On this week’s Friday 15 podcast, Andy & Brian talk about whether brands should sell on Amazon, even if they don’t get access to customer data. The resounding answer is, “yes,” but with some caveats:
– Brian believes the Amazon 3P Seller Central approach makes more sense than the 1P approach…so why do brands still sell to Amazon directly?
– Don’t discount the value of Amazon as an awareness tool.
– Brian shared a survey of companies that don’t sell on Amazon and the number one reason why they don’t is that they don’t have the internal resources necessary to manage it — it wasn’t that they have an issue with Amazon in general.
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Brian Beck: Andy Hoar, welcome to Friday 15 with Master B2B. My name is Brian Beck. I’m excited to be here for another week of fun and exciting conversation about B2B eCommerce. Happy Friday. How are you? Happy Friday.
Andy Hoar: So we’re working in advance and actually trying to do this one in less than 15 minutes for the first time ever. So let’s roll.
Brian: Let’s see if it actually works. It probably won’t. We’ll try. But first we have some – Oh, new music for that. Wow. Andy, do you see this? This could be a real thing. Software company BigCommerce, Explores Sale. Sources say this just came out a couple of days ago. Andy, this is your world. Ecommerce, platforms. What do you think about this news?
Andy: Yeah, it’s not news. This has been around for a while. There are several companies in the e-commerce space that are in various states of being owned by what I think will happen here, a PE firm. So somebody is going to grab these guys. They put the word out because they wanted to increase the universe of buyers. But look, I think BigCommerce’s strategy, they’re giving it a shot. They’ve struggled against Shopify, who’s coming from the bottom. He’s struggling against the enterprise guys coming from the top, not to say they can’t do it. Product is strong. I have no issues with that. But I think they get squeezed by reality here a little bit. So we’ll see what happens.
Brian: I’ve always said that there’s an opportunity for mid-market, B2B, mid-market, and platforms in this sector. So I’m rooting for them. I’m a shareholder, BigCommerce. So let’s see what happens here. I’m a very small shareholder I bought them years ago. But this is an interesting evolution here. And I think there is real opportunity. But now you see Shopify moving in as you saw in the Wave last week, right? Andy, so we’ll see what happens and how this evolves. So let’s get to our topic today, which is, should brands sell on Amazon, even without access to customer data? We’re talking about branded manufacturers here. And Andy, I live this with my Amazon consultancy Enciba, where we work with B2B product manufacturers. And of course, this is a question we get all the time. Amazon is now accounting for almost 70% of product search. People starting their product searches, both consumers and B2B buyers. And Amazon Business, $40 billion now, it’s bigger than gosh, it’s four times the size of Grainger, you know, almost. So it’s become a real player in both B2B and certainly B2C categories. But the question is, it’s still, if you sell your products on Amazon, you don’t get access to the data. So we’re going to dive into this today, right? And so go ahead, Andy.
Andy: So we did a poll. And we asked people and it was pretty overwhelming – Should branded manufacturers sell on Amazon, even though they don’t get complete information on the customers that buy? But what you phrased it was, yes, because it’s too big to ignore or no, because the risk of not doing so is too high. And I think it was overwhelming. 89% said, yes, it’s too big to ignore. That said, I think of that 89% if you double clicked on that, the vast majority would say they still have some reservations about selling on Amazon for a whole host of reasons, most notably, if you’re not selling direct, you don’t access the data. Amazon’s got all the data and the data is king here.
Brian: It’s interesting too. And we’ll talk a little bit about it as we go through this. But the way you sell is also really critical. But given those numbers I was talking about, Andy, it’s both B2B and B2C, I think folks agree that it is too big to ignore it. Now the question is, How do you do it? Devil’s in the details. Because at the end of the day, the 70% of product search – if you’re not on Amazon, you’re risking your relevance. I always kind of joke about some CEO sitting there typing in a term into Amazon search bar, an example might be something like a digital caliper, a traditional B2B tool that’s used in industrial applications, aerospace, automotive, etc. And looking at the products that come up and more importantly, the brands that show up on Amazon when you do a search like that, if you’re the CEO and you see, oh my gosh, you know, who is this brand KINDUP? I’ve never heard of them. And then they go double click down into, you know, this is an example, double click down into the sales on these products to the tune of 1.8 million dollars a year from brands they’d never heard of. And guess where a lot of the products search is starting by our, today’s B2B buyer, starting on Amazon. And the loyalty these days is more with the channel in a lot of ways, particularly with Amazon. And they’re doing a great job. So if you’re not there, guess what? The volume is going to go somewhere else. And these companies coming out of Asia and other places, Andy, they’re really good at Amazon. And quite frankly, the product is getting better too. Sometimes it’s the same factories making the product for the traditional manufacturer in Asia, in particular, that are now selling on Amazon directly, competing against their traditional partners in the year in the US. So fascinating dynamics and relevancy, I think relevancy is a key part of this, right? To stay relevant to that new buyer, any thoughts?
Andy: Yeah, I don’t think you can’t not be there. The question is, how are you there? I always felt that Amazon had some manipulations, you’re manipulating you, you’re manipulating them, just go in with your eyes wide open, figure out what you should be selling there, what you can’t afford to sell there. But, you know, you got something there because if you’re not present there, then people buy from somebody else and you’ll eventually lose.
Brian: So, the question is, the whole notion of resellers and channel conflict and we often say that if you’re not controlling Amazon, if you’re not proactively engaged with the channel, the channel will control you and will cause channel conflict and you’ll have unknown resellers selling products. You don’t even know how they get the product. Again, there’s ways to manage this, but it’s a challenge. So, selling approach really matters on Amazon as it relates to data, as it relates to control. So there’s two ways to sell on Amazon. There’s vendor central, or 1P, first party where you sell product directly to Amazon, like you would a traditional distributor. Now, if you’re an industrial products manufacturer, maybe you sell to MSC and Fastenal and Grainger and Motion Industries, it’s a similar dynamic in that you have a vendor manager at Amazon, a buyer quote unquote, that will work with you to buy your products, set up your product, the store, and etc. You sell them on a PO, you ship to their fulfillment centers. It looks and feels, particularly when it starts, like a traditional distribution relationship. You have some marketing merchandising opportunities, but Amazon sets the price, controls the content. There’s a whole variety of things that you’re giving to Amazon, just like you would give to a Grainger and MSC. So that’s a wholesale relationship. There’s also another method called Seller Central or 3P and this is where a vendor, a supplier, manufacturer would set up their own storefront on Amazon. Amazon still processes the order, and they take the order, but either you ship it to the customer or you use the Amazon’s fulfilled by Amazon service, but Amazon never owns the product. It’s bought, then the title transfers from you, the supplier, to the customer who buys it. The part that’s interesting about this model is number one, you set the price, but you also get a lot more data. If you ship the product yourself, you get the customer’s name, you know where it’s going, you can’t remarket to them, but you get the customer’s name, you can at least get some directional data on where it’s going. In fact, if you think about it, folks selling through Amazon Seller Central get a lot more data than they would get through a Granger or an MSC or some of these other channels. So, in some ways, you can’t remarket to the customer. We’ll talk about that, but you get more of the information so you can actually use that to some degree for planning purposes and other things.
Andy: So that seems like a happy compromise. Why wouldn’t everybody sell through Seller Central? Why does anybody sell first party to Amazon?
Brian: That’s a great question and I ask it every day. Seriously. Well, the reason they do it, honestly, Andy, because we have companies that we work with that sell 1P. It’s comfortable. A lot of traditional manufacturers, let’s be honest, they’re not set up to support this. This is essentially consignment inventory. They’re not set up to ship this way, to account this way. There’s more resources required to do it. So Vendor Central feels like a traditional distribution relationship. It’s comfortable. Oh, yeah, here’s a buyer who is going to buy my product, but what it turns into over time is – Amazon doesn’t accept pricing increases. They’re doing what’s called, this is a great term. I’ve ever heard it, “crapping out”, you cannot realize a profit. Amazon will come to you and say, your product is crapped out. Crapped out. Why? Yeah, that’s funny, because I can’t realize a profit on it. And so therefore, you either have to reduce your cost. I don’t care if your cost went up. Either you reduce your price to me, or we’re going to take it off of Amazon and not sell it. And then it turns into a bit of a challenge. Now, it can make sense for some companies. It’s a really low price product, like $10 or less. But why would anybody sell Vendor Central? And I ask that question every day. It just feels comfortable for them.
Andy: I can see that I can see that being comfortable. You’re right. It’s like they just seem like any other distributor, but the problem is they aren’t.
Brian: Well, that’s right. And it’s funny. I was just on the phone with a big 1P Vendor Central brand, a huge company that you know. They were saying, gosh, you know, I can’t use the word “Amazon” and “relationship” in the same sentence because it works very differently than a traditional MSC relationship where you actually have someone you’re collaborating with. Amazon Vendor Central works very differently. So Seller Central is really a more self-service type portal. But you still don’t know, in many cases, who the customer is because if you’re selling third party and you’re using Fulfilled by Amazon, then in that case you don’t get the customer’s information. You just know where it’s going. And Amazon has customer communication guidelines that are very specific that restricts your ability from contacting customers for marketing and promotional purposes, period. You can’t market to them. It is not your customer, regardless of the selling approach. It is not your customer, it’s Amazon’s. What I would say though, Andy is, well, MSC doesn’t tell you who the customer is. Neither does Grainger. Your traditional distribution channel isn’t going to tell you to the customer. So you can’t remarket into them, right? Or am I wrong?
Andy: You know, you’re right. But I still think it’s a different relationship because Amazon will have private label products and so do old traditional distributors. But somehow you feel like the traditional distributors are more in your court. They feel like it’s more a joint customer relationship. Whereas Amazon feels like when you give it to Amazon, they’re going to do whatever they have to do, including putting you out of business. You don’t feel like your distributors are going to do it because they need you.
Brian: Well, the whole private label thing we get into on a subsequent one of these – It’s a very small part of Amazon. Business and guess what? It ain’t profitable. And guess what? They’re backing away from it because it ain’t profitable.
Andy: It’s always a lurking threat though. And they use it as leverage.
Brian: We did this survey, and for those on the podcast, I’ll read it, where we asked the question, this is my company Enciba, but did this survey at the end of last year. One of the questions was, why of the firms that don’t sell on Amazon, we asked that group, that cohort. Why don’t you sell? The number one reason actually was internal resourcing. We don’t have the resources to do it. And that was followed closely by channel conflict concerns. So, the whole, hey, Amazon, we don’t get the data, wasn’t brought up because ultimately, they know, companies know they need to be there, but it’s really about, how do I manage these other things? How do I resource for it? How do I manage channel conflict? How do I make sure my program is profitable? These are the things that came up more so than the other.s So, anyway, interesting dynamics, I know we’re going to try to keep this one to 15 minutes, right, Andy? Any final comments on the Amazon piece?
Andy: You nailed it. I think Amazon makes it very convenient, and that’s alluring to a company that’s used to that model, but you should really think hard about what the right model is. Maybe 1P is good for certain things, right, more generic products, but for stuff that’s high margin, your differentiator, I think 1P is a dangerous opportunity for a lot of manufacturers there.
