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Distribution Strategies for Brand Names on Amazon

Beratung von Herstellern beim Umgang mit Amazon und beim Aufbau einer Kooperation mit Amazon

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For brand names, Amazon represents a blessing and a curse in equal measures. The brute expansionism of the online giant is something that ever fewer retailers and chains are able to contend with. The shift from offline to online channels has forced manufacturers to consider strategies for distributing via Amazon, where most are afforded by the chance to immediately and significantly increase their sales volumes. In the medium term, however, such partnerships massively increase the dependency of the manufacturers and the risk they run of coming into conflict with stationary retail. From the time they begin to cooperate, they are competing in price with Amazon. The virtual monopoly created by Amazon with regard to service, delivery speed and product assortment has transformed it into the search machine for products. Amazon’s dominance is such that when customers cannot find a product on Amazon, they often assume that it simply does not exist.

There are a number of sectors whose entire product span is represented – with scarcely a single exception – on Amazon. If manufacturers do not want to supply their products to Amazon directly, the retailers of their products take the opportunity to do so, or at least to offer the products on the Marketplace. Ultimately, however, there remains a risk for the manufacturer that Amazon may use the sales data to offer its own products under the label AmazonBasics at a later date. For simple products – such as cables, blank CDs and bags – this is already a reality. For more complex products, it is still some time off.

FOSTEC offers a complete advisory service for businesses seeking to cooperate with Amazon. It can also offer support during the related negotiations. Businesses opting for our comprehensive package of guidance on Amazon distribution will be advised on topics including (but not limited to) the following:

1. Determining Your E-Commerce Distribution  Strategy

Your distribution strategy determines the nature and scope (with regard to product assortment) of your distribution activities. FOSTEC will be happy to advise you on a specially tailored e-commerce distribution strategy.

2. Evaluation of a Suitable Amazon Business Model for Your Brand Name

Brand names on Amazon may pursue one of two differentiated business models. The basic principles of each are as follows:

Classic Customer – Supplier Relationship (Amazon – Manufacturer)

In this option – which is generally reserved exclusively for brand names – the manufacturer supplies their products to Amazon and allows their further distribution to be managed from there. This option has the advantage of maximising potential sales for the manufacturer, since their end customer through Amazon enters into a contract with Amazon and thus benefits from the all the usual services associated therewith (such as Prime Delivery or the flexible returns policy). All other things being equal, it can be expected that sales quantities will be up to 40 per cent higher when the goods are supplied directly to Amazon than when the goods are sold over the Marketplace. In addition to taking care of all aspects of the distribution, Amazon employees also take care of all customer service requests. From a procedural perspective, manufacturers must – in accordance with the terms and conditions – fulfil demanding logistics- and content-related requirements in order to be classified as suitable partners; a good market presence can act in the manufacturer’s favour in this regard. The conditions of contract are likewise demanding. As well as expecting to acquire the goods at trade prices, Amazon demands additional “back-end conditions” in the form of advertising subsidies, year-end bonuses for achieving agreed revenue thresholds, bonuses for zero returns and discounts. Stronger brands – those that Amazon considers essential to recruit to their list of suppliers – enjoy a little more leeway in the negotiation of conditions.

Amazon Marketplace

Alternatively, manufacturers can enter into cooperation with Amazon by offering their products on the Marketplace. In this model, Amazon functions purely as a sales platform. Obligations regarding the answering of customer service requests and the fulfilment of orders remain with the manufacturer, who receives all the customer data they need to do so via the Vendor Central. AmazonPayments assumes the role of the e-Payment service provider. Manufacturers may also opt to rent storage space with Amazon and to have orders processed by them, a service that can be utilised at any time for part or all of a manufacturer’s range. For manufacturers who may not (yet) be in a position to manage higher volumes of lower value B2C deliveries alongside their established B2B business, this option affords a certain amount of flexibility.

Sales commission for the Marketplace is calculated on the basis of a product’s sales price and currently varies between 7 and 20 per cent depending on the type of product. If a manufacturer participates in the Marketplace, it will be obvious to members of the public that they are acting in their own name. So long as no form of selective distribution is taking place, the manufacturer stands in direct competition with their dealers and retailers.

3. Pricing Policies on Amazon

The homogeneous presentation of products on Amazon mean that differentiation occurs overwhelmingly as a result of price. Until recently, Amazon partners who sold their products on the site had been prohibited from offering them more cheaply via other online sales channels. Pre-empting the German Federal Cartel Office’s initiation of an official investigation, however, Amazon removed the price parity clause from §S-4 of its terms and conditions in August 2013. Choosing the right pricing policy is vitally important for helping brand names to avoid long-term price erosions and achieve attractive margins with Amazon.

4. Development of Amazon Marketing Measures

Quite apart from the strength of a brand and its methods of distribution prior to Amazon cooperation, comprehensive marketing measures are essential for achieving good profits on Amazon. Important to understand here is that Amazon product searches are filtered according to special relevance criteria. Just as on search machines like Google, it is of vital importance that your product is ranked as far up the search results as possible. FOSTEC offers all-encompassing advice and guidance regarding the marketing measures available to you on Amazon.

5. Ongoing Content Optimisation for Amazon SEO

We increase your profits with targeted optimisation of your content that raises the visibility of your product. A good Amazon SEO strategy is a sustainable way of creating more sell-out products.

6. Advice & Support For Negotiations with Amazon

Your first talks with Amazon will lay the foundation for your cooperation. Decisions made at this stage are crucial to your future success and are, for the most part, irreversible. It’s with this in mind that FOSTEC recommends thorough, in-depth preparation for your initial negotiations – it’s important to present the right combination of product range and pricing policy. FOSTEC connects you with the right points of contact at Amazon and prepares you in a targeted manner for your first conversation with Amazon’s Vendor Management.

7. Ongoing Support for your Amazon Activities and Annual Talks

The requirements for a partnership with Amazon are multi-faceted and differ widely from those of other trade structures. That’s why FOSTEC also supports you in the operational aspects of your business: We help you adjust and optimise your processes to meet your sales targets with Amazon and ensure you bring the best possible figures  to the table (this, in turn, acts in your favour during the annual renegotiation of your conditions). On request, FOSTEC can also offer support for your annual talks with Amazon, whether during the talks themselves or the preparation stage.

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Download free today Amazon – Fluch und Segen für Markenhersteller (“Amazon – A Blessing and a Curse for Brand Names”) – A German-language dossier by FOSTEC Commerce Consultants

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