Amazon: Short-Term Ally, Long-Term Foe?

Trilok Hebbur, CEO of Polymathic Guru, offers a guide to how companies should use Amazon to best effect.

The world of advertising has changed drastically in the last decade. For the first time ever, according to a recent eMarketer report, digital ad spending will exceed traditional spending. More importantly, the combined revenue share of Google and Facebook will drop for the first time, with most of this being taken by Amazon.

As an eCcommerce company, you simply cannot ignore Amazon. The tech juggernaut’s reach is all-encompassing with an estimated 101m Prime members spending a whopping $1,500 (£1,142) each on retail per year.

A common question I get from eCommerce business owners is whether they should treat Amazon as their ally or competitor. My answer usually surprises them, especially those just getting started: Amazon is your ally in the short term when you are just starting out, but not in the long term, especially if you are trying to build a big brand.

Heres why understanding the distinction is critical if you want to give your business a chance to thrive.

Why Amazon is your ally in the short-term
When you are starting out, no one is aware of your brand or products. The biggest challenge is getting in front of your customers. So let’s begin by exploring some of the current trends amongst the available advertising channels and why Amazon is your best bet in your business’ short-term plans.

Organic reach in social media has been diminishing for years
Social media sites are being oversaturated with ad content. Take Facebook for instance. Organic reach in the news feed is more competitive than ever, and thus it is harder to get your content to the intended targets. As all social networks mainly depend on ads for monetization, the same trend seen with Facebook is to be expected for other social networks.

Facebook advertising is getting more expensive year over year
Not only is it harder than ever to reach your intended targets through Facebook ads, its also more expensive than ever. Adspace found that January and February 2018 had the highest year-on-year jump in ad prices for Facebook in the past 14 months. This trend also applies to Google Ads (Search, Display, Google Shopping, etc) and it’s hard to see this trend changing in the coming years.

Consumers are using Amazon more than Google for product searches 
According to a Jumpshot report released last year, Amazon now dominates Google when it comes to product searches, rising to a 54 per cent share between 2015 and 2018. In some categories, Amazon holds more than an 80 per cent grip of the market, making it the most viable option for those trying to get their product out to the public. The number of Prime memberships is only increasing, with each member incentivized to use Amazon due to its free shipping. It makes sense to take advantage of the benefits of Prime for your early business.

Organic Search Engine Optimization (SEO) takes time
You cannot expect to see rapid results from SEO. In fact, it’s estimated that it takes from four to six months in order to see the desired results. For new businesses, additional options are required in order to gain maximum visibility for your product.

If you consider all of these factors, Amazon seems like the best option. People are going more and more to Amazon for their shopping needs and it makes a lot more sense to work along with Amazon and treat it like an ally when just starting.

Why Amazon is not in your best interests in the long-term
You just launched your business, you listed your products on Amazon and started getting good sales. Although Amazon has been helpful so far, it is essential to start separating from Amazon in order to achieve long-term success. Why?

Amazon is getting crowded
Every new eCommerce business owner is flocking to Amazon for the reasons discussed above. There are now over 2m third party sellers on the site. Brands are fighting for attention on Amazon and Amazon is cashing in on this opportunity in the form of ads. Its now more expensive than ever to promote your product on Amazon.

Amazon’s private label business is growing
On top of the growing number of third-party competitors, Amazon has started to expand products through their private labels. In total, Amazon has more than 6,825 products across more than 100 private labels.

Amazon is aggressively expanding these products, especially those that are associated with Amazon Alexa. Also, many of these products are priced lower than similar products, and are typically promoted ahead of third-party products. Adding further insult to injury, Amazon even suggests these products over other products to users when they are about to purchase a similar product.

Amazon controls the game
At the end of the day, Amazon runs the show. It can increase the FBA fees (storage and fulfilment fee), referral fees, or anything else at a whim. Without knowing what the rules are going to be, its hard for an eCommerce company to truly feel comfortable. Amazon also holds the ability to suspend your account without any reasonable warning.

Clearly, the odds are stacked against you in the long term if you solely depend on Amazon. And I didn’t even discuss the problem with knockoffs, where Chinese goods flooding the marketplace are undercutting many eCommerce products.

Growing your brand
A good strategy is to leverage Amazon to gain customers in the early stages when you have just launched your brand. Once you understand your customers well, you will be able to target them more effectively.

You should also grow organic traffic through SEO. Investing resources in the early stages towards SEO is key. Although it takes a while to see results, when they do come through it can be game-changing.

The biggest challenge is going to be increasing your customer lifetime value (CLTV). It’s much easier to sell to your existing customers than to new customers. There are resources that can give you an immediate boost to your CLTV strategy. But always remember that there will be more focused steps an ecommerce business can take, depending on their specific sector and target consumer.

Lastly, as your brand grows, you should also leverage word of mouth more effectively. Nothing beats referrals. In fact, referrals reflect your brand’s strength.

To conclude, diversify across channels. Never depend on one channel: it’s too risky. Understand your customers well. Build your brand for long term success. Use Amazon, but understand that it can only take your business so far.