Using Amazon to Grow Your D2C Brand
October 26, 2018
Here at XenoPsi, we’re passionate about helping brands scale and grow, and for many D2C startups the topic of how and when to integrate Amazon into their sales channel mix is always a key question. Amazon is a sales channel that no brand should ignore, given that almost 50 percent of all ecommerce sales in the US occur on the platform.
In this article, we’ll present a starter guide for determining how and when Amazon can become part of your D2C brand’s sales mix. We’ll cover topics such as the most important questions to ask before investing in the Amazon marketplace, key benefits for D2C brands on Amazon, and some good first steps when you’re ready to make the leap onto the platform.
Amazon’s Place in Your Sales Channel Mix
Making sweeping statements about a D2C brand’s sales channel mix can be difficult, since individual category dynamics will guide you when determining how important selling on Amazon is for your growth strategy. While there are some brands that find their niche and are able to grow almost exclusively on Amazon, XenoPsi generally recommends that the platform should not be a brand’s primary—or even secondary—channel for selling.
We believe selling on your own branded website—with the flexibility to pivot and optimize pricing, inventory focus, fulfillment options, and other customer service offerings—will let you be more lean and adaptive as you begin growing your brand. Amazon should be added to your sales channel mix to amplify growth once your products have already garnered some traction and found success with the target audience, signaling that you’re ready to scale.
When’s the Right Time to Start on Amazon?
Amazon’s users are primarily consumers deep in the funnel on their path to purchase, which is what makes them so attractive to D2C brands.
Key to Amazon’s success is that the platform itself feeds their desire to evaluate products by allowing them to easily compare price and delivery times—two factors that studies show are the most important considerations for online shoppers.
In fact, a DotCom Distribution study of consumer preferences found that price wasn’t even as important as speed, since 67 percent of online shoppers would pay more for same-day delivery if they needed the package by a deadline, such as an anniversary. Only 47 percent would pay more for same-day delivery simply because they wanted their package more quickly, signaling that consumers distinguish between a “need” and a “want,” but still desire the fastest shipping available.
But in order to determine if your brand is ready to take advantage of this opportunity, it’s important to decide whether you’re willing to give up some of the autonomy you enjoy when selling on your own branded properties.
Here are a few questions to help you get started:
- Does your product pricing have enough built-in profit margin to absorb the increased costs of selling on Amazon? Remember that Amazon fees will amount to roughly 1/3 of your sale price, along with the monthly platform fee of $39.99 and (ever-increasing) warehouse storage fees.
- Can your production or existing inventory scale with unpredictable spikes in demand?
- Is waiting for Amazon’s standard payout of two weeks too risky for your current cashflow?
- Are you prepared and/or staffed to deal with direct customer service and product issues on Amazon?
If you’re able to answer yes to those questions, there’s a good chance you’re ready to begin working with experts to incorporate Amazon into your growth strategy.
Key Benefits of Selling on Amazon
Reaching New Customers Where They Start Shopping
From a brand’s standpoint, one of the top benefits of establishing yourself on Amazon is market reach. At least 55 percent of all online shoppers start their product research on Amazon first, making it a key path to purchase that your brand should be present on.
After more than a decade of market maturation and development of merchant functionality, the platform now offers a wide range of benefits and tools that are invaluable for growing D2C brands attempting to reach audiences at scale.
The Search and Visibility Crash Course
Working within Amazon’s system is a great way to learn about consumer wants and needs, and to adjust your product’s offerings fast. As part of this, you can give yourself a crash course in helping get your product listed higher on Amazon’s search pages—a key skill you’ll need wherever you sell your brand. As part of growing your visibility you can use SEO to optimize your product titles and pages, along with growing your pool of customer reviews, to improve your brand’s visibility and reputation.
Once you get into a good rhythm on Amazon you can then play with pricing structures and other offers which can lead to great opportunities. For example, offering a significant discount from time to time or running a daily deal can garner enough brand exposure to attract repeat buyers. Combined with good reviews and optimized SEO, that exposure alone can power a winning growth strategy.
Boons of the Data Boom
With Amazon’s robust data landscape for sellers, brands can use Amazon’s built-in tools that otherwise might not be available to them. For example, Amazon is rolling out next-gen data techniques, like using AI analysis, to monitor and adjust your marketing and advertising spend. Top performing brands have shifted to using predictive analysis to measure the marketplace’s evolution over time, ensuring their hard work lets them stay on top even as consumer and platform priorities shift.
Getting Started on Amazon: The First Plan of Action
Your first key decision is choosing how to sell your brand’s products on the marketplace—via Seller Central or Vendor Central.
Seller Central is the best starting route for most D2C brands, since you’re free to list the products you choose, at the price you want, with the inventory quantities you specify. Seller Central provides all the tools necessary to establish your brand, marketing, and advertising, and should remain a seamless experience as long as you maintain high service standards and reliability.
Seller Central brands can reduce the burden of managing shipping and delivery once they qualify for Fulfillment by Amazon (FBA), which allows you to ship inventory to Amazon warehouses, where the company handles all customer shipments at a steeply reduced margin-cost compared to Vendor Central orders.
In our experience, most D2C brands are best served by establishing themselves as third-parties on Seller Central with the goal to qualify for the logistical benefits and cost savings of FBA as quickly as possible.
The Vendor Central avenue is more suited to brands that have already achieved a large scale and don’t need the operational flexibility of Seller Central. Brands using Vendor Central are the traditional operators of the marketplace, selling inventory directly to Amazon (and according to Amazon order specifications), which then adds its own pricing margin before selling and shipping to customers itself. This sales channel mimics the B2B style of manufacturing, where products are sold to storefront partners directly from the factory, while the brand itself has no direct customer contact.
Vendor Central offers the benefit of increased customer exposure and cash-on-shipment inventory sales, but you’ll be operating at wholesale margins and must manage your relationship with Amazon to ensure its buying department continues regarding your product as high-quality and likely to remain profitable.
It’s a good fit if you’re dedicated to adopting the traditional product and manufacturing pipeline, but provides less operational flexibility than third-party selling.
Finding The Perfect Fit
Implementing Amazon into your growth strategy can propel you to the next level of ecommerce when executed effectively. With a dominant market presence, skyrocketing consumer engagement metrics, and a wealth of tools for managing your sales and marketing activities, it’s a great way to keep your D2C brand visible on the path to purchase.