Understanding Amazon in 7 Words

“Start with the customer and work backwards.” To understand this iconic quote from Jeff Bezos is to understand Amazon’s core values and roots. Everything that Amazon has done and plans to do, revolves around optimizing the customer experience and delivering the best value possible. Amazon seeks to constantly learn from the customer and builds services and technology to support those learning and insights. It is interesting to note that “best value” does not always mean the lowest price. What it does mean is a seamless customer experience that meets or exceeds expectations.

Prime is the prototypical example of this. Amazon customers quickly forget that they have paid up to $156, if the pay the $12.99 monthly fee, for their subscription to Prime and instead focus on the value that is continually added to this offering. Ask the average Prime member how much their membership costs and I will almost guarantee that over half have no idea. It is interesting to note that Prime pricing on products is not always the lowest but does the customer even notice? Most don’t because the convenience of ordering and the promise of two-day delivery with no minimums makes the total value proposition well worth it. Add in the increasing library of Prime Video, Music and other Prime only offers and you have created a loyal customer who values convenience and predictability over the lowest price. According to a Morgan Stanley survey, 51% of U.S. households will be Amazon Prime subscribers in 2018, up from 45% in 2017 with Prime subscribers spending up to 4.6X more than non-prime customers. Morgan Stanley estimates that the average Amazon Prime customer spent $2,486 over the last twelve months compared to $544 for non-Prime Amazon customers.*

The concept of the Amazon Marketplace, of which I was one of the first Sellers, is another testament to Bezos’ philosophy. Over 18 years ago, when I was sitting with Jeff in the Amazon headquarters in Seattle and we were discussing this novel and, at the time, alien concept of other people or businesses selling on Amazon, he gave me the answer that proved to one of the most insightful and forward thinking I have ever heard. His answer was simple in basically stating that it didn’t matter who they buy it from as long as they buy it on Amazon. As history proves, the Marketplace concept of expanding Amazon’s assortment beyond what they sold themselves, created a model that revitalized Amazon in those early years and launched them on the trajectory that exists today. Amazon wants the customer to have the best selection possible with pricing at parity to the market and a feeling of confidence that Amazon stands behind what is sold on the site, whether by Amazon or a Seller.

What is interesting about the Amazon Marketplace is that brands have become less important for several reasons. Predominately, the brand is now Amazon and secondly, ratings & reviews give customers an unfiltered, non-biased appraisal of the products that they are shopping for. Do you buy a brand name with poor ratings and reviews or a no-name that has a 5-star rating and 99% positive reviews? Who do you trust?

On the other hand, there is a false feeling that a brand owner can or should keep its brands from being listed on Amazon and protect it by not being a Vendor or Seller. Quite to the contrary, the only thing that this accomplishes is opening a void that allows others to represent the brand, define its identity, and possibly, denigrate the brand and its catalog through inferior products and service. As little as 5 years ago, there was pushback from certain omni-channel retailers regarding the listing of the same branded assortment on Amazon. With nearly 50% of online product search directed through Amazon, not having a brand represented can be a serious impediment to growth and conversion. Many customers, who intend to purchase in a brick and mortar environment still look to Amazon Ratings & Reviews before finalizing a purchase. If a brand is not represented or the reviews are sub-par, the customer can easily be deflected to another, higher rated product.

One negative by-product of the open marketplace concept is the proliferation of counterfeits and Intellectual Property (patent, trademark and copyright) infringement). Amazon’s ease-of-entry into its markets has allowed Sellers to enter the market with counterfeits and IP infringing products as a very high and almost uncontrollable rate. Over the past few years, Amazon has taken major steps to help “police” listings and protect the customer from products that are not legitimate or falsely put themselves forth as a particular brand or trademarked product. Brand Registry allows Sellers and Vendors to register their brands in order to have a more seamless way to protect against IP Infringement and counterfeits. Amazon has invested heavily in this area and the Brand Registry functionality and support continues to develop on a consistent basis.

Amazon has also recently stepped up its requirements and expectations regarding consumer-friendly packaging. For many years, FFP (Frustration Free Packaging) and SIOC (Ships In Own Container) were “nice-to-haves” and certainly helped reduce breakage, increase conversion and lower Amazon’s operational costs by allowing them to be able to apply a label to a product package and ship it. We are now starting to see, that in certain categories, Amazon is requiring SIOC packaging and has deadlines and penalties for non-compliance. FFP is not only a standard that requires the customer to be able to unpack the product within a specific limited time-frame but also requires that the packaging be 100% recyclable and eco-friendly.

Working backwards from the customer also means that Amazon is reactive to customer glance-views and purchases and, for the most part, is algorithm driven in it demand forecasting and ordering. Amazon needs recognized demand before it will, in most cases, purchase inventory. If there are no external factors, i.e. competitive retailers driving visibility, relevancy and demand, it is up to the Vendor/Seller to create that relevancy and demand though Amazon’s onsite marketing tools as well as using the Amazon Advertising Platform to attract external traffic to you brand pages and specific products. Think of Amazon as a giant mall in which Vendors & Sellers “rent” stores and then it is up to them to drive traffic into their store, or listed products, and customers to make a purchase.

What does this mean to you, the Vendor or Seller? If you look at the Amazon philosophy of always starting with the customer, you realize that everything you do, from direct-to-consumer safe packaging (FFP & SIOC) to Ratings & Reviews to in-stock availability, is critical to your success on Amazon. You need to be there in order to protect your brand and offer the best customer experience possible with those interacting and purchasing your products. You need the dialogue with the customer and you need to get their attention through your own sponsored marketing efforts. You need to “Start with the customer and work backwards!”.

*Source: Amazon Disruption Symposium Where so Far? Where to Next? Who is Safe?, Morgan Stanley, September 18, 2017