Episode 9

Amazon: Fight or Join?

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About this Episode

Most Ecommerce brands are starting to feel like they can’t beat Amazon and thus, they must join them. Ryan unpacks the benefits of joining Amazon and the things you need to watch out for if you do.

TRANSCRIPT:
Jon:
So, Ryan, we've all heard the old adage, "If you can't beat them, join them." Right?

Ryan Garrow:
Mm-hmm (affirmative).

Jon:
So from what I hear on a daily basis in the conversion optimization world is that most eCommerce brands are starting to feel like they just can't beat Amazon, and thus, they must join them. If nothing else, they're looking to have a presence on Amazon so they can at least be found. It's becoming a huge search engine. I'm sure we'll talk about that. But I see a lot of good things that brands get from participating in the Amazon game, but there seemed to also be a lot of downfalls in doing so as well. So today, I'd like to pose the question, Amazon, fight or join? So Ryan, I think start just by breaking this down a little bit. What are the benefits to joining Amazon?

Ryan Garrow:
There are a lot. I mean, the easiest answer for that is volume, volume, volume. I mean, Amazon. There's no statistic that shows Amazon is not dominating the online ecosystem as far as volume of sales. They're over 50% every holiday season. They somehow made July into a shopping holiday because every retailer on the planet has low sales in July until Amazon comes along and says, "Well, I'll just put Prime Day out there." There are sales on Amazon. They have figured out how to remove friction from the purchase process better than any other retailer has so far in at least initially looking at it. The benefits of joining Amazon? There's a lot of volume. You can sell stuff.

Jon:
Okay. So what are the benefits to fighting Amazon?

Ryan Garrow:
Well, you enjoy pain. You like losing. The benefits of fighting it is you get to control a lot more of your brand. Amazon has been trying to do some things to improve that, but you get more control. You get customer data. It could increase your chances of having repeat purchases if they buy from your website. You get to personally handle that conversion optimization after the purchase, and you get to keep some additional margin. Amazon does charge for the platform when you sell. So there are some benefits to not selling on Amazon.

Jon:
If you were to choose to join Amazon, what would be your recommendations? Where should we start?

Ryan Garrow:
Whether you join or fight Amazon probably needs to start with what type of business are you. If you are a retailer selling other company's products through your website or even with a retail storefront as well, Amazon may not be the best place for you. Amazon, largely speaking, is the biggest retail. I mean, Walmart and Amazon are both massive retailers. Other people sell their own stuff on Amazon. Amazon also is a brand. They do have their own products that they sell as well. But as a retailer, it's probably less beneficial. Your margins are already smaller, and you're going to give another retailer some of that benefit. You race to the bottom when you're competing with the same exact product that other retailers are also selling on Amazon.
If you're a manufacturer, I think there's a little more upside. You get to control your brand exposure on Amazon. As a manufacturer brand owner myself, I limit my retailers. I don't let them sell on Amazon. I want to own that and keep my cost as low as possible from an ad perspective. But the big key here too is you need to be able to protect your product. Hopefully, that's with some patents. Hopefully, it's a difficult thing for Amazon to maybe find your factory in China to have them make them cheaper for Amazon because they probably will.
If you make or sell clothing, you better have a powerful brand. I mean, even Nike doesn't sell on Amazon right now. They went down that path and decided not to. I don't know the intricacies of their agreement and why Nike backed out, but Amazon is the biggest clothing manufacturer in the world. Most of the brands on Amazon for clothes are actually owned by Amazon, even if they don't say the Amazon name. It's just clothing would be difficult, but generally, most manufacturers should be considering it, at least in their process. Retailers, there's probably some different things you need to be looking at.

Jon:
Well, we've probably all heard the story about Allbirds, the shoe company, right? That Amazon went out and basically created a knockoff because Allbirds was selling so well on Amazon. As a consumer coming to the site, you really can't tell the difference. I've heard from numerous brands that the biggest downfall has been that they have a product that is easily reproduced or that Amazon... Maybe we should get into this a little bit, but I've even heard from people where they've done direct factory to Amazon shipping. So it's not Amazon Fulfillment Warehouse. Amazon then knows who's making the product, and then they contact those people and say, "Hey, we'll pay you a little bit more. Make it for us," or, "We'll do a much larger order if you make it for us," and then they lose their... The retailer loses the factory, and so it's something where Amazon is a double-edged sword for sure. That's why this is going to be such an interesting topic.

Ryan Garrow:
It is. Amazon basically is going to be frenemies with every company on the planet. They're a necessary evil for certain companies. Google and Amazon are very much frenemies. They both will say that, hey, their biggest competitor is... Google will say it's Amazon. Amazon will say it's Google. They're fighting over that search volume and that revenue from search traffic and paid ads, but Amazon is... I don't know this for sure, but I would argue probably the largest advertiser on Google and driving traffic to the apps into their website.
So you have to go into Amazon with your eyes wide open, understanding that Amazon is aggressive. They are not your friend. They will stab you in the back. They will cut you if they get the chance. So you have to always be on your guard and looking at Amazon as, "How could Amazon steal this from me?" and just being operating as a paranoid brand owner or even a retailer. However you're operating on Amazon, protect yourself as often as possible, and look at it through the lens of, "If I was trying to steal this product from me or make money off of me, how would I do that? What would it look like?" Always use that lens on Amazon to see, "Does it make sense? Does it not make sense?"
There's too much of a risk. There's a problem because even if you have a patent, which I'm sure Allbirds had some protectable intellectual property within their product. Amazon has more money than you, guaranteed, and they can fight you in court, and they can also probably have... They probably have enough smart lawyers on staff that they can say, "All right. Here's the patent. How can we get close enough to compete, but not necessarily actually break that product or break that patent?" It's probably going to get Amazon in trouble long-term, but in the short-term and where we're at right now, they are able to operate that way, and it's been very effective. I don't dislike Amazon, so don't hear me saying that Amazon is bad for what they're doing or how they're operating. You just as a retailer, or a brand, or a manufacturer have to understand what you're getting into in this relationship.

Jon:
Yeah, and I think that goes into why Nike left Amazon because Nike, I believe, originally joined on to fight counterfeits on the platform. The problem was is that it just wasn't effective. It actually made more counterfeits because they had more products on there that people could counterfeit, and then list and say it's a Nike product, and list it for cheaper than what Nike was willing to do. So then, it just became even worse for Nike. I think that's why they decided to pull out. That was my understanding.
Okay. So if you choose to join, I'm hearing a couple things. Make sure you have a brand that you're selling that people know. Make sure that you have some type of protections in place not only for production of your product and manufacturing, but also on the legal or IP side with doing patents. What other things would you recommend if you choose to join into Amazon that brands do?

Ryan Garrow:
Based on my experience of selling multiple different ways with the same brand on Amazon, I would say utilize their FBA shipping. I don't necessarily think you need to go Vendor Central. So there's two ways you can go in there, Vendor Central or Seller Central.

Jon:
Mm-hmm (affirmative).

Ryan Garrow:
Most of the time, I advocate for Seller Central because you get to control your pricing. Whereas Vendor Central, as of now, Amazon is not great at protecting your MAP pricing. They have incentives, and they will undercut. They have some things in their agreement in the past that they've since eliminated where they have to be the lowest seller. But I think just for controlling a brand, Seller Central is good. I think a lot of Amazon is moving towards that. They've even removed a lot of people from Vendor Central that probably shouldn't have been there in the first place. In Vendor Central, you sell your product to Amazon at wholesale as a retailer, and they buy a large volume typically to get you excited.

Jon:
Okay.

Ryan Garrow:
In Seller Central, you put your own listings up and are responsible for all of the content and selling it, and you're going direct to the consumer in a way on Amazon's platform. But then, in Seller Central, you can actually do seller fulfilled shipping where you're shipping it from your warehouses or your location, or your third-party fulfillment center is sending it, or you can do FBA, which is Fulfilled By Amazon, where you send it into Amazon, and then they ship it for you. They make Prime very easy.
For most companies, I'm going to advocate for FBA. Some companies want to own a little more of the packaging process, inserts, things like that, be able to communicate with the customer a little bit better direct to the consumer, and that's where maybe a third-party fulfillment or sending out on your own warehouses makes more sense. But what we've seen is that FBA seems to be getting a little bit better placements or your organic rankings are benefited a little more from having FBA on your products.
As Amazon goes to one-day shipping, same-day shipping for a lot of products, it becomes a disadvantage to say, "Hey, yes. We have Seller Fulfilled Prime, but it's going to arrive in two, three, four, five days," because there's a dissatisfaction to the customer having to wait that long. Amazon is really using their competitive advantage of warehouses all over the country and a distribution network that is unrivaled probably on the planet, and that FBA allows it. Also, their shipping rates are just ridiculously good. It's just so cheap.

Jon:
As they became even more aware with a few presidential tweets complaining about the deal they have with the Post Office. Yeah, so what about advertising on the platform? What do you recommend there? I mean, because it seems like if you're going to join them, you might as well promote your products on the platform. Right?

Ryan Garrow:
Yes. I mean, there's so much search volume. There are so many people going there to buy that advertising makes sense, and Amazon is, as of now, not a great platform for product research. It is not an easy system to go start looking... If you're going to buy a coffee cup, it's not a great platform to start by searching coffee cup, and filter your way down, and try to figure out what you actually want. At this point, Google is still better at finding the products you're looking for, and so by advertising on Amazon, you do get better placement obviously and can compete for that. The conversion rates are crazy good. I mean, I don't know if I've told you, but one of my brands, my conversion rate is 25% to 35%, depending on the amount of traffic I'm driving.

Jon:
No. That's a good return on ad spend.

Ryan Garrow:
Yeah. Well, it's a $15 product and I am paying between $1.75 and $2 per click.

Jon:
Okay.

Ryan Garrow:
So you need a high conversion rate to make it work. But when you are a price point that makes sense, 15 bucks, most people in the planet won't blink at that. You click "Buy" like it's worth trying, and you trust Amazon's brand. They've built a huge amount of trust and one of the most trusted brands in the world. They know that if they don't like the product they're buying, they can easily return it with no questions asked and get their money back. So there's very low risk on Amazon to buying, which is another reason that it's nice to utilize Amazon because they send a product back, and it's resellable. It goes back in their inventory. It's not a huge issue on that part.
So I would advertise for most companies at least covering your brand names, ensuring competitors aren't there. If your product page is on Amazon though, we'll have competitors on them, so that's a no, and there is some risk as well there to be considered. You might want to be bidding on your own product pages because some [inaudible 00:12:30] their products, and I would always own a trademark. It doesn't matter if you're a retailer, if you're a brand. Owning a trademark and being able to register that on Amazon gives you advantages that are not available to companies that don't have a trademark. You get a storefront. You can get specific ads that are available to you that aren't available to other companies without a trademark. Trademarks aren't that difficult to get. I went through the process myself just trying to see if I needed to pay a lawyer 2,500 bucks to get it, and I was able to get one, but just by spending about an hour of my time.

Jon:
Right.

Ryan Garrow:
So any trademark, whatsoever gives you the ability to get some benefits.

Jon:
So that's not a protection angle, right? If you own a trademark on a term, can other people run ads on Amazon for that same term that you own the trademark for?

Ryan Garrow:
As of now, yes, but you get some additional ad placements that are only available to brands, which a brand has a trademark and you get a store URL.

Jon:
I see.

Ryan Garrow:
So you get the "amazon.com/" your store, and you get to put your products on there and curate your own website, if you will. You get to put your A+ or enhanced brand content on your product pages, or we've been experimenting to see if that actually does impact conversion rates, our own... I would call it CRI for the improvement, not CRO, which Jon would correct me if I said it was CRO. But at least seeing if that has an impact. Honestly, as of now, having it as a benefit, there's not much optimization or changes you can do that will materially impact your conversion rate at least that we've seen.

Jon:
Okay. So this is really helpful. I feel like I have a much better understanding of why I should join in.


Jon:
Well, what if I choose to fight? Right? Obviously, I like the pain. Right? I like losing. Right? So I'm going to do it. Forget Amazon. I'm just going to go DTC all the way. What are your recommendations there?

Ryan Garrow:
You're going to need to advertise on Google and Bing through Microsoft ads to keep Amazon from taking your traffic. So both on brand and on your product searches or service searches. Don't forget Microsoft ads. So many companies forget that and Amazon is all over Bing searches. It's really cheap traffic, and too many companies overlook it, so don't forget about that one. But then, if you're going to fight Amazon and not be on there, you really have to be on brand building mode. You are not just selling products to consumers. You are building a brand, and you got to do it aggressively.
So think Nordstrom, Sephora. Those are strong brands. They are just retailers. They have some of their own products, but they have a loyalty that is unparalleled in the market. If everything else is equal, my wife will buy from Sephora or Nordstrom because she wants the loyalty points and she trusts the brand more than the brand she's buying from them. So loyalty programs are going to be very important to ensuring that people come back and buy additional products from you. That lifetime value is huge, and that's whether or not you're on Amazon or not. You need to be doing these things, but it becomes more important when you're deciding that Amazon is not going to be an outlet for your product.

Jon:
Yeah. I was just going to say, so first of all, I know that Nordstrom notes loyalty very well. Right?

Ryan Garrow:
Those are dangerous. You spend a lot of money to get a glass of champagne.

Jon:
Yeah, yeah. The 10-point days and all these other things that Nordstrom does is a Harvard Business School case study on how to do loyalty, so that's great to hear. What else should brands be thinking about if they're going to fight Amazon?

Ryan Garrow:
I would consider what I call a destination retail. So my wife has been passionate about retail her entire life, and so we actually have a retail store even though in this world of eComm, and that's where I spend my entire day, I know that retail is not the best place, generally speaking, to be jumping into. Physical storefronts are struggling. Malls are closing. But if you are looking at retail, which I think there are still some significant advantages to having a physical retail presence, you need to be looking for your brand beyond just a retail store.
One of the best examples I've seen of building the brand and creating an experience at retail that is not just simply going into a store and getting something off a shelf. If you've heard of Magnolia like Chip and Joanna Gaines in Waco, Texas, there's literally nothing in Waco, Texas. Other than Baylor, there's no reason that anybody would ever go to Waco. It's not easy to get to. You fly to Austin, drive a couple hours, and it's usually really hot and sweaty. No reason to go there, but they have a destination retail store that I've been dragged there, and it's a phenomenal store.
There's a reason that people flock there. They just retail other people's stuff. They have some of their own brands, but my wife's retail store can buy a lot of the same things that are sold at Magnolia, but they've done a phenomenal job at building and curating their brand and causing people to want to go shop from them even if they can get the same product cheaper at a store down the street or on Amazon. Not everybody is going to be able to get their own TV show and do all the things they've done, but at least begin studying what they've done and try to emulate some of the ways they've built that crazy passion and loyalty that causes people over the country to fly and land in Waco, Texas. I went there in August.

Jon:
Yeah.

Ryan Garrow:
Ugh, it is hot, sweaty, sticky, and...

Jon:
Husband of the year right here.

Ryan Garrow:
My wife was literally in heaven. It was like the closest she's going to get to heaven on earth, and that was Waco, Texas.

Jon:
But I think that expresses the power of brand, one, right, and how if you've done all that other work to build the brand, then if they were to move on to Amazon at some point, I'm sure people are going on Amazon and searching Magnolia to find their products.

Ryan Garrow:
Mm-hmm (affirmative).

Jon:
They're not finding them, so then they have to go elsewhere. But I think that definitely speaks to the power of brand and why that's going to be massively important if you don't want Amazon to go after you.

Ryan Garrow:
Yeah, and I would say even if you're going on Amazon to sell, you need to be building a brand. So don't take that as, "Oh, I'm going on Amazon, so don't worry about brand." It's always going to be important if you want to grow and scale, but just the magnification needed to compete with the... just sales volume, and ease of conversion, and how we are training. Amazon is training us to just do nothing, but look on Amazon and click "Buy." Sometimes I don't even price check. How sad is that? I'm super cheap. I spend all day on a computer in eCommerce, and I know that there are always better deals or easier ways to get it, but it's like, "Okay. It's going to be $3 more expensive on Amazon. I probably don't even care. I just want to get it because it's going to show up tomorrow and I don't have to worry about it."

Jon:
Right. It's the convenience factor, right?

Ryan Garrow:
It is. They've done a great job. Bezos is the richest guy in the world for a reason. He's created a monster that is phenomenally successful and very good at getting people to purchase.

Jon:
So what have we not covered that you feel would be really important for folks to know about the Amazon fight or join question? If they're considering this, what else do you think they should know?

Ryan Garrow:
I mean, just be aware of customer data, what that looks like. How valuable are repeat purchases to your brand? Does everybody buy a product you have no margin on the first one and you need them to come back and buy another one or something different to actually make the brand work and the lifetime value work? Because Amazon owns your customer if you sell on Amazon, so you have to treat them as a retailer that owns the customer. So Nordstrom, if you sell at Nordstrom, Nordstrom is going to own the customer, and they don't care if they ever buy your brand again. Amazon doesn't care if they will buy your brand again. They want the customer. So treat it like a retailer and just always go with your eyes open.
There's always risks to copycats no matter where you are. If you find success, people are going to copy you. So that's just one of the functions of success. You'll always have it, but it gets, again, magnified on Amazon. Even eBay sellers will take your Amazon listing, and start selling it on eBay, and shipped direct to the consumer off of eBay from Amazon. The order will come in on eBay, and they will go immediately, automatically, usually with bots, buy it on Amazon and have it shipped directly to consumer with a gift receipt. They don't even touch the product.
I have some people selling my $15 product for $25 on eBay. We're going to be a registered brand on eBay eventually at this point. There's other things that are higher priority right now in our brand growth, but just know that people are going to take your stuff, and it's just part of... what comes with success. But I would also keep some of your products on your website. Don't give Amazon everything if you choose to go there. You want to have a reason for people to maybe get your gateway drug product like the thing that people always need to start with you and that create high lifetime value customers. But try to get those customers to come back to you through your website.
Once they've experienced your brand, you always want your URL on the packaging if possible because Amazon can't control your packaging, like control what goes in the box and the smiley face that goes with it, but keep your website on the packaging. A lot of companies are printing their loyalty program on the packaging. So if somebody goes to Amazon and buys, they are able to still be a part of the loyalty program with that purchase. Again, that's a way of getting that customer data off of Amazon to you as the brand so you can communicate directly. But I think step one for most companies is at least test it. There's no reason not to test what's there, and how much volume, and how it operates, so at least you can better see. If you're going to fight Amazon, you'll have some of the insight into what goes on in Amazon, and you better be prepared internally to take it on.

Jon:
Which brings me to a really great question, I hope, if I do say so myself because I'm about to ask it, but I'm wondering. What kind of tools exist out there to help brands on Amazon? There's going to to be a whole ecosystem of these, right?

Ryan Garrow:
Oh, yeah. There are tons. There are repricing tools, which can be very powerful. As a retailer, price is a huge driver of the Buy Box and the whole algorithm behind. If there's 20 people selling that same product, they all get mapped together. There's one listing officially. There are sometimes rogue ones that Amazon eventually will catch. But then, only one of those 20 retailers gets when they click "Buy," and so there's part of the algorithm that's price. If you're cheaper, your chance to get in the Buy Box are much higher. So repricing is a big deal.
There's a partner of both of ours. SellerActive here in Portland does a great job at that. There are companies that will help you with listings to make them appear better. So if you have A+ content, they'll get like photographs or images in there. Product images are huge. So make sure you have good product imaging because that will be a big part of the clicks you're going to get. I'm telling most retailers to be ready for 360 images. If you can put 360s on your website, do it now. Have those ready when Amazon does release that to everybody. Right now, it's been held back to some of the larger brands at this point. I think some of it is just a bandwidth issue. 360 images are large, and it's just a... If you put a few million products all at one to have 360 images, that's a lot of server space, but just be ready.

Jon:
Well, if anyone has that server space, it's Amazon. Right?

Ryan Garrow:
Yeah, it's probably... They have it. Whether or not they're going to use it for themselves or lease it to somebody else, it's there. I would also say there are some companies out there that will own your brand on Amazon for you, and they will do the advertising. They will act as a retailer and help control Amazon. If you're going to go directly on Amazon through Seller Central or Vendor Central, you have to have some time internally to dedicate to managing that and controlling it. So if you've got retailers who are selling on there and you don't want them violating your MAP, it's going to take some work on your end. Some of these companies who will take over your brand on Amazon will help you control that. So if you just don't have the time, there are some of those companies available. Most brands now can handle Amazon direct, but it still does take some investment of time.

Jon:
I feel very well educated at this point. I feel like there's so much to think about, but you've done an amazing job of breaking this down, so thank you. Any final thoughts on this before we head on our way?

Ryan Garrow:
Just don't be scared of Amazon. Yes, it can be dangerous, but it can also be really fun, and it can be very beneficial. But if you'd go in just scared of Amazon, I think you're going to trip up, and you're going to have more issues rather than if you look at them as a potential upside or partner. I think just be optimistic rather than pessimistic when you're looking at Amazon, and I think you'll do a lot better.

Jon:
That's a great perspective. If you do make the leap on Amazon, hit Ryan up, and he'll help you advertise on there as well.

Ryan Garrow:
Yeah, or even just set some strategies so you don't lose a bunch of money.

Jon:
There you go. Always has proved valuable for me, so thank you so much for sharing today, Ryan. I really appreciate it.

Ryan Garrow:
Thank you.

Jon:
You've made us all smarter about Amazon and deciding whether we want to fight or join the cause. So have a wonderful day. Thank you for the interview today.

Ryan Garrow:
Thank you.