Key Takeaways: Succeeding on Amazon (COVID and Beyond)
By: Aditi Dashputre
Tags: Consumer, Amazon, Venture Capital, Covid 19, Brand Strategy

It has been almost 60 days since most of the nation went into quarantine, and Amazon has been top-of-mind for consumers, brands, CEOs and investors. Last week, CircleUp Growth Partners hosted a webinar with our friends at Cartograph about succeeding on Amazon in a rapidly evolving, post-COVID world (thanks Jonathan, Chris & Ria).

Here are my key takeaways from that conversation. Get in touch via Twitter or LinkedIn.

TLDR: if you run a CPG business, you should be selling on Amazon.

It doesn’t matter how big you are or how small you are — Amazon matters. Even more so post-COVID. Selling on Amazon helps generate cash early in a brand’s lifecycle, and the channel should be profitable from Month 1. So, start selling on Amazon, and make sure each sale is contribution margin positive.

Amazon Best Sellers in Grocery & Gourmet Food as of May 18, 2020 (Image via Amazon.com)

Backing up now: what’s been going on with Amazon over the last two months?

Three really interesting things:

We’ve all heard that Amazon went bonkers in March, but what’s interesting is that most of the bump in sales was due to customers new to brands. They may have been buying a product offline, but these consumers were new to buying that product on Amazon. We haven’t yet reached the point in time at which the repurchase spike happens, so retention is the name of the game for all of these new customers. Older individuals are ordering more on Amazon — about 5% of total revenue shifted to older demographics post-COVID. It’s a whole new group of individuals that brands could and should market to online. Even for brands that have historically targeted millennials, it is worth thinking about older demographics. Amazon has stopped actively suppressing demand. Initially, Amazon prioritized essential categories. No longer. Amazon “has removed stocking limits, turned coupons on, and started accepting deals.” Some levers are still inactive like Vine which helps generate reviews via sampling & Born to Run which helps initiate purchase orders.

What Works on Amazon

Let’s get to what works on Amazon. It’s where the consumers are: 56% of product searches start on Amazon. It’s a channel that can represent up to 20–35% of topline sales for brands. It’s worth getting it right. The #1 reason that brands fail on Amazon is that they haven’t figured out the product, pricing and supply-chain that works best for Amazon.

Low Prices

Set a price at less than $10 (below $14.99 is technically the sweet spot). Note, that this does not apply to perishables — those should be priced at $30 or more to make shipping costs work.

Create 2-packs or 4-packs to get to this price point, at a mark-up if needed. Amazon consumers can bear 10–20% markup per unit. Keep in mind that in the long-term, Amazon will require price matching across retailers.

Low Weights

Gross weight of 12oz or less

Sustainable Margins

Take a margin-first approach to pricing. Calculate a fully-loaded cost, including:

Labeling/packaging

Shipping/logistics cost

Fulfillment incl. freight, pick-and-pack, pallet cost

Advertising/promo

Consider launching an Amazon-specific product to meet margin requirements

Good Reviews

Strong product reviews are very important for a brand, but it’s important that these reviews are authentic. Amazon frowns upon any review manipulation — if a brand is removed for review manipulation, it’s very difficult to get reinstated. With that in mind, here are a few above-the-board tactics:

Sign-up for Amazon’s Early Reviewer Program, which pays actual customers $1–3 to review a product they’ve already purchased

Sign-up for Amazon’s Vine program, which allows trusted reviewers to post an opinion of your product (sometimes pre-launch)

Strong Marketing Strategy

Amazon doesn’t push trial — it’s on the brand to drive consumers to purchase a product. Without a broader strategy, it’s almost impossible to get noticed. This article from Hubspot is a great resource for marketing on Amazon. Once you have a strategy, consider the following levers:

Coupons, lightning deals, search ads, sponsored product ads

Invest in Amazon, Facebook and Google ads to drive traffic to Amazon product pages

Apply for Amazon’s Born to Run program, which helps initiate purchase orders for early-stage brands

What Works on Amazon?

As always, there are always nuances to what works on Amazon. Cartograph helpfully broke-down the playbook for Amazon during the webinar. Strategies are different for what they call “Digital Native” and “Retail Native” brands. Get in touch with the Cartograph team here to discuss the nuances specific to your brand. Tell them CircleUp sent you!