Should You Sell on Amazon? Part 3 - Taking the Plunge

So, when does selling on Amazon make sense and how do you do it without destroying your brand in the process?

Once you’ve developed your brand to the point where you know you have loyal brand followers with strong repeat business while still consistently acquiring new customers as well as a stable full of strong wholesale customers you can begin to contemplate Amazon. Keep in mind this move will upset the apple cart with your wholesale customers so it can only be accomplished successfully when your demand is strong enough that Amazon will not erode your other channels, including your profitable DTC online business. The Amazon jump will take considerable effort and initial cost so everything else needs to be built on a very strong foundation.

One essential element to protecting your brand on Amazon is to make sure you’ve registered it via the Brand Registry. This is available to anyone that owns their trademarks and should be one of the first things you do before selling anything on Amazon. It also provides protection for patents and is a powerful tool to deal with any knockoff products that will appear if your product is successful. Brand Registry also helps with consistency of presentation if you sell your product via multiple 3P accounts and allows you to create your own Brand Store on Amazon.

There are lots of well-known brands selling on Amazon. In the outdoor space brands on Amazon include Burton, Cotopaxi, Arc’teryx, The North Face, Smart Wool, Fjallraven, Marmot, Darn Tough. All of these have a ‘Brand Store’ which is a virtual home page for the brand within Amazon. It’s likely that most of these brands are in a 1P relationship with Amazon meaning they sell directly to Amazon. Amazon is acting as a traditional wholesale buyer in this case.

There are other premium brands on Amazon like Nike, Lululemon, Black Diamond, and Canada Goose which are using the 3P method of selling on Amazon and NOT selling to Amazon directly. None of these have their own Brand Store on Amazon.

So why would a brand choose the 3P approach over 1P? First, remember that to sell via 1P you must be invited to by Amazon and that is only going to happen if Amazon believes it can do more than $10m in your products per year.  Clearly, all the brands above selling on 3P could easily reach that benchmark, but they still are there only on 3P. A couple things could be at work here.

One clear possibility is that the brand prefers NOT to be on Amazon yet one or more of its resellers are selling the product on Amazon without the brands approval. 3P is available to anyone and many retailers with brick-n-mortar operations also have a separate online business and a good number have found significant success on Amazon. However, you’ll be hard pressed to figure out which 3P player is associated with which brick-n-mortar store as most appear on Amazon under a different name than their real-world store’s name. For many this is done intentionally to distance themselves when selling goods on Amazon they may not have been authorized to do so by the brands.

The other reason brands choose 3P over 1P is control. Although 1P gives a brand more presentation tools, it is offset by less control of item selection, pricing, and forecasting. I worked for a brand selling via 1P on Amazon and we had very little say as to which products they bought. Yes, we limited the offering but, like with too many retailers, they are too driven by what sold yesterday versus what we believed would sell tomorrow. Amazon is driven by history, new product will suffer before its reviews are built up enough to drive the search engines.

Worse, pricing was controlled by the algorithm. We had too many other resellers selling on Amazon (I inherited the program from a previous sales manager) which means pricing was driven by the low-ballers and controlling it was playing whack-a-mole. Also, getting PO’s far enough in advance to manage production effectively was an issue and Amazon was not receptive to the requests for more advanced PO’s. Lastly, the buyer’s position was unstable, and we got stuck with a buyer that really was not on their game. All-in-all, working with Amazon at the 1P level was frustrating. These are some classic issues that many selling on 1P will relate to.

The pitch from the 3P players is that you will have a much tighter relationship with them then you will with Amazon and far more control over selection of products and pricing. This is a very strong argument and the reason brands switch from 1P to 3P.  This occurs even though you give up some of the brand presentation tools you have with 1P and its Vendor Central portal. 3P players are getting more tools in the Seller Central portal but it’s still not equivalent.

It's an interesting world when you start to explore the successful 3P players. As Amazon success is somewhat formulaic, a retailer that has figured it out with whatever they sell in their brick-n-mortar store often will then established themselves as an authority on selling on Amazon and seek out products just for their Amazon business, often products that are completely unrelated to what they sell in their brick-n-mortar stores. In some cases, the Amazon business gets so big the brick-n-mortar store becomes irrelevant and shuts down.

Keep in mind that on both 1P and 3P you are still responsible to drive the marketing and promotion of your products. Even when you’re selling 1P, it’s up to you to spend on search and other Amazon marketing as well as manage your product info. If selling through a 3P partner, they will need discount or co-op (is there a difference?) to support these marketing efforts.

If you have not sold on Amazon before and decide to take the plunge, your best option, in my opinion, is to find a single 3P partner that knows the Amazon game and is an appropriate cultural fit for your company and set it up with them. Limit sales on Amazon to just that one 3P partner. There are those that believe having two or three partners is best, but that to me is more than I’d want to work with.

For the control freak that wants to capture additional margin by becoming their own 3P store on Amazon, hire someone with that expertise to save you the hours and hours of time it will take to figure it out. Keep in mind you will have to manage follow all the labeling requirements, manage inventory forecasting on your own and payment will come later than when working with a 3P partner or selling directly to Amazon.  With all that under consideration, there’s still more work to be done.

The key is controlling your distribution by controlling who is and who is not selling on Amazon. To do this you need a dealer agreement with all your accounts that clearly states where they are and are not authorized to sell your product. Whether you sell on Amazon or not, this is something that you should be doing if you sell wholesale. Without a clear agreement, you could easily end up with multiple accounts selling on Amazon and cleaning that up won’t be easy. Would you sell to 10 stores all in the same strip-mall? Probably not, so why have a bunch of companies all competing for the same customer on Amazon? Your pricing and your brand will suffer. There’s a lot that should be included in that dealer agreement, but we’ll save that for a future post.

Even with a solid dealer agreement, the money to be made on Amazon is very appealing and as mentioned before, there are some nefarious retailers that hide their Amazon business as much as possible (hint – watch your sales data) and you can often find yourself with multiple accounts selling your product. A good 3P partner or sales agency will have software to monitor the marketplace to identify unauthorized sellers, then it’s up to you to enforce your dealer agreement.

The second tool to help keep the market stable if you’re selling into multiple channels, including Amazon, is a MAP Policy. This is not selling maps, but a Minimum Advertised Price policy. This is the dark matter that has makes up much of the wholesale universe – companies use them, but they do not like to discuss them. Of course, the retailer is always free to sell the product for whatever they want, the MAP policy just provides limits to what they can advertise the product for. If a retailer advertises for less than MAP then the retailer risks losing marketing support, future orders or even losing the line.

Both your dealer agreement and MAP policy are only worth the effort if you enforce them and do so consistently. If you don’t enforce, they are not worth the paper they are printed on let alone what you paid your lawyers to draw them up and implement them. Enforcement can be painful when it’s an account doing a lot of business with you, but you must enforce if you want to maintain control of the brand.

Finally, if you’re big enough and get the magic invite to sell via 1P and decide to do so, you have two choices to make sure it’s as successful as possible – hire an expert immediately that can manage the buyer, vendor central and promotions OR hire an agency to do that on your behalf. Trying to figure it out on your own will consume anyone and take you away from all the other work on your plate. There are several Amazon sales agencies out there that cater to specific channels like outdoor products. Brands have realized that their expertise is worth the commission as they can build the business on Amazon faster and more efficiently than most internal operations.

There is one other option; don’t sell on Amazon. It’s a choice brands like Patagonia, Moncler, Kuhl, and Vuori have made. These brands cherish their image and their distribution and have the demand through other channels to say no to Amazon. It’s an enviable position that their wholesale partners love – at least the ones that don’t have their own Amazon business.

Do you have an Amazon story of your own, good or bad? Contact me and I’ll condense the stories to share anonymously.