BECOMING AN AMAZON VENDOR NAVIGATING THE TRADEOFFS OF 1P VS 3P

Transcription

1 BECOMING AN AMAZON VENDOR NAVIGATING THE TRADEOFFS OF 1P VS 3P February 2016

2 OUR GOAL FOR THIS SESSION Answer the two biggest questions: Is 1P right for me? How do I maximize my sales as a 1P?

3 CONTENTS 01 Quick Facts The Amazon opportunity in 30 seconds 04 The Next Level of Trade-Offs The details you need to know 02 Decision Points The most important trade-offs to make first 05 1P Strategy Crossing over and making millions 03 The Virtuous Cycle Your window into how Amazon thinks 06 Case: Edsal Virtuous cycle in practice

4 QUICK FACTS AMAZON OPPORTUNITY 4

5 Global Net Revenue (2015) $107 billion Employees 230,800 Worldwide Active Customer Accounts Unique Monthly Visitors 304 million 192 million Year-over-year Revenue Growth 20% Online User Reach in the United States 69% Source: Statista.com

6 AMAZON REVENUE HITS $107 BILLION Source: Statista.com

7 AMAZON HAS 304 MILLION ACTIVE CUSTOMERS Source: Statista.com 7

8 AMAZON IS DOMINATING GLOBALLY Source: Statista.com 8

9 DECISION POINTS 1P VS 3P TRADE OFFS 9

10 DOES 1P MAKE SENSE FOR ME? 1P is worth considering if: You are a manufacturer of a brand You have a private label brand You are a sizeable wholesale distributor You have exclusive access to products 1P doesn t make sense if: You are a retailer competing with Amazon You can t guarantee reliable supply of inventory Selling directly to Amazon clearly threatens your other channels 10

11 WHAT S MOST IMPORTANT TO YOU? Control over market pricing Overall Brand presence, impressions Customer information Logistics & Inventory Management Cash Flow 11

12 THE VIRTUOUS CYCLE JEFF BEZOS SECRET WEAPON 12

13 EVERY VENDOR MANAGER FOLLOWS THIS PLAYBOOK 13

14 THE NEXT LEVEL OF TRADE OFFS DIVING DEEP INTO THE DETAILS 14

15 1P VS 3P CONSIDERATIONS Inventory Management Brand Image Product Selection Account Analytics Customer Trust 1P FBA MFN (Seller Fulfilled) Amazon.com buys inventory from you. Amazon buys to a forecast with generally no returns You control your brand image. Your content takes priority (product descriptions, images, Darwin merges, videos, etc.) In general, Amazon.com wants to make your full selection available for customers to choose what they want - Buyers are incentivized to maximize ASIN count - Items that don't sell well elsewhere have been found to sell on Amazon.com - Customers are informed of all of the products that you have available, not just products that fit on a store's shelf You have access to Amazon Retail Analytics Basic. You can pay for additional analytics with ARA Premium. Vendor Central reporting is focused on helping you better meet Amazon's needs. They are more supply chain and sales focused, but do offer some customer insights. If your sales drop significantly or you are a callout in a weekly business review, the buyer may review your account for blips, and may contact you. "Ships and sold by Amazon.com" is a trust builder with customers Amazon stores inventory for a fee. You forecast demand. You handle your own inventory. You forecast demand. You load the content that you want. Other vendors may load content as well. You choose the products that you want to sell. Seller Central analytics are focused on helping you become a better seller. They are more comprehensive than Vendor Central regarding retail metrics. "Fulfilled by Amazon" message is better than sold by a third party Many customers prefer to buy from Amazon.com or an FBA seller. Customers see an element of risk in buying MFN. 15

16 1P VS 3P CONSIDERATIONS Service Level Control of Pricing Winning the buybox 1P FBA MFN (Seller Fulfilled) A buyer may manage your account. - Your account must be large enough - Small accounts receive few and slow responses - Vendor Central "Contact Us" is available to answer questions and resolve problems - Special programs exist for large vendors Amazon.com independently sets the prices that its charges for your products - It prefers not to comply with MAP or other pricing policies - Amazon prices based on internal and external competition, as well as algorithmic rules Amazon.com wins the buybox frequently and alters the variables that impact "winning the buybox. Amazon gets a home field advantage. - Profitability - Shipping reliability - Instock or not - Lowest cost Access to Marketing Access to big/event marketing packages. Vendors can self-service coupons. Vendors can participate in all deals, including Deals of the & Promotions Day and Lightning Deals. Cost Payment terms and COOP agreement. Terms are negotiable depending on the category. Commons terms are: Payment terms - 2%, 90, 91 Net Marketing Accrual 10% Freight Allowance 2% Damage Allowance 2% VIRs You manage all your sales - Seller Central is generally thought of as providing better service than Vendor Central "Contact Us" staff - Category Merchant Managers do exist within Amazon, but are difficult to access. Will usually only contact you when a severe problem occurs that negatively impacts Amazon. You control your prices. You control your pricing and can assess how Amazon.com is "winning the buybox. FBA gets an advantage over MFN. Only select sellers can participate in Amazon marketing packages and deals. Amazon referral fees vary by category, between 8% and 45% of the sale. FBA has an additional fee schedule. 16

17 1P VS 3P CONSIDERATIONS 1P FBA MFN (Seller Fulfilled) Data on customers Amazon.com doesn't share customer data with you You know who your customers are: names, addresses, phone numbers Chargebacks Amazon is frequently adding new chargebacks. Chargebacks are poorly understand and commonly wrong. Support from Amazon.com to fix issues is weak and slow. Some chargebacks. Avoids Retail chargebacks Rich Media Much easier to include product videos and pdfs. A+ detail pages are available for a fee. Limited ability to add rich media content Multi-channel fulfillment Not applicable. Inventory is available for Amazon Retail only You can support sales from any store or location with the inventory that you have stored in Amazon Fulfillment Centers. 17

18 1P STRATEGY HOW TO GET BIG WITH AMAZON RETAIL 18

19 THE VENDOR VIRTUOUS CYCLE Assortment Customer Experience Relationship Management Amazon Growth Traffic Optimization 19

20 Revenue CROSSING THE CHASM Start-up Accelerating Crossing the Chasm Sustaining 20

21 CASE STUDY BUILDING A $10 MILLION BRAND IN 18 MONTHS 21

22 HOW EDSAL GREW TO $10 MILLION IN 18 MONTHS

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24 Edsal UR185L-BLK Black Steel Heavy Duty 5-Shelf Shelving Unit Before During After Revenue Price (Revenue) $89.99 Contra-COGS % 8% Contra-COGS $4.72 Total Revenue $94.71 Revenue Price (Revenue) $49.99 Contra-COGS % 8% Contra-COGS $4.72 Total Revenue $54.71 Actions: Customer Experience, Lower Prices, Traffic: Fixed packaging issue Fixed QA issue, reduced defects Revenue Price (Revenue) $64.95 Contra-COGS % 9% Contra-COGS $4.32 Total Revenue $69.27 Costs COGS $59.00 Inbound Shipping Cost $12.00 Outbound Shipping Cost $21.00 Variable Costs $3.50 Total Cost $96 Costs COGS $59.00 Inbound Shipping Cost $12.00 Outbound Shipping Cost $21.00 Variable Costs $3.50 Total Cost $96 Improved product detail page Lowered price , Site Placements, Retargets Lower Cost Structure: Negotiated lower COGS Full truck orders Costs COGS $48.00 Inbound Shipping Cost $4.00 Outbound Shipping Cost $8.00 Variable Costs $2.00 Total Cost $62 Net Margin ($0.79) Net Margin % -0.8% Net Margin ($40.79) Net Margin % -74.6% Increased Contra-COGS Increased payment days (30 to 60) Net Margin $7.27 Net Margin % 10.5% Units Sold per Week 8 Weekly Revenue $720 Yearly Revenue Run-rate $37,436 Yearly Profit Run-rate -$329 Units Sold per Week 350 Weekly Revenue $17,497 Yearly Revenue Run-rate $909,818 Yearly Profit Run-rate -$742,378 Inventory allocation throughout network reduced long-zone shipping Pallet builds for faster receive; Units Sold per Week 800 Weekly Revenue $51,960 Yearly Revenue Run-rate $2,701,920 Yearly Profit Run-rate $302,432 reduced variable FC costs

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26 Questions? Contact Mantaro Partners 26

27 APPENDIX 27

28 ASSORTMENT CONSIDERATIONS Amazonians in both the 1P and 3P organizations have goals around adding selection to the website. They believe that More is better! Crucial Question: When is more not better? Amazon Retail Vendor Third Party MFN FBA Heavy/Bulky Tend to be CRAP ASINs Hard to set shipping cost Usually too expensive Hazmat Liquid Fragile Limited to a small number of FC s, must ship ground Must Ship Ground Hazmat is gated to FBA Heavy (cost), subject to damage/leak during shipping (free replacements, customer complaints) Usually requires prep or specially designed packaging (cost), subject to damage (free replacements, customer complaints, bad reviews, bad seller ratings) No barcodes Barcode required Not required but preferred Barcode required Multiple Pack Sizes/Bundles Amazon requires unique ASIN for each pack size. Difficult for mfg. Opportunity for sellers to create virtual products Multi-Box Subject to high operational errors Depends on seller Might not be eligible Restricted See list of restricted products in seller central (tobacco, guns, ammo, etc.) 28

29 FULFILLMENT CONSIDERATIONS Amazon Fulfillment center types Sortable (<18 L, <14 W, <8 H and < 20lbs) Non-Sortable Specialty Clothing Jewelry Delayed Allocation (DA) Hazmat (usually a caged in area inside a non-sortable FC) Limitations of Fulfillment Centers Temperature control Humidity control Tracking serialized inventory Lot tracing 29

30 CUSTOMER EXPERIENCE CONSIDERATIONS What does Customer Experience mean to Amazon? Selection, Convenience, and Price Quickly finding what you want to buy Search Browse Helpful content Helpful reviews & FAQ Trust that you are getting a good deal Sharp prices Trust that you will receive the product when you want it In stock Multiple delivery options Trust that you will receive the product that you ordered Inventory management / proper labeling Damage free 30

31 TRAFFIC CONSIDERATIONS Ultimately, the traffic that we are concerned with is the number of times a customer views your product detail pages (aka glance views, detail page hits) What are the major drivers of traffic? Amazon organic search results On Amazon promotions On Amazon merchandising/advertising External Traffic Affiliate links, Blogs Google search results and display ads Deal sites Facebook ads Manufacturer Where to Buy Etc. 31

32 COMPETITION CONSIDERATIONS Competition on Amazon comes in two major forms: Same product being offered by multiple sellers drives competition to win the buy box: Best Price In Stock Seller Rating Amazon Profitability Similar products offered by other brands: Amazon organic search results Customer Reviews Pricing Personalization Customers Who Bought This Item Also Bought Frequently Bought together Customers Who Viewed This Item Also Viewed Sponsored Products 32

33 COST CONSIDERATIONS Cost Structure on Amazon comes in several major forms: Cost of the product itself Best Price Inbound Transportation Outbound transportation Referral Fees FBA Fees FC Handling Customer Service Customer Returns Allocations 33

34 PRICING CONSIDERATIONS How Pricing is Managed Amazon Retail Pricing Extraordinarily scalable, fast, and automated Highly market competitive Algorithm driven MAP pricing limited adherence 3P Pricing Complete control of pricing at ASIN level 34

35 RELATIONSHIP CONSIDERATIONS Working with Amazon COOP Negotiations Cost Increases MAP CRAP Commercial Terms Legal Terms Chargebacks Getting Paid Receiver Errors 35