In 2016, the ever-evolving Amazon ecosystem will be experiencing important changes as part of an overall shift in market trends.
Last year, we saw Amazon invest heavily in their logistics network and launch their 1-2 hour delivery service, Prime Now, which will continue to evolve in 2016. It’s important to understand these and other changes as part of a larger retail ecosystem that’s increasingly favorable to Amazon.
Keep reading to find out how you can stay ahead of the game and adapt early to make 2016 your most profitable year yet.
Growth of Ecommerce
Year after year, ecommerce is proving to be more and more of a force to be reckoned with. More importantly, about half of that growth can be attributed to Amazon as seen in the statistics above.
Growth of the Amazon Network
In 2015 and heading into 2016, Amazon continues to branch out into various industries, proving themselves to be one of the most disruptive and impactful companies of this generation. The company’s original business of reselling products online has become just one component of their business, while the overall focus is on building out an all-encompassing retail platform and ecosystem.
Former Amazon executive and author of The Amazon Way, John Rossman, quickly realized during his time at Amazon that the company is “both a retailer and a platform company that offers capabilities to others.” The driving force behind this platform, across all industries, is Amazon’s ultimate goal of a seamless customer experience.
Part of this customer experience is the quick and smooth delivery of their purchases. This is ensured by Amazon’s advanced logistics network that is known as FBA.
In 2015, we saw Amazon invest heavily in the advancement of their logistics platform. This expansion included leasing 20 Boeing 767 jets, purchasing thousands of Amazon-branded trucks, and opening more fulfillment centers across the world, now totaling 104 in North America alone.
The launch of Prime Now, Amazon’s 1-2 hour delivery service, is sure to disrupt ecommerce as we know it today. This story of a man in the UK went viral after he ordered a cell phone that arrived 26 minutes later. He admitted that it would have “taken [him] longer to drive to the nearest shop, find somewhere to park and buy the phone.”
The more perks Amazon adds to its Prime membership, the more people flock to sign up. With an estimated 50 million Prime subscribers in the US alone, the demand for items fulfilled by Amazon is higher than ever.
Rossman described Prime as “the moat that Amazon puts around its customers.” If you are Prime enabled, that gives you access to a uniquely loyal customer base that spends nearly twice as much as non-Prime customers. RBC Capital estimates that 73% of Prime customers shop twice a month or more on Amazon.
Takeaway: Use Amazon as a Negotiating Tactic
We’ve seen an increasing number of suppliers view Amazon as an asset rather than a liability. Amazon used to be looked down upon by some brands who didn’t want their goods being sold on a site that they viewed as utilitarian. However, the tides of ecommerce are starting to turn. Instead of hiding the fact that you’re selling on Amazon, try using it as a negotiation tactic instead.
Effect of Amazon Private Label Ventures on Third Party Sellers
It’s hard not to notice that Amazon is continuing to expand upon its private label ventures, so we asked Rossman about his thoughts on how this will affect third party seller growth. While he thinks that third party growth will continue to be on the rise, he asserts that “what’s obvious in the next few years is that it definitely will shift either by category, subcategory, brand, specific items… [Amazon] will shift the things it makes sense to shift into a retail business from the third party business. It’s incumbent for third party sellers to realize that’s the mentality that’s created this entire business.”
FBA Category Growth
It’s apparent that some categories are experiencing FBA growth much more rapidly. RW Baird’s quarterly Amazon Selection Survey found the most growth in the following categories:
- Home & Kitchen and Apparel categories dominate SKU growth
- Handmade is experiencing significant growth, with 119,000 SKUs
- Video Games, Toys & Games, and Grocery have experienced the fastest FBA adoption
Along with increased growth, keep in mind that you will also see more competition in these categories.
For Resellers: Consider Private Label
Rossman believes one of the biggest trends that we will continue to see in 2016 is “brands going more and more direct to customers. The OEM opportunity is becoming bigger and more compelling.”
The consumer mindset is shifting. Customers are looking to purchase a quality product for the lowest price, and big brand names are becoming less important.
The increasing popularity of private label is evident: private label merchandise accounted for 18% of money spent on all packaged goods in the US last year.
While private label has its risks, many sellers believe that they are trumped by the numerous benefits. These include:
- Higher margins ranging from 55%-65%, compared to 35%-40% margins as a reseller (before FBA fees)
- No direct competition
- Private label products are, on average, 28% less expensive than their name-brand equivalents
For Brands: Seller Central vs. Vendor Central
When selling with Amazon, brands have two options:
- Amazon Vendor Central: an invite-only platform for large brands, which allows them to sell directly to Amazon.
- Seller Central: this platform is open to both resellers and brand sellers
Here is an overview of the benefits of both of these platforms:
If ultimate control over your brand is important to you, it’s best to sell your products via Seller Central. Every business is different, so you’ll want to weigh the pros and cons to see what makes the most sense for you.
Program Changes and Action Items
Amazon FBA Fee Changes
- February 18 – Increase in Pick & Pack and Weight Handling fees for most products’ sizes and weights
- March 1 – The monthly fee for inventory storage will increase for Standard-Size and Oversize units.
You can find out more information about Amazon’s FBA fee changes here.
Labeling: Box Contents
Amazon recently launched a new pilot program in order to increase efficiency of checking items into FBA and reduce the amount of time it takes to make your products available for sale.
Labeling box contents notifies fulfillment centers of what’s inside each box, including number of items and SKU numbers.
You can add box contents to your shipment in the “Prepare Shipment” step of the shipment creation workflow.
Take Advantage of Sponsored Ads
In 2015, Amazon discontinued Product Ads and Amazon Text Ads Beta and we saw a rapid increase in the utilization of Sponsored Products. Sellers worldwide garnered more than $1.5 billion in sales in 2015 through Sponsored Products listings.
This year, we can expect that number to continue climbing as Sponsored Products campaigns become more efficient and have better keyword targeting options, including negative keywords.
You can also expect to see Amazon experimenting with ad placement to increase visibility and testing out more beta programs. If possible, try to become an early adopter of these programs to set yourself apart from the competition.
Lastly, it’s important to note that this tool is also valuable for resellers. In order to be eligible for Sponsored Products, you must also be eligible for the Buy Box and your listing must fall within the specified 30+ product categories. In order for any Sponsored Products campaign to run, sellers have to be winning the Buy Box.
Improve Search Rankings
Amazon is constantly improving their algorithm rankings in order to benefit their customers. Their new algorithm will be based on some factors that are out of seller’s control and will be more difficult to manipulate.
However, not all of these factors will be outside your influence. Here are some levers you can push when optimizing your listings for search:
FBA sellers have an edge over sellers that are Fulfilled by Merchant (FBM), as Amazon is prioritizing Prime items in search.
Optimize Your Review Strategy
Reviews will be one of the top signals for search rankings in the new algorithm. In order to benefit from this, strive to have a system in place to monitor and solicit reviews.
Administering a scalable approach to review monitoring and solicitation will allow you to gain positive reviews and drive your listing further up in search rankings.
Data Organization of Your Product Feeds
Amazon recently came out with new and improved inventory templates that allow up to 1,000 characters for keywords or search terms. In order to take advantage of this, you must upload the flat file rather than inputting those terms manually.
Here are some ways you can optimize your listing for search using this data:
- Ensure that your product upload is as complete as possible for your category.
- Utilize all columns and avoid repeating keywords. For example, if you sell in the apparel category, use the material type column to insert “100% cotton” and the import designation column to insert “Made in USA” rather than using a keyword for those terms.
- Increase efficiency by uploading parents/children at the same time.
- Ensure that your products are in the correct category to maximize searchability.
Optimize Product Images
Professional looking product images help to increase conversion rate, which helps drive your product higher in search rankings.
Follow these guidelines to ensure that your product image is optimal for conversion:
- Use high resolution JPEG, TIFF, or GIF to support a clear zoom function (1,000+ pixels X 500+ pixels, < 10,000 pixels)
- Product-only images should have a solid white background, and the first image must be silo-ed.
- Include lifestyle images to demonstrate a clear depiction of the use of your product.
- Strive for at least 6 photos on each ASIN (Amazon allows 9).
- Ensure that the child ASIN images are variable specific when applicable (pattern or color).
Optimizing all of your listings is a time consuming, but high-value project. In order to prioritize the best use of your time, focus on your most high-converting, profitable products first and then work on the rest of your listings.
Sellers that take full advantage of the network Amazon has set out for them will ultimately see the most success. Here are some important takeaways to remember:
- If you aren’t already, take advantage of FBA. Amazon’s world-class logistics network and built-in customer base will help you sell more, faster.
- Use Amazon as a negotiation tactic.
- If you are a brand, consider selling direct to consumer.
- If you are a reseller, consider private label ventures.
- Take advantage of Sponsored Ads or any upcoming beta programs in order to increase product sales.
- Improve your search ranking with FBA, data organization of your product feeds, good reviews, and high quality product images. The higher converting your product listing is, the higher you will rank in search.