The Amazon Dilemma

Covid19 has stressed the importance of having a well thought out omni channel eCommerce approach to retail. For most scaled brands, DTC has traditionally been off limits and Amazon has acted as a proxy. Peter Bond & Sri discuss it's reality and what it takes to embrace DTC and use Amazon as a backbone for eCommerce growth.

1. DTC keeps coming back in the CPG industry as an essential need for manufacturers. Can you bust this myth or is it a reality?

To be clear - in 2020, DTC should be non-negotiable for any CPG brand - small, startup or scaled. DTC represents the best way to engage directly with the consumer and stay connected with them to deliver quality solutions at value in a scaled omni channel fashion. The exact DTC play for each category and brand is rarely the same and we would never recommend a homogeneous play. Every product has a different value purpose to the consumer, frequency of purchase, consumption, equity, outreach, etc. As a result the DTC journey and purpose is rarely the same across brands and SKU’s.

2. How have brands been developing a D2C strategy and in what way has Amazon’s store front played into the strategy for both small and large brands?

Amazon has played a lead role for almost all established brands and manufacturers to get started in eCommerce for fast moving CPG. There are several reasons why this is the case, but few think of it as a D2C strategy or a replacement for a real DTC strategy. Amazon mirrors most scaled brands' relationship with retailers to deliver ‘truck load’ shipments leveraging an already existent scaled and optimized supply chain system that counts on purchase orders coming in frequently in large quantities for the in store business. Fundamentally, there is nothing wrong with this thinking. It is not built for long term ecommerce and digital consumer outreach. Most scaled brands do not look at DTC as an opportunity. I’m not referring to the NIke’s of the world, but it is compared to the instore business P&L which eventually mirrors amazon at least by line items vs DTC is operating as a retailer changing a P&L view completely. Hence Amazon proxies as a scaled brands’ ecommerce strategy.

3. What has been the impact on these Amazon-based D2C strategies for brands during the current pandemic? In your estimate, is the impact largely good or bad for brands?

We have to applaud Amazon for having the courage to prioritize essentials delivery with prime - expedited shipping and for stocking warehouses during the early parts of this current crisis with much needed items. The unfortunate result for those relying on Amazon primarily as the ecommerce strategy and not in an essential space was the complete slow down of ‘orders’ from them or delivery to the consumer being significantly disrupted. In these times, brands that are scaled in DTC (not necessarily $ sales, but the mix available for a direct purchase) have used the opportunity to drive home equity for themselves by being available for the consumer. The current issue is a pure one of availability and if you are engaged in DTC, you’ve got a shot. Create a culture of omni channel and all of sudden you are truly in the ecommerce business. Many of you will now take a much deeper dive into ecommerce, we encourage you all to look holistically including Amazon as a growth engine or a great start.

4. What are the top 3 things brands should do to avoid the Amazon dilemma for their “non-essential” brand?

This one is actually fairly straight forward :

1. Be holistic in your ecommerce approach as discussed in #3 above. While this is a temporary crisis and your individual amazon strategy will recover post this, think for a moment on how many new brands and SKU”s are going to be eager to enter the world of Amazon now? You are competing for in reality a fixed shelf space at their warehouse, shared slots on advertising and the all too important SEM engine - sponsored ads simply driving $ bids up. Embrace the brick & mortar omni channel environment. They are good partners with you in the physical retail world, there’s no reason to not extend that to digital. Help lead them, don’t wait for the special call.
2. Get serious about DTC. It’s never too late. Ask the question of your ecommerce team ‘do we have a DTC plan? Are we in the DTC model today? Go to the brand website and act like a consumer ~ buy a product and see how the experience is. Return it to determine how the customer service is. Think like a consumer and act like one. Share your experience and get involved. Understand how DTC intersects with your other business models and the strategic thinking of its role.if you don’t have a DTC model, be the one that asks why not. Inspire greatness and transformation. 
3. Brush up on what it takes to win in ecommerce. Great areas to start are digital content, a deep understanding of how search strategies work, how amazon 1p and 3P work, the role of ratings and reviews. In short brush up on your retailing digital savvy Ed’s and put it to work. 

5. How should brands be hedging their bets in D2C?

If you’re already in DTC congrats you have a leg up on competition. If you don’t - then get started please. The simple advise here is to think of why you need DTC. If you are a digital native brand it is your bread and butter. If not, and you are scaled through reselling retailers, DTC should not be a means to compete with them. The profit model will look nothing like the existing model. The primary reason to do this would be consumer engagement. We are not too far from the era of an in store launch requiring a strong anchor on data acquired through testing ideas with the consumer. Use DTC to test innovation, poll your consumers, test digital content, create user generated content, test pricing models, line extensions, bundles that would never make sense in store or at Amazon. DTC is non non negotiable folks. Be curious. 

6. Can brands build a D2C strategy “on the cheap” and what does it look like?

Absolutely. Being in DTC requires retail expertise. That is not a native skill set of most manufacturers. It requires a thorough understanding of packaging, palette design deconstruction, optimizing packing for Usps and ups, customer service, accepting returns, dealing with hazmat transportation to a consumer and thorough mastery of SEO. For these reasons, it’s best to start with experts in this area. There are so many 3rd party logistics providers in this space who are experts and have optimized these areas. Use them. Own the marketing component yourself. That’s the best way to start this endeavor. Another choice is an end to end agency that does it all for a fee or per unit sale fee. 

7. How do you prioritize the needs of a brand’s DTC website versus all other eretail opportunities? I don’t see it as a DTC website, it’s your brands flagship gateway to engage with a consumer. While search is largely owned by Amazon, google still has a role. Also your websites provide unlimited shelf space to communicate messages to your consumers vs retail platforms which use templated approaches and limit messaging significantly. DTC is merely an end goal, you need to remember that the focus is outreach and engagement. Do not compare your own brand sites with retailer ecosystems. This is your consumer playground so play. Absolutely prioritize these as your website. The retail ones are complying to templates, they should not be that hard or time consuming. If they are, you are probably missing the right talent or lacking cross functional collaboration. 

8. What are the winning elements of a DTC website? What do you see as critical technologies for the next 3-5 years? 

User experience is the single most important priority of your website. Again think brand engagement not DTC only. Education and knowledge building should be another one. SEO optimization through clever use of keywords, number of clicks to access a SKU page, number of clicks to purchase a product, the seamlessness of the checkout process, the clicks from landing on the website to a transaction - all of these determine odds of success. Quality of engaging digital content, clarity of images, educational videos and various ways of how a consumer can pay for the product with choices are also key anchors. The single technology that is altering ecommerce in general and as such DTC is Artificial intelligence followed by robotics. AI touches the consumer is a tool to assist in converting a consumer from ‘interested’ to ‘buying’. Robotics of course is mostly supply chain - from packaging, wrapping, shipping and fulfilling.

9. Why would a consumer go to a single brand DTC website instead of going to a multi-brand, multi-category retail website?

Any established well recognized brand of scale should have its own website to preserve its identity and equity and engaged audience it already has. Consumers still look for solutions and brands and not SKU level yet, unless they are ready to purchase lower in the funnel. They go to Amazon at that point or a store anyways. The goal is to not confuse the consumer. If you are part of an organization that owns several brands though, you probably want to leverage the equity and presence of your brand to drive to other brands too - I think of it as a responsibility you have to your organization. Through clever use of ‘did you know’, ‘also look at’, bundles that drive solutions or value, one should be more cross category than single brand ecommerce only. Not however advocating to combine them all to one site - it will confuse the consumer and destroy brand equity.

10. How are consumers reacting to the Amazon Essential Items policy. Do you think brand trust will be damaged or is the issue ultimately owned by Amazon?

This is more emotional than analytic oriented. I think if you’re an Amazon loyalist - you are there in the first place because of convenience and value and have probably long abandoned physical shopping for those products. If you can’t get them, emotionally I can totally see some level of frustration. Amazon will rebound right back - the value and convenience over time far triumphs short term frustration. Amazon will not lose equity over this. No chance.

Our intent is not to forecast the future or suggest there's only one way. Our ambition is to see the CPG industry progress in delivering maximum value for the consumer via quality products widely available to all.