Amazon accounted for almost 37 cents out of every dollar that U.S. consumers spent online in 2018. What does this mean as they shift their gaze to the B2B space?
In April 2015, Amazon launched Amazon Business strictly for businesses to connect business sellers and buyers. Amazon Business offers small or large businesses greater control over their procurement processes, it is free and includes a distinct set of features that new startups, entrepreneurs and organisations can use to their benefit. R. W. Baird & Co. predicted that the B2B marketplace will generate sales of more than $25 billion by 2021. Today, Amazon Business is already a formidable B2B player with $10 billion in annualized sales in 2018.
Amazon Business has steadily amassed an unrivalled position of power with the federal government to become their preferred vendor. In 2017, Amazon won a contract worth $5.5 billion that made it the chief supplier of goods, stationery, and books to tens of thousands of local governments and municipalities across the US. This power opens doors for the company to earn a whopping amount of more than $500 billion from federal procurement. If the bid for a Defense Department contract, or Joint Enterprise Defense Infrastructure, also known as JEDI, is successful, they would wheel in another $10 billion. The revenue opportunity is unparalleled!
Amazon started subtly offering the new brand, AmazonCommercial, on their website Amazon.com in June 2019. An Amazon spokeswoman refers to this new addition as “a line of professional-grade products created with business customers in mind,” while the store’s home page claims that the product line “creates value for businesses by providing professional-grade, cost-effective products.”
AmazonCommercial currently offers janitorial and sanitary products, with predictions to branch out to non-safety products and material-handling equipment in the near future. The brand deploys a similar value proposition as its B2C brands for everyday items, AmazonBasics and Solimo, by offering B2B buyers high-quality products at competitive and affordable pricing and an easier shopping experience.
According to Suntrust Robinson Humphrey, Amazon’s private labels generated $7.5 billion in 2018 and is estimated to reach $25 billion by 2022. Although AmazonBasics accounts for a relatively small percentage of Amazon’s overall sales, the number is increasing and growing to become a valuable trademark. Amazon has the advantage of an approbative position in their search results and a huge reservoir of consumer behaviour data points around well-performing products and categories.
Currently, there are more than 2,000 AmazonBasics product listed. Since 2016, 423 of such products had chartered in the top 100 across 22 of its categories. The success of AmazonBasics helped to shed some light on the potential success of AmazonCommercial products. In addition to the niche and the low level of penetration to the market, AmazonCommercial is able to leverage its unique position and repeat their B2C success.
Threats & Opportunities to B2B Manufacturers, Wholesalers, Distributors and Retailers
Amazon’s new development should be a concern for manufacturers, wholesalers and B2B sellers. The new development could cause significant market disruptions as Amazon continues to expand its private-label launches. According to Brian Fricano, CEO of SustainbleSupply.com, Amazon could increase the difficulty in search results for consumable product space to better market their own private-label. Furthermore, having access to all transactional data, Amazon can easily access to pinpoint buyer’s wants and alter their private labels to meet the demand. However, these advantages come at their expense of their own suppliers.
Nonetheless, the introduction of AmazonCommercial is not all doom and gloom. Millions of third-party resellers are thriving on Amazon—a significant portion of which are small companies. Based on data from 2016, resellers using services like Fulfillment by Amazon can reach customers in 185 countries and have sold more than 28 million items during 2016’s Cyber Monday alone. Moreover, these third-party sellers accounted for more than 50% of the company’s sales in the third quarter of 2019.
Strategies to Manage your Risk Exposure in Amazon Business
Identifying profitable products to sell on Amazon is a fairly complex decision influenced by multiple factors such as competition and demand level. One can consider the best-selling products that rank among the top 100 and 6000. Find a product that you would be interested in selling, but is not too popular such that there is high competition. For example, a kitchen towel could rank number 400 in the best-selling rank, but rank number one under the dining subcategory of kitchen supplies. A good Amazon product review ranks high as a buying decision criteria, so knowing your competition is key. According to a research done by Dimensional Research, product reviews play an influential role in purchase decision for 90 percent of the online customers. When conducting market research, it’s important to understand customers' opinions and views on the products as this gives a sense of how well the product is doing in its category.
Wrong pricing could cause you loss of revenue or stagnant product sales. To set the right price, you need to invest in product research on both your brands and competitors’. As more than 70% of sales on Amazon happen on page one of the organic search, competitive pricing is key. If your prices are more than 20% higher than your competition, the chances of your product making to the top of Amazon search results are dramatically affected. Another fatal mistake of Amazon sellers is how they price their wholesale prices. Often, when the competition drops their product price, they follow suit as many Amazon sellers use repricers (a software that automatically changes prices according to set rules). Repricers simply drive a “race to the bottom” phenomenon where little or no profit is left. Instead, try pricing a few pennies above your competition as the buy box rotates everyone within a few cents of the low price. It is imperative to have confidence and hold your ground in maintaining a competitive pricing in these situations.
Amazon SEO optimization
Not only is Amazon an eCommerce platform, it’s also a search engine, as more and more users are starting their product searches on Amazon’s platform vs. relying on internet search engines like Google. Therefore, optimizing SEO on Amazon is critical to improve search result placement and discoverability. There are two main areas to keep an eye on - product-title ranking factor and backend keywords. You need to place the most relevant keywords for your product in the title and avoid keyword stuffing. Backend keywords act like meta tags that helps to tell Amazon’s algorithm that a specific product listing is targeting a specific keyword on the site. Avoid using repeated words and quotation marks when adding backend keywords.
While we were exhibiting at the B2B Next Commerce & Exhibition in Chicago back in October 2019, there was a session led by James Thomson where he discussed how brands should strategize against the Marketplace Flywheel® to ensure success via the three-pronged strategy which help brands leverage Amazon's platform to drive revenue. The three prongs are (i) effective channel governance, (ii) optimize branding on Amazon and (iii) growth based advertising.
Channel governance focuses on actively managing the distribution of products on Amazon with a strong intent to protect brand equity. This includes minimizing any non-compliance by distributors or resellers who potentially could represent your brand and products on Amazon. Brand optimization means taking control of how your product is being represented on Amazon’s product catalog by having the most accurate and complete information and fully aligning your product messaging across all channels. This also helps to minimise any content risks of unauthorised sellers. Growth based advertising refers to deploying different means such as keyword research, discovery testing and keyword isolation to drive increasing traffic to your products on Amazon, therefore scaling your advertising effectively.
Alternatively, there are other options that do not rely on Amazon to market and sell your products. One involves working with other non-Amazon marketplaces in your target niche industry. Secondly, to create your own eCommerce or online marketplace to maintain the strongest control over your brand and product distribution. These options will direct traffic away from Amazon and towards your own or self-built marketplaces.
With a decade of experience, data collection and analytics, Amazon has deep insights in the consumer buying behaviour that enable Amazon to more effectively meet the needs and demands of its customers. Its private label strategy across both B2C and B2B marketplace businesses will be a critical cornerstone of its business sales and growth strategy. As such, if you are a marketplace seller, you need to find your niche and stay ahead by adapting to Amazon’s business tactics and consider launching or migrating to a new marketplace platform to de-risk reliance on Amazon.
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