Amazon: Keep Your Friends Close and Your Frenemies Closer?

AmazonCropThese days, Amazon is practically synonymous with online retail. With the Jeff Bezos-led behemoth pioneering free two-day shipping, drone delivery, and many other innovations, it shows no signs of slowing down. For many online shoppers, Amazon is their first and only stop when they want to make a purchase.

It’s only natural, then, that many new e-commerce businesses, especially those that only sell a single product, rush to get their goods listed on Amazon, often at the same time they are setting up their own direct stores. With all the traffic Amazon attracts on a daily basis, this can only be good for business—right? The answer is a lot more complicated than it might seem on the surface. The reality is that many businesses are just starting to realize Amazon may not be as much of a “friend” as they initially thought. It is, in many ways, the Regina George (from Mean Girls) of the e-commerce world: the ultimate “frenemy.”

 Friendly Competition

The core of the issue is this: many companies are headed online because they want to build a direct, high margin e-commerce presence. However, when a retailer lists its products on Amazon, it is essentially creating a competitor – one that offers exactly the same product, often for cheaper than the retailer’s site itself, and that has more reach and authority in the marketplace. This presents potential problems in several areas and begs the question of whether Amazon is helping to create incremental demand or is just taking advantage of existing and increased brand awareness. Before deciding to work with Amazon, here are four important aspects to consider.

 1.    Amazon’s Marketing Machine

Amazon is currently the 10th most trafficked website in the world, and does better in organic search than almost all other online retailers.  It also has a massive Pay Per Click (PPC) program, product listing ads, remarketing, etc. What this means is that e-commerce retailers run the fairly high risk of Amazon ranking or bidding higher for their own brand in searches. While this is not all bad, since retailers obviously do make money when people purchase their products through Amazon, it begs a very real strategic question that is often ignored: is increased volume via Amazon worth the lower margins that often go with it, given the cut that Amazon takes? This is particularly true when you take into account the fact that brand terms are very easy to rank for and buy. Ideally, a retailer would prefer to see Amazon spending money on keywords related to the product category or theme, rather than the brand name (i.e. “online widgets” versus “Acme Widgets”).

2.    Loyalty To Amazon

Beyond the bottom-line impact of a relationship with Amazon, there is also the issue of brand building and the opportunities to develop a relationship with customers that are lost when those customers are not actually purchasing from the retailer’s site. Given that the “competitor” Amazon has a hugely successful built-in loyalty program (Amazon Prime) that has a lot to do with customers purchasing repeatedly from them, it is an open question as to whether the customer’s loyalty is to Amazon or to the retailer’s brand. As soon as a product gets listed on Amazon, there are guaranteed to be people who will prefer buying it directly from them, reducing the direct interface between retailers and their customers, which potentially has negative longer term effects on lifetime value, willingness to switch, etc. For a new brand, the company can also lose the value of being in touch directly with earlier customers and getting their feedback and information.

 3. The Problems of Attribution

Not only does Amazon impact profitability and customer lifecycles, it also obscures the effectiveness of a retailer’s  marketing channels. This is because many of their own marketing efforts ultimately lead to conversions on Amazon, adding a layer of significant complexity to the data.

For example, imagine someone who clicks on a paid search ad and lands on a product page on a retailer’s website. They like what they see, but they want to check out the Amazon reviews before making a purchase. Once there, they decide to buy directly from Amazon, since they have a Prime membership. That paid search ad did lead to a conversion – it just wasn’t on the retailer’s site. That means Google AdWords doesn’t count it as a conversion, and an accurate ROI becomes almost impossible to determine.

The same scenario is also true of display ads, Facebook ads, SEO, and pretty much every other marketing activity. It leaves the retailer’s marketers in the dark because they have limited insight into what’s driving the conversions on Amazon, even with the selected information that Amazon provides. It also can make the performance of those campaigns seem worse than they are.

4. Giving Exposure to Competitors

A final issue to consider is that, while Amazon might initially increase a company’s exposure, it also increases the exposure of competing products. When people perform a search on Amazon, even for a specific brand, they see not only the retailer’s product in the search results, but also the products of the retailer’s closest competitors. With many people using Amazon’s internal search engine instead of Google for e-commerce queries, this problem is especially acute.

Take, for example, one of the hottest products of 2013: Google Chromecast. Perform a search for “Chromecast” on Amazon and its major competitor, Roku, shows up right on the first line of results:

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Compare that to how Chromecast is presented on Google’s own website:

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The difference is obvious. Google would no doubt prefer visitors go straight to their website instead of searching on Amazon.

Google is a massive company with household name recognition and plenty of money to spend on marketing, so Chromecast is likely to do fine whether it’s listed on Amazon or not. But it’s not difficult to see how a similar situation could do quite a bit of harm to a new, single-product startup just getting on its feet.

The same is true of remarketing. It’s not uncommon for Amazon to send out emails to people who viewed a retailer’s product on the site, which is great—except that  they also include similar products from competitors right next to it. The competition, as they say, is only a click away.

What To Do?

When it comes to listing products on Amazon there is no ‘right’ answer. It has helped thousands of businesses grow, and is undoubtedly a hugely powerful platform. However, in our opinion, too many companies don’t think through all of the issues involved with the “frenemy” relationship—they just assume it’s something they have to do. For many businesses, Amazon  turns out to be a short-term gain that in the long-term undermines the ability to build their own brand, which is not a trade anyone should make lightly and without considering the consequences.

The best reason to work with Amazon should be the opportunity to have incremental exposure to the brand, rather than having Amazon simple throw the product into its catalog and use its marketing muscle to target customers already looking for the product/brand online. Before taking the plunge, it’s worth asking a lot of questions, checking the contract and pricing policies, and understanding how Amazon will compete with the company’s brand terms in online marketing.

Photo via Carl Malamud on Flickr.

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