Amazon can be overwhelming for both the brand and the customer. Thankfully, Ethan McAfee has acquired nearly a decade of experience to help you navigate the pros and cons of selling on Amazon.
As the founder and CEO of Amify, he managed to grow it into the top 1% of Amazon resellers. In the last nine years, they have been named as one of the fastest-growing companies. Since then, Amify has acquired extensive expertise and helped several brands reach their full potential with strategy, management, and operations.
In this episode, Ethan discusses the pros and cons of selling on Amazon. He gives practical insights into using the platform to your advantage and why you should take full control over your Amazon presence. His knowledge could equip even the smallest startups with the brightest ideas in leveraging the Amazon sales channel.
Tune in to the episode to learn more about the pros and cons of direct selling on Amazon.
Click here to read transcript
[03:24] Yes, no problem. Well, what we’re going to be talking about is very timely. And it’s important for a lot of brands with all that’s going on in the world these days. So I’m very happy to have you here. So for the folks who maybe aren’t familiar with who you are, and let’s begin there, who are you? And what kind of business do you run?
- Yes, sure. So I’m Ethan McAfee. And I’m the founder and CEO of Amify. And we really focus on helping medium-sized and large brands really sell their product directly on the Amazon Marketplace. And we do that through a service we call Amazon as a service, which is essentially we become your outsourced Amazon team. And we help brands from everything from creating their listings and optimizing them. But really focusing on the supply chain logistics, customer service, and data and analytics side on the end as well.
[04:18] Okay. So for brands that currently sell online, and why do you think that they need to be thinking carefully about how they’re leveraging the Amazon sales channel?
- So what’s kind of happened is that all these brands need to really be thinking, especially around COVID times, about how retail is changing. And if we kind of go back—if we take like a history lesson, right?—which it’s hundreds of years ago, you had brands who would make products, and they would sell their products, or they basically needed a partner with retail distribution. Stores around the country—brick and mortar stores around the country to get their products in front of customers.
And when the internet came along, yes, brands did start creating their own websites. And about the same time was when Amazon was created. And most brands have taken what I call—they have always thought of Amazon as a retailer. And so they would sell their products to a retailer who would then sell them on Amazon. And those retailers could either be Amazon 1P or 3P partners. And oftentimes, those 3P partners were brick and mortar stores that kind of where it has on the Amazon game.
And so what we’ve really been focusing on and really trying to get brands to think about is how the world is changing. And that you’ve seen this huge explosion of what is commonly referred to as direct to consumer brands. These are the Warby Parkers of the world and the Allbirds, who really built a whole brand around selling products on their website. And what we’ve always said is, “You need to think of Amazon, not as a retailer where you sell to— a retailer who sells to end customers, but you really need to think of Amazon as a platform. An extension of your website. And all the advantages of selling on your website can also be done on Amazon,” which is selling direct, cutting out the middleman which allows you to make a lot more money. It also allows you to control your customer a lot more than selling through middlemen, but then it also gives you a huge amount of access to data.
So most of these brands or the majority, these brands are still using middlemen on Amazon. And we kind of say, “Hey, now’s the time to go direct to your own customer on Amazon. You view it as a channel just like your website is.” So that’s what we’ve been focusing on.
[06:55] Sorry to interrupt you. But I do want to push back, or ask a question about one thing they talked about. Your customer? Well, when you’re on Amazon, your customer, it’s Amazon’s customer. And you’re not getting any customer data that I’m aware of. I’ve been selling on Amazon for years now. So can you elaborate on how you think that is? Because obviously on your website, you get all the customer data but on Amazon you don’t.
- Yes, so I think two things to break down. One, I would say what I say, control your customer experience a lot more. Right? Which it’s the way that your products are shown on Amazon should look a lot like the way they’re shown on your website. And so what I always say is like, “Hey, if you’re a brand and you’re not controlling your Amazon presence, that means somebody else is. And that’s they’re not doing what you want to do.” So that’s thing one.
And then thing two, though is, as long as you use FBA, Amazon does give you a lot of customer data, right? So if you go in, they will give you name, address, information, as well as what people ordered and when they ordered it. And so that’s very useful information to a lot of brands because now those brands know what is actually being sold real time, wherein old wholesale relationships, they don’t.
But you can also start using that customer data for stuff like, what’s the lifetime value of my customer? In other words, like how much? How many times is this person buying from me on Amazon? What’s the customer acquisition cost on Amazon? And then you can, you can take that data and combine it with your website data to really get stuff like, “Hey, is it better for my customer to be on my website for Amazon?” And vice versa.
[08:39] But you’re not getting an email address for that customer? You’re getting a name and a physical address, and I’m guessing then—are there services where you can, because it’s a violation of Amazon’s Terms of Service to communicate directly with the customer via email…
[08:52] However, I’m actually not up to speed on whether it’s a violation of the terms of service to mail them some in the regular mail. Are you allowed to do that?
- Yes. And just to be clear, we’re not suggesting that. We do not try to take Amazon customers and move them off Amazon, and we’re not reaching out to them to try to get reviews, or anything like that. What we’re trying to say is the value of that data is super important for marketing analytics purposes. So we’re not using the data to like send letters and anything like that. It’s not actually contacting the customer whatsoever. But brands find it very…
[09:31] They’re interested in the value of data.
- Yes, exactly.
[09:37] All right. So let’s— just looking at my questions here. There’s three main ways that brands can sell on Amazon. What are the three?
- Yes, so if you go back—the three main ways: way number one is kind of the beginning of Amazon, which is what is effectively Amazon 1P. And this is where you as a brand, sell your products directly to Amazon. And then Amazon sells them to the end customer. And so this is probably best known when you go to Amazon and it says, “Product sold by Amazon.” And so that was kind of the way that Amazon was created, right, which is Amazon owning products and reselling them to the end customer.
And then about you know, 15 years ago or so, they opened up the Amazon Marketplace, which started allowing third-party sellers to come in. So this was the way Amazon was started. And it really is good method for brands who are kind of lower price point commodity products that sell millions and millions of dollars. And so that was kind of the first model.
The second model that then started happening when brands really are, when Amazon opened up the marketplace was third party retailers. And so this would be an example of Fender Guitar sells their guitars to Guitar Center, and Guitar Center then opens up an Amazon seller account, and sells the end customer that way. And so that was really the way that you saw kind of in 2010 to 2015, where millions of Amazon sellers came onto the Amazon Marketplace. And then started selling—kind of being this Amazon middleman.
And then the third model, which is what we really focus on, is when a brand decides that they want to sell it direct to the end customer. And this is when say Fender would open up a Fender seller account, and sell their products directly to the end customer. And that’s what we focus on. And we think that’s where the market’s moving. So we focus on that.
And the issue, the advantages of there, is you usually make a lot more money because you’re taking out those middlemen. The issue is that, as you’re well aware, selling on Amazon is a very difficult thing, and requires a lot of different capabilities. And so that’s why a huge, Amazon consultants’ agency, and what we call Amazon as a service, has been created. And our value proposition, and most of our competitors’ value proposition is that, “Hey, we’re gonna be your Amazon presence for you. And we can do it twice as good as you could ever do it at half the cost. And we can start tomorrow.” And so that’s what we focus on. Yes. And that’s kind of where we think the market is going is, Amazon is an extension of your website as a direct to consumer channel.
[12:39] So for the brands who aren’t sure which paths they should go down. Maybe they’re on one of these paths, and then they’re thinking about making changes. Let’s talk about the considerations between 1P, 3P, and your own Seller Central account. So let’s start with 1P. Where do you think 1P is the best fit? And where do you think 1P is the worst fit?
- Yes, so 1P, which is selling directly to Amazon, is great for brands that are very, very large. And simplifying it, this is stuff you can buy at Walmart and Target and stuff like that. Which is they tend to be…
[13:14] Toothpaste, and mouthwash, and deodorant/
- Correct. Yes, these tend to be your household CPG names. They tend to be very large selling—millions, and millions of dollars. They tend to be very low price point. Kind of household names. And specifically, they’re ones that the distribution channel is very fragmented, which is, in other words, like, you can go into thousands of stores around the country and buy them. And also ones where you don’t care too much about—the brand doesn’t care too much about the price. In other words, if the Crest toothpaste goes on sale from Kroger for $1 off, Crest is fine with that. And that’s opposed to somebody like Apple or someone like that who says the Apple iPhone needs to be charged—sold at the same price no matter where it’s sold at any time.
So those are the type of brands that can really help on 1P. And the key thing to understand with these is like low price products are very difficult to sell on Amazon, outside of 1P. And the reason is, is because shipping and handling costs really kind of factor into the equation a lot. In other words, the toothpaste to make cost $3 at your Walmart. But realistically, it probably cost $2-3 to ship it to you. And therefore to breakeven, Amazon realistically needs to charge five $5 or $6. But they’ll sell it to you for $3, and basically make a loss just because they want to compete against the brick and mortar presence.
[14:55] Well, plus, they know too that if you can— if they can get you to come to Amazon to buy toothpaste, then you’re pretty gonna buy like a dog collar. And some other thing, and some other thing, and some other thing, and they’re gonna make money on those.
- Of course. Yes, exactly. And that’s why, I mean, it’s basically a loss leader. The story of always why they put milk in the back of the grocery store because everybody needs to buy milk. These kind of CPG commodities are the ones that are great for 1P. And that’s where Amazon now focuses, right? So 15 years ago, Amazon 1P was 100% of the Amazon Marketplace. And now you’ve seen different statistics based on unit orders versus gross sales price. But you’re talking now about Amazon Marketplaces, two-thirds roughly of total sales. And the 1P market places roughly a third.
[15:48] All right. And so now let’s talk about 3P. Obviously very popular that I mentioned, I’ve been a seller for years. I own a 3P business. There’s definitely pros and cons to having them. However, if you do that right, from the three P’s perspective, it can actually be a pretty nice business. But from the brands perspective, what are some of the pros and cons of 3P?
- Right. So we always—so we consider 3P when you are a brand, and you sell it to brick and mortar retailers mostly. And you allow those brick and mortar retailers to sell it to the end customer. And this is what a lot of brands do, largely because it’s kind of your default option. And what I mean by that is, if Amazon hasn’t reached out to you to buy 1P, there’s probably a whole bunch of your brick and mortar retailers doing it.
So the advantages of doing this is, it’s a very, very easy way for your brand to get on Amazon. It’s probably already on Amazon, if you like it or not, doing this model. And depending on where your business is, and what type of businesses is, there are some strategic reasons why a lot of brands do this.
So for instance, like we do a lot of work in, like the shoe category. And so what you’ll find is that a lot of the big shoe companies will say stuff like, “Hey, we really want to support our brick and mortar retailers. And so we’re gonna authorize maybe five or 10 of our largest brick and mortar retailers to sell on Amazon as well.” And so this is a way to kind of give like a little jump start or kick in for your brick and mortar partners, upside to sell their brands in the store, and a reward for selling those products in the store. So that’s been one of the reasons.
The second reason here is that oftentimes, these 3P retailers will offer—also offer additional services. So they’ll do things like, “Hey, we will do your content. We’ll make your product pages look really pretty. We’ll do some of your sponsored ads, advertising for you. Maybe we’ll do some of your unauthorized sellers and map monitoring services for you. And in return, let us be the exclusive retailer or semi-exclusive retailer for your brand.”
And so that’s where that kind of 3P retail business is going. And this really makes sense for brands who just really like that wholesaler-retailer relationship, and that’s what they’ve always done. It makes sense for brands who really value their brick and mortar partners, and want to kind of give them some upside. I mean, so that’s why a lot of brands do that.
[18:41] So what are some of the unintended consequences of a brand choosing the 3P path?
- Yes, so the unintended consequences there is the default option. Right, I think I’d say that 3P sellers are different levels of sophistication that you want to make sure that your 3P partners are value-added, right? Which is, why am I allowing this person to sell my brand on Amazon? What value are they providing me? And so, if they’re providing you content, or Amazon advice, that’s great. If they’re providing—or maybe they’re one of your largest brick and mortar customers, that’s great. But the vast majority of Amazon 3P sellers are what I would call non-value added retailers. In other words, like leeches, right?
So if you already have 50 people selling your product on Amazon, offering the—letting the 51st and the 52nd person selling doesn’t add any value to your company. In fact, it just makes us much more competitive and more time consuming. And so the key here is like you want to be focusing on people who add value that view your brand as like a long-term partner rather than like a short-term leech.
[20:08] Yes. With the more sellers that the brand deals with, I mean, it’s just a simple thing of processing purchase orders, and shipping orders. If you have 50 sellers splitting up the total volume, you’re creating 50 times as much work for yourself. Whereas if you just had one partner, you only have one purchase order to deal with, one order to ship. And the volume would go up. It can—it’s really detrimental to the brand. In every case, I can think of. Maybe you could think of an exception to have a boatload of seller selling their products just don’t help them at all.
- Yes, no, no. I think once you get over I mean there’s—I think there’s reasons to oftentimes have more than one, right? So if you only had one seller, and that one seller runs out of stock, then you’re probably not gonna have any representation. But like, after you get over like three or four sellers, like each incremental one is detrimental to your time and health. And usually, what then starts happening is, you get into issues where there’s large numbers of unauthorized sellers, and people selling their prices below agreed upon prices, and just kind of really quickly degrades.
And so, the main risk of using 3P sellers is that unless somebody at your company is actively monitoring them, it can quickly become a free for all on Amazon. And we always say like, “Right now Amazon, especially because of COVID, your brand’s Amazon strategy is probably the fastest growing area of your company. And do you want to be the one owning that strategy? Or do you want some unauthorized seller who you don’t know, to be running your Amazon strategy on the fastest growing and most important marketplace? At least in the United States?”
[21:55] Yes, not generally a really great idea. All right. So now let’s get to the final way where the brand decides they’re going to treat Amazon as an extension of their own website. They’re going to treat it as a direct to consumer channel. They’re going to open their own Seller Central account. What are the some of the pros and cons of going down that path?
- Yes, and so basically, with the invention of things like Brand Registry and stuff in Amazon, we’re seeing more and more brands realizing that they want to go direct on the Amazon platform. And so for us, there’s really three main reasons why most brands want to do this. The first is that by going direct, you’re basically cutting out the middleman. And that means that the money that we used to be going into those people’s pockets is now going into yours. And so oftentimes, when we’re talking with brands that focus on this, they’ll come up to us and say, “Well, how much how much you guys charge for this type of service?” And we can usually go back to them and say, “No, no. You are going to make a lot more money.”
And so we recently—one of our clients was selling about $20 million per year on the Amazon platform. And they were doing it through 3P, like a semi-exclusive 3P relationship. So they were basically selling their product at wholesale cost to these people who then sold it to the customer. And we did our analysis, and we said, “Hey, by taking out these middlemen, you’re gonna make $4 million more per year. Even after all of our fees.” And so especially because of COVID times now, you’re making more money definitely seems to be a lot more interesting. And so usually selling directly to your customer makes financial sense. So that’s the main reason why a lot of brands are moving this way.
I think the second one is then gaining a little bit more control of the customer experience. And that’s simply that you want to make the Amazon experience for your customer as close as possible to the experience that your website has, to give them a great feeling. And obviously Amazon controls a lot of that experience, but you want to make sure that your clients have great looking product pages that look a lot like your website. You want to make sure that you have an Amazon storefront that’s organized in a logical way, right?
So what I mean by that is if you go to a well-organized storefront—let’s just say it’s like a clothing company, right? You do a well-organized storefront, it has you know, men’s section and women’s section. And maybe it has tops, and bottoms, and shoes. And you open up the shoes category, and gives you a list of all the shoes. And that’s just much more easy to follow than you type in clothes, and just gives you a list of all sorts of clothes by that brand regardless of men’s, women’s, color, sizes, shoes, socks, tank tops, whatever.
So you want to make sure that the brand imaging looks the same. But you, also by selling direct, you also then control a lot of the customer service, especially around questions and answers. So if a customer has a problem with it, they can ask you directly. And at the end of day, if you’re a brand, would you rather have the customer service representative be some random Amazon employee, or someone at your company who could hopefully give that customer a better experience? So owning that customer experience, I think is the second reason why a lot of brands are going.
And then the third one, which we talked about a little bit before is, around data. Right? And so some of this stuff is kind of simple. But by selling directly to the customer, you now know what is selling on a day-to-day basis at retail. And this is a lot different than your old relationship where you are a wholesaler. So for instance, with COVID, we have a lot of brands that some other brands are up 50% in revenue, and others are down 50%. And that because of COVID, that change happened pretty quickly.
And so, on some of the brands that we work with—like we saw revenue going up quickly—we could immediately communicate with them and say, “Hey, demand for your yellow t-shirt is skyrocketing because of COVID. You need to go and start making more yellow t-shirts right now.” And they said—a lot of brands will come back to us and say like, “Thank you so much for this data. We’ve never had this ability before. Historically, we had to wait for two months. And then our retail partner would then place another order for the products. And half the time, we would then say, ‘Oh, we’re out of stock of that.’ But now because we know what’s going on at retail levels and what’s selling, we can then change our supply chains one or two months ahead of time, to make sure that we can fulfill that demand.”
The second thing you can do with all that data, which we talked about briefly, is you can then start looking at how often are people buying on Amazon. How many new customers are buying on Amazon? And you can combine that data with the data from your Shopify, or your website account, and start asking questions like, “How much does it cost to acquire a customer on Amazon versus how much does it cost to acquire customer on my website? What are my margins and profitability on those two? What’s my lifetime value? Do certain ones maybe have a higher average cart size between those two?” And so the access to that data you get by selling direct, whereas you don’t get it selling through 3P partners, or to some extent on Amazon 1P.
So those are the advantages. There’s definitely some disadvantages though, as well. And those are largely around. It’s really complicated for most brands to properly execute a direct to consumer three piece strategy. And that’s why companies like Amify have been created and others. And the second I’d say is that sometimes your brick and mortar partners get upset with you when you say, oh you’re no longer gonna allow them to sell on the Amazon channel.
[28:25] Well, one of the workarounds that we’ve advised our brand partners to do is rather than cut them off completely, we just tell them they can only sell via FBM. That tends to soften the blow versus selling FBA because they’re going to—they’re still accessible, but they’re only going to get a tiny share of the buy box.
- Correct. Yes. And that’s actually we do something similar with most of our brand partners. And that’s a great fallback. Right? And, in case, right now, especially as we go into Amazon’s holiday season, FBA warehouses are getting more crowded than ever. And oftentimes take weeks to check products in and so, “Hey, if we run out of stock, we want to make sure that there’s still backup supply.” And letting our 3P partners do that often makes sense.
[29:09] Does Amazon have a preference which way brands go? Obviously, if it’s a big CPG brand, Amazon wants them to be one piece. So let’s exclude those monster brands from my question. For everybody else, does Amazon have a preference on how they want you to sell on their platform?
- Yes, but I think—wait, let’s take even a step back farther, which is what does Amazon really want to be on a retail platform? Right? And so does Amazon—if I were in Jeff Bezos’ shoes, would I rather have—be a retailer of product where I buy and own inventory and resell products? Or would I rather be in Marketplace where I sit back and mostly do nothing and take a 15% cut? And so I think the good news here is, in general, from everything I see, is Amazon for 15 or 20 years has said, “We would rather be a marketplace than a retailer.” And that’s why FBA and then third-party marketplaces gain market share for 20 years. And if you read the annual report, last year was the very first page that talked about this fact.
But from Amazon—so, I think the good news here is that Amazon is trying to move away from being a 1P seller for a lot of brands. I think from Amazon’s perspective, do they care? So I think in general, Amazon prefers when brands are selling direct themselves. In most cases now, there’s some nuances here. So what does Amazon care about? So Amazon cares about customer experience being great. And so when a brand is selling their products direct on Amazon, that customer experience is usually better than when a third-party is selling, direct, or telling. And the reason why that is, is the content is usually better. The customer service is usually better. They know what’s authentic, right? And so obviously, there’s a huge issues now with counterfeit products and stuff like that.
So in general, Amazon likes it when brands sell direct 1P. I say the reasons why Amazon sometimes doesn’t, it’s usually around prices. And what I mean by that is Amazon wants to be the lowest price person on the planet for all these products. And oftentimes, when a brand sells their products direct, they charge the same price they do on their website as on Amazon. Whereas oftentimes, these 3P sellers will undercut website prices and stuff like that. And so I think Amazon likes what I call healthy competition on prices. But oftentimes that healthy competition is not in the brand’s best interest.
[31:50] Most times, it’s actually not in the present brands’ best interest.
- Yes, yes. It’s not in the brand’s best interest unless, that I call it a commodity product where you’re really competing on price. So Amazon is, I think, mostly for, I think—I think what Amazon has done over the last couple years is they have seen, they want to be an unbelievably open marketplace, which allowed everybody to sell everything at any price. And I think what you’ve seen over the last two or three years is they realize that the downfall of that strategy has been a huge amount of counterfeit, and unauthorized sellers, and gray market goods, which has basically impacted the customer confidence to buy on Amazon. And so Amazon has now kind of come back against and said, “Okay, no, no. We really need to limit this total free market.”
And so that’s why you’ve seen a couple things over the last few years. Which is one, the number of suspensions on Amazon accounts has skyrocketed. Mostly because of dirty seller tricks, I’d say, and counterfeit products. And the other thing that you’ve seen recently, which happened just a month ago or so, is that now they’re finally showing Amazon seller account names. Right? So it used to be that you could go buy a product from XYZ Corp on Amazon, and you had to have no idea who it was. And it’s just hiding behind the Amazon storefront. Whereas now, they show you the name and address, which gives more customer confidence. It also gives a place for brands to go after.
[33:31] Oh yes. So much easier for brands to identify unauthorized sellers. It is a whack-a-mole game before and now it’s just come up. And that’s who they are.
- Absolutely yes, yes. And then again, the brands still need to pay attention. But the point here is that Amazon is kind of finally saying, “Hey, we want to have a managed marketplace. That’s free for all that we’ve kind of seen over the last three or four years actually is bad for customers. And therefore, it’s bad for Amazon.”
[34:00] So way early on around the introduction phase of our interview, you mentioned something, a service that you perform for your clients? And you referenced supply chain optimization, or something along those lines. Help myself and the audience to understand what it is, why that’s important? How—what the impact on the brand is and so forth.
- Yes. And so, we call our service Amazon as a service. And what that is, is we are meant to be your outsourced Amazon team. And you’ll hear a lot of people talk about, “Hey, we’re gonna be agencies and such.” They’ll talk about stuff like, “Hey, we’re really good at PPC advertising. We’re really good at content creation.” For us, we’re really trying to solve the customer’s problems and be their Amazon partner. And half the problems aren’t how much sales you’re gonna get. But it’s kind of ugly back-end office, stuff that isn’t very sexy to talk about on podcasts. But it’s unbelievably important for actually running the business.
And so one of those, is that we work with our brands on, is supply chain management and supply chain for our inventory forecasting. And so what that basically is, is these brands are selling products on Amazon. And we need to make sure—I always say it’s like the three little pigs, right? You need to have inventory levels in Amazon that are just about right. And what you end up happening is that for the vast majority of our brand partners, especially when we take them on, they either have, they’re constantly running out of stock of a product on Amazon, and therefore they’re just giving up a huge amount of inventory, or sales. Or what happens oftentimes is that they have years-worth of supply of products for a certain price that haven’t sold in a long time. And so therefore, they have a huge amount of inventory tied up, cash tied up in an inventory. And so we work with those brands.
Step one, it’s, “Hey, let’s work on coming down to a catalog that makes sense to sell on Amazon. Then let’s do some demand forecasting on how much we think we’re going to sell. And then we’ll start putting into a good together like a supply chain and ordering cadence that makes sure that you have enough inventory at Amazon, but not too much.” And oftentimes, that then starts getting involved into things like, “Hey, your products are made in China. And it takes three months for a container load of product to be shipped from China. Why don’t we have that container load of China’s shipped directly to an Amify warehouse? And we’re going to open up that container. And we’re going to ship half of it to Amazon right now. And then we’re going to monitor those inventory levels and continue to send products in to make sure that it’s always in stock. But not too much as in stock going forward.”
And so those were kind of those kind of ugly back office services that it’s just super important to know, because at the end of the day, inventory is cash. And small and mid-size businesses need to make sure that they’re operating on the cash levels properly.
[37:22] All right, so before we wrap up, Ethan. If you were interviewing yourself on this topic, is there any questions that we haven’t—that I haven’t asked you that you think would add value to this particular interview and help brands to better understand really what they should be doing with respect to the Amazon sales channel?
- Yes, I think for me, the most important thing for brands to do is have a strategy and a plan. And oftentimes, when I look at Amazon and brands on Amazon, is that most of these brands just don’t have a strategy. Or they say that they’re working on a strategy.
And so for me, the first important thing is to decide. And from there, to be honest with you, like the basics stuff is just the most important stuff. And what I mean by that, it’s like, who at your company is in charge of the Amazon presence? It can’t be 10 different people. What is your Amazon strategy? Is it going to be a 1P strategy? Is it going to be a retail strategy? Or is it going to be going direct strategy?
And then it’s—also know what game you’re playing. And what I mean by that is, if you are a big established brand that has brick and mortar partners, you need to be thinking through those ramifications. Whereas if you’re a lean start up, you need to be thinking about like, how can I launch my product on Amazon, such.
[39:01] Okay, Ethan, it’s been pleasure… conversation.
- Trent, thanks so much. Hope this was helpful for you and all your listeners. Appreciate your time.
[39:11] I’m sure it will be when it goes live we’ll be sure to let you know.
- Great. All right. Have a good one. Thanks so much.
[39:18] Thank you so much for listening. To get to the show notes for today’s episode, go to brightideas.co/339. And if you really enjoyed this episode, man, I would be loving it. If you would head over to your favorite podcast listening app and give the show a rating and review. Thank you so much. Have a wonderful day. We’ll see you in the next episode soon. Take care. Bye Bye.
Thanks very much for listening to the bright ideas podcast. Check us out on the web at brightideas.co.
Ethan McAfee’s Bright Ideas
- Use Amazon to Your Advantage
- Control Your Customer Experience
- Know What Works Best for Your Brand
- Get the Basics Right
Use Amazon to Your Advantage
In this episode, Ethan shares a brief history of how Amazon came about and how brands have used it as another retail distributor. He comments that although this was viable at the time, our situation has changed, and it’s more advantageous to tap into Amazon differently.
“A lot of these brands need to be thinking, especially during COVID times, how retail is changing,” he says.
Ethan gives a breakdown of how you can use Amazon during these times to your advantage:
- Rather than thinking of Amazon as a platform, think of it as a direct extension to your website.
- The advantage of direct selling on your website is the same as selling on Amazon.
- You get more data from Amazon FBA, which you can use side by side with the data you get from your website.
Ethan says that now is the perfect time to go direct to your customer. When you start to view Amazon as another channel to make sales, you have more control over improving your customer’s experience.
Control Your Customer Experience
When you tap into Amazon as a channel for direct selling, you can control your customer’s experiences.
Ethan gives us a few tips on how to improve your customer’s experience:
- Organize your storefront in a logical and efficient manner.
- Use data from Amazon FBA to determine things like the lifetime value of a customer.
- Take charge of customer service Q&As.
- Match the look of your product pages on Amazon to that of your website
Ethan says, “If you’re a brand, and you’re not controlling your Amazon presence, that means somebody else is, and they’re not doing what you want to do.” You can achieve all this and more when you sell directly on Amazon.
Know What Works Best for Your Brand
Throughout the interview, Ethan gives vital points as to what the pros and cons of selling on Amazon are. He further explains the three ways you can sell on Amazon and the advantages and disadvantages of each.
Brands should look into several factors such as your product’s price point, the benefits you get from working with third-parties, and the current situation.
Ethan also talks about the nuances in what Amazon prefers in a seller, and in some cases, it’s not direct selling. “Amazon likes what I call healthy competition on prices, but often healthy competition is not in the brand’s interest,” he says.
Get the Basics Right
Ethan gives one essential tip to tap into Amazon as a sales channel successfully. The most important thing to have is a strategy and a plan. “Oftentimes, when I look at Amazon and brands, most of these brands don’t have a strategy, or say they’re working on a strategy,” he says. “For me, the most important thing is to decide.”
He then gives a rundown of a few basic questions you can ask yourself:
- Who is in charge of your Amazon brand management and presence?
- What is your Amazon selling strategy? (Amazon 1P, Amazon 3P, or direct selling?)
- What strategy works best for the size of your brand?
What Did We Learn from This Episode?
- We learned how to tap into Amazon as an extension of your brand’s website.
- Having full control over your customer experience is essential in building customer confidence.
- Some strategies work, while others do not.
- The first and most crucial step is to decide on a clear strategy and plan.
[03:42] — Ethan introduces Amify
- Ethan McAfee is the founder and CEO of Amify, which helps medium- to large-sized brands sell directly on Amazon.
- Through their service, they help brands manage their listings, optimize their supply chain logistics, analyze data, and take charge of customer experience, among other things.
[04:25] — Pros and cons of selling on Amazon
- When Amazon came about, brands thought of it as another retail distributor or seller.
- Ethan comments that brands need to think of Amazon as a platform and extension of their websites, not as a retail distributor.
- Most brands are still using middlemen or 3P (Third-Party) sellers on Amazon in this day and age.
- When brands begin to think of Amazon as another channel for direct sales, they gain an advantage over data and customer experience.
[07:00] — Why controlling your customer experience matters
- When you sell directly, you can control how your brand looks and your customer’s experience.
- You get data that tells you about who your customers are, what they’re buying, and how likely they are to buy again using Amazon FBA.
- FBA gives you real-time data, which also allows you to adjust your logistics promptly.
- The data you get from FBA should only be used for analytics, not to reach out to customers directly for ratings, for example.
[09:45] — 3 main ways to sell on Amazon
- Brands can sell via Amazon 1P, which means they sell directly to Amazon, and Amazon will sell to the end-customer.
- Third-Party Retailers, or 3P, is another option. Wholesalers can partner up with retailers to sell their products.
- The last option is to sell directly, and the pros of this are getting more money since you’ve removed middlemen out of the equation.
- Brands who sell directly don’t usually know how to implement strategies correctly, so they hire Amazon consultancies like Amify.
[13:00] — Who benefits from selling via Amazon 1P?
- 1P is excellent for huge brands that are already household names.
- If a brand sells products at a low price point and doesn’t care too much about resellers taking a dollar off a product’s price, then Amazon 1P might suit them.
- Low-price products are difficult to sell outside of 1P, because you need to consider the shipping and handling costs that come with it.
[16:10] — Pros and cons of 3P retailers
- Ethan states that selling via Amazon 3P is an easy way to get on Amazon.
- A brand can authorize select retailers, creating a valuable wholesaler-retailer relationship that benefits both sides.
- However, this may unintentionally lead to partnering with retailers who don’t give you any value.
- The vast majority of Amazon 3P sellers are not value-adding, and can rather act like “leeches.”
- Having too many resellers might be detrimental to your time, health, and the growth of your brand.
[22:00] — 3 reasons why most brands do direct selling
- According to Ethan, one main advantage of direct selling is cutting out the middle man–this means more money going into your pockets.
- During COVID times, it makes more financial sense to be earning more after cutting out the cost of paying third-party retailers.
- The second reason is it lets you have more control over your customer experience.
- When you sell directly to your end-customers, you get to know what’s selling on a day-to-day basis. In short, the third reason is about having data that will save you more time.
[28:15] — Compromising with your 3P partners when switching to direct selling
- Your brick-and-mortar partners will likely be upset if you were to switch to direct selling.
- To soften the blow, you can still allow them to sell via FBM (Fulfillment by Merchant).
- Finding this compromise allows you to have a backup, for example, during holidays when Amazon FBA warehouses become crowded.
[29:10] — Amazon and the marketplace
- It seems Amazon would rather be a marketplace than a retailer.
- Ethan shares that Amazon is trying to move away from being a 1P seller for a lot of brands in the last few years.
- One reason why Amazon wouldn’t prefer direct selling is because of prices, and Amazon aims to be the lowest price in the entire market for products.
- The downfall of being an open marketplace is the great numbers of counterfeit and unauthorized sellers, which then affect customer confidence in platforms like Amazon.
- Amazon, over the last few years, has made changes such as showing seller information to make the Amazon experience more beneficial to customers.
[34:00] — What does an outsourced Amazon management team do?
- Amify helps brands with things like supply chain management and inventory forecasting.
- When consulting with a client, Ethan shares that Amify assists with the “three little pigs.”
- The first is managing inventory levels on Amazon and ensuring a brand doesn’t have too much or too little in stock.
- Ethan also analyzes data to forecast demands.
- With such data put together, the brand can adjust its supply chain and logistics.
[37:25] — The importance of having a strategy
- Ethan says that deciding on a strategy is the most important thing you should keep in mind.
- It’s crucial to have the basics down.
- Foremost, be clear on who is in charge of your Amazon brand management.
Ethan is the founder and CEO of Amify, a leading Amazon as a Service provider for brands on the Amazon platform. Ethan started the firm in 2010 to help established brands and leading direct to consumer brands create and execute their Amazon brand strategy on the 3P marketplace. The company has over 60 employees and has sold over $150mm on the Amazon.