Vine, where they send free product with their most trusted reviewers to be able to review those services and assist you to start the platform. Additionally, there are third-party companies that contact your people or your visitors once they bought the merchandise and have for an assessment. The idea would be to ensure that the individual actually bought the merchandise rather than provide them with anything in trade for the review.
Another phenomena I’ve seen is brands playing a bit with the purchase price. So lowering the purchase price in order that people would pick their product predicated on low price. And people then would write reviews. And once they have sufficient reviews, they might actually raise the price and also thrive on the platform.
CURT NICKISCH: After all, I purchased something on Amazon recently and I pointed out that because of this item that has been being sold, beneath it, it says, Brand: also it was the name of the business. And you may select that theoretically to see products of another company, other products from exactly the same company. Nonetheless it actually visited another company that has been creating a different product, but an organization that had exactly the same name or exactly the same area of the name. So that it was listed incorrectly.
AYELET ISRAELI: Right.
CURT NICKISCH: Really messy, right?
AYELET ISRAELI: Yeah.
CURT NICKISCH: For that brand. And I did so wonder, are they achieving this themselves? Are in fact managing this and watching this, or are these third-party sellers whove just bought the products and so are reselling them on Amazon? Whats happening here?
AYELET ISRAELI: Yeah. So we see, the technical term is a mess of how when brands begin from Amazon, particularly if they werent there before, because you can find each one of these savvy sellers that can find their product for a lesser price, perhaps a store went of business and sells it in their mind or something similar to that, and each goes and sell it online under a lot of different names. Youll find for just one specific product, like 10 different versions.
CURT NICKISCH: Right. Right.
AYELET ISRAELI: Every one of them appear to be its exactly the same brand, nevertheless, you do not know how to proceed with this particular. But people sort of buy. Now whenever a brand then sees that, this means you need to cope with this mess, nonetheless it means that addititionally there is at the very least some demand for the brand on the platform.
And what weve seen is when brand actually make an effort to clean this up by either selling on Amazon or opening their very own storefront on Amazon, theyre in a position to tidy up the offerings. Essentially create an Amazon store, that is a place where there’s some information regarding the brand, but additionally all the brands product are displayed in a fashion that tells the story of the brand, helps it be clear to the clients what theyre buying.
CURT NICKISCH: Yeah, specifically for something similar to, I dont know, shoes or items that have plenty of different sizes. As if you may, in a search, discover the wrong one, but you sort of land in the store and youre for the reason that universe searching to get the right one which youre searching for.
AYELET ISRAELI: Yeah, and weve seen this despite having candy which has a variety of flavors or something similar to that. So that it could possibly be anything. But what we note that happens is these sellers that I mentioned earlier, the opportunistic sellers, after they note that the brand took ownership, they sort of back down plus they then proceed to another opportunistic opportunity with regards to something else to market on the platform.
CURT NICKISCH: Lets discuss something that is a key, key consideration and something of the big reasons that lots of companies opt to not sell through Amazon, and thats data. In the present day age, as a small business, you collect customer data and you also get a large amount of insights about how exactly customers use things by seeing who buys it and how they utilize it and what reviews they do and how many other applications you can find. All this data is incredibly valuable for you as a maker of goods. Here, Amazon may be the one thats really collecting that data and isnt necessarily collecting and sharing it with you just how that you may like. Just what exactly is practically the quantity of data that you will get from Amazon from when youre selling there and is this something it is possible to negotiate using them? Do you know the big data considerations?
AYELET ISRAELI: Yeah. In a few ways, selling to Amazon is similar to selling to any retailer where if that is your distribution channel, youre selling in their mind for a cost. You know just how many orders came in, you understand if you want to replenish, but any information would require additional services from Amazon. You needless to say can see the general public reviews on the site. Youll definitely hear from their website if there have been any issues, but the rest is sort of, you dont know.
If you’re a normal brand that never sold right to customers, you won’t ever knew these details. So easily sold whatever, a CPG product to Walmart and Target and each one of these offline stores, I also didnt know any thing. I knew what time of the month I must come and present them products. I knew if there have been returns, I knew if there have been issues, but I never knew the identity of single customers.
However, we’ve brands, especially digitally native brands, however, not only that always had direct relationship with the clients. A number of them are brands like Gap that always operated their very own stores and sold direct and had sort of a loyalty program, a Gap card, you learned all about your visitors. A number of them are these completely new DTC brands that start to see the customer engage on the website, leaves reviews. They see if they increase cart. If they leave, they are able to nudge them, they are able to speak to them-
CURT NICKISCH: Provide them with newsletter, send them coupons. Yeah, all that stuff, right?
AYELET ISRAELI: Exactly. And many of these sort of loyalty type programs are what we consider as sort of relational marketing or everything is really a relationship and not simply a transactional thing. Whereas, if youve never done direct distribution, then Amazon is merely exactly like you knew before.
So section of the question is actually, what can you value as a brandname? And it may not matter for you. But weve observed in modern times, how important data is. Plus some of the trends that weve observed in retailers within the last couple of years because they develop their retail media network and advertising can be selling aggregate degrees of data to provide you with some insights about customers generally.
Some bits of data that Amazon provides to brands is in fact not about their customers, but instead on performance on the site. So which competitors appear when people seek out your brand, how frequently you’re in the very best searches, what folks search for. Things such as that, which are meant to assist you to better manage the platform, but less information regarding customers.
CURT NICKISCH: Yeah. It strikes me that you almost need to have like SEO and a sales and marketing team that’s really centered on the platform. As if you cant just-
AYELET ISRAELI: Yeah, not almost.
CURT NICKISCH: Yeah.
AYELET ISRAELI: Definitely.
CURT NICKISCH: Yeah, right, yeah.
AYELET ISRAELI: Theres a complete Amazon SEO category where you must find out. Because essentially, it really is like a internet search engine simply for product. And like we said earlier, plenty of consumers start their search there. And that means you have to be in a position to do this and you have to be in a position to appear whenever you can for searches.
CURT NICKISCH: Thats interesting. I heard recently from somebody in private equity plus they were considering a company that has been selling on Amazon plus they realized if they were looking carefully at how these were selling there, they were missing a large opportunity. And that has been among the reasons they went ahead and purchased this private company since they thought they might execute a better job of selling than that private company was doing. I assume Im surprised a bit that Amazon doesnt provide more data as something.
AYELET ISRAELI: They could be selling these services, I dont know.
CURT NICKISCH: Yeah, or possibly doing way more later on, yeah.
AYELET ISRAELI: Yeah. But what weve seen companies that the relational element is essential for do is make an effort to still incite customers to visit their website, join their newsletter, or things such as that, that could still close the loop and connect the client directly with the brand.
CURT NICKISCH: It is possible to still put a card in the package.
AYELET ISRAELI: It is possible to still put a card in the package. Warranties is something of days gone by I believe, but maybe that works for a lot of. Maybe you inform them they are able to get exclusive offerings should they visit your site, or maybe that can be done something with packaging and just entice visitors to go.
Another strategy weve seen is brands actually having just a subset of these assortment on Amazon. And if I enjoy the merchandise and I wish to purchase a similar one, I would then search a bit more and find the web site with another assortment that I could obtain. So weve seen several strategies of how exactly to make an effort to get visitors to still head to your site and essentially use Amazon more as a discovery platform where they discover your brand. But for the specific relationship, we wish them to visit our website.
CURT NICKISCH: What company did that or what companies perhaps you have seen just put financing product or simply an array of products on the market on Amazon, but the entire offering is where they’re handling the partnership and managing the lifetime customer value?
AYELET ISRAELI: Yeah. So one brand weve seen that did this pretty much is named Magic Spoon. They sell cereal.
CURT NICKISCH: Quick disclosure here. Among your co-authors on this article can be an investor in Magic Spoon. Cereal appears like it may be a commoditized thing. You put that on the market and you also put something with an identical box close to it and youre in big trouble, right?
AYELET ISRAELI: Right. So Magic Spoon includes a high-protein cereal and theyre one of these brilliant DTC brands that developed a distinctive look and packaging then one cute like this. They began just selling on the website, DTC. They essentially sold full size boxes of cereal there.
If they first started on Amazon, what they did is they created an individual serve version plus they only sold those on Amazon, that is really what I simply was discussing, about you find the merchandise on Amazon, you merely get yourself a taste. Consider sampling in a Costco or perhaps a Walmart in the physical world. And when you really need to buy it, if you wish to choose the full size, you’ll have to proceed through their website. I believe now in addition they sell full sizes on Amazon, but what they do on the website is they will have special flavors, services, more of a forward thinking lab of new cereal that theyre offering in order that consumers will still want to visit their website and not simply get them on Amazon.
CURT NICKISCH: Im curious, youve developed this scorecard and youve caused companies which are considering selling on Amazon or not and you also know, answer many of these questions. Will there be a pattern to the sort of companies that desire to sell on Amazon versus the ones that dont? Does how big is your organization really matter? Im just curious the method that you see a few of this wearing down or could it be actually just a case-by-case basis?
AYELET ISRAELI: I believe its a really case-by-case basis. And I believe the answer is likely to be completely different predicated on how well the business is doing with regards to its brand and differentiation as weve discussed, how its current distribution model works, how well do they actually enforce brand and control their distribution. Needless to say, just how much margin they will have. And all this is totally individual for every and each and every company. So its actually hard to state or even to recognize clear patterns.
A very important factor weve seen is that very high-end luxury companies have a tendency to avoid Amazon and develop their very own sites. Section of for the reason that of the commoditization issue, which are opposite from what you would like in an extravagance experience. And section of additionally it is to double down on which luxury means. Exactly the same place where you get your wc paper as well as your Tide detergent or whatever youre subscribe and save, is typically not exactly the same place you want to buy a fresh Rolex, right?
CURT NICKISCH: Right, right. Yeah, exactly. I could note that. Whats the largest misconception about selling on Amazon that you would like to get rid of for companies?
AYELET ISRAELI: I believe that folks tend to be so enthusiastic about the truth that Amazon, you can find nearly three billion visits per month on the platform. So much traffic on the platform. So many users it is possible to potentially get and folks consider that, but an essential part of Amazon from inception has been how customer obsessed they’re and how they create a platform to focus on customers, to really have the best service, the very best experience. And thats why people sort of stay there. So its not only concerning the competition or around the amount of users, but additionally that’s where they would like to be. And every company really wants to be where in fact the customers are. And by the end of your day, you meet your visitors where they’re. You cant convince them to get somewhere else should they dont desire to. So its almost as if you need that reach, but its not only about traffic, its a lot more than that. Its another services that Amazon provides to consumers, that make us think it’s great as consumers, but be worried about it as brands.
CURT NICKISCH: Ayelet, it has been really, really fascinating and helpful Im sure to numerous listeners on the market. Thanks for talking through this around.
AYELET ISRAELI: Many thanks so much for having me.
CURT NICKISCH: Thats Ayelet Israeli. Shes a co-employee professor at Harvard Business School and the co-author of the HBR article, WHEN YOUR Company Sell on Amazon?
In the event that you got something from todays episode, we’ve more podcasts to assist you manage your team, manage organizations, and manage your job. See them at hbr.org/podcasts or search HBR in Apple Podcast, Spotify, or wherever you listen.
This episode was made by Mary Dooe. We get technical help from Rob Eckhardt. Our audio product manager is Ian Fox, and Hannah Bates is our audio production assistant. Thanks for hearing the HBR IdeaCast. Well be back with a fresh episode on Tuesday. Im Curt Nickisch.