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Amazon and brands – the case for cautious diversification
The UK is one of the leading lights in the European ecommerce sector, with €178bn (£155bn) spent in 2017, according to the European B2C Ecommerce Report 2018. However, a third of transactions generated in the country come through U.S. online retail giant Amazon.
For a long time now, Amazon has been able to provide the scale and infrastructure that’s enabled brands to expand their horizons beyond more traditional retail partners. But the Amazon tide is changing as brands begin to realise that there are two sides to a partnership with the mega-player.
Brands have the option to sell as first-party or third-party sellers, but today third-party sellers are facing increasing restrictions including exclusivity programmes that give sales for exclusive distribution, and price capping. One such restriction was recently reported by Amazon vendors, all businesses doing $10m or less in sales volume on the platform per year, when they were unexpectedly permanently moved to third-party on Amazon’s marketplace.
For long term brand longevity, diversification is required and while brands have, and will continue to, enjoy the benefits of working with the likes of Amazon, they are also aware that it is in control, makes the rules and sets the prices. What’s more, the terms of this relationship are evolving. Whether it’s sponsored products or Amazon’s move towards self-branded production, the goalposts are moving and brand strategy as a result requires a review.
Amazon will continue to represent serious value for brands in all categories but the industry stands at a crossroads and businesses can no longer afford to rely so heavily on one revenue stream for continued success. But partnership arrangements, founded on the value of brand-retailer data sharing, can have a dramatic impact on the continued ability to compete effectively online without an over-reliance on Bezos’ mega-retailer.
Preference for partnerships
Amazon remains a high sales channel for brands. However, the growing realisation that it is not the only route to market worthy of marketing investment is causing industry-wide change.
While previous interactions between a brand and any big retailer have functioned more on a customer-vendor dynamic, this precludes the collaboration necessary to generate long-term success. However, there is a step change afoot and the mutually beneficial partnerships are arising. Brands offer an increased level of collaboration, combined with their unrivaled product and production data, while retailers offer sales data including invaluable bricks and mortar shop data back in exchange, helping both develop a full picture of the customer.
This data is retailers’ biggest advantage over digital giants, and is an opportunity to take advantage of the gap in online retail giants capabilities. This approach not only represents a more accurate picture of the modern consumer on which to build effective campaigns, but also creates a symbiosis between the brand and the retailer, something the likes of Amazon are currently unable to offer.
These partnerships represent the future of the retail industry. Together brands and retailers can unlock an incredible treasure trove of data – from who customers are in the real world, all the way through to their purchases, purchasing times and what device they use when shopping online, among others. But this customer view can only be achieved in partnership.
A boost for brands
Some brands may feel that its illogical to form partnerships with online retailers, which could see its customers purchasing products away from their portal. It can be seen as a loss of control, but the opposite is actually the case. Offering customers increased choice, via partner retailers, can support improved conversion rates from visitor traffic that normally wouldn’t stick.
What’s more, if a brand ensures its products are available via a variety of retailers, not just one, it’s a much easier process for its customers to find what they need. This, in turn, increases the chances of higher conversion rates, which leads to more sales and bigger profits. Variety puts brands in a loftier position to negotiate partnerships with retailers. Multiple retailer partnerships also offer the valuable chance to showcase products to new customers. Whichever customer groups are considered, a brand is able to put its products in front of consumers which may not have necessarily sought them out.
This is a fantastic opportunity to nurture loyal customers – the holy grail of customer types. Just as with working with Amazon, partnering with multiple retailers enables brands to venture into new markets in less time and at less expense. The greater customer reach that diversification represents for online retailers can dramatically ease market entry, while also boosting credibility and trust around a product range.
Diversification via multiple online retailer partnerships, and focus around the transparent exchange of valuable data, represents huge benefits for both parties. Moreover, collaborations like this are able to create a more balanced marketplace for brands and retailers – a win-win situation for retail en masse.
Nicole Kivel, sales director at Criteo
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