D2C Marketing’s Amazon Dilemma

12 May,2022

 

 

By Ashoke Agarrwal

 

Ashoke AgarrwalOver the past two pandemic-infected years, e-commerce in India and worldwide has flourished.

Parallelly, the market is in an increasing set of categories – packaged foods, personal care, fashion, electronics etc. – flooded with Direct-To-Consumer (D2C) brands.

Contract manufacturing and an increasingly mature last-mile logistics ecosystem are the two pillars that enable the D2C revolution.

A third dimension keeps most D2C entrepreneurs awake at night in the form of a Hamletian question -“To Amazon or Not To Amazon?”

For an established brand with widespread awareness, a loyal consumer base and a solid traditional distribution, Amazon is just one more channel.

However, when it comes to a new brand in a competitive market, whether or not to place their product with a big-box e-tailer like Amazon is a critical and fraught question.

Given the increasing relevance of e-commerce in most categories, digital marketing and e-commerce offer the lowest cost go-to-market route for a new or small business.

The question that most new or small consumer businesses and brands would therefore face is whether to focus exclusively on building and promoting their exclusive e-commerce platform. Alternatively, have their product available both on their exclusive e-commerce platform and with the relevant big-box e-tailer – the generalists like Amazon and the category specialists.

The pros of being on a big box platform are immediate reach and visibility.

The cons are data asymmetry and low brand engagement.

The big-box e-tailer has all the data on consumer interest and purchases in the category, and the brand has none.

Such a situation gives the big-box e-tailer an advantage if and when the e-tailer decides to launch its private label brand. AmazonBasics is a prime example of a data-driven private label strategy.

However, in cases when most of the competition is already selling on the platform, the data issue is moot.

As for brand engagement, on Amazon, the dominant brand is Amazon. Especially when to consumer searches for a category and is faced with row after row of choices. In such a case, the product brand becomes almost a commodity.

Brand engagement is less of an issue when a consumer specifies a brand in her search.

That, however, is likely to happen only when the brand is already an established brand.

So how does a newcomer brand decide on the “To Amazon Or Not To Amazon” question?

To my mind, the answer hinges, as it does with most questions in life, on a complex set of interacting factors.

Some of the factors at play would be the stage in the product lifecycle that the category is, the price and consumer segments the brand is addressing, the competitive set and strategy, the overall distribution scenario and channel shares.

Even after taking all relevant factors into account, the answer to the question might be different from different points-of-view

A recent HBR case study titled “Should a Direct-to-Consumer Company Start Selling on Amazon” provides a lucid example.

It is about PedalSpark a successful direct-to-consumer seller on the company’s e-commerce platform of $4000 luxury e-bikes.

PedalSpark planned to launch a cheaper, entry-level model at around the $900 mark.

The marketing and sales team had differing opinions on whether PedalSpark should put this cheaper model up for sale on the Amazon platform besides their exclusive platform.

The case study outlines the different arguments.

And as in all HBR case studies, two experts offer their opinion. And viola, the two offer diametrically different but equally convincing answers!

Expert One advocates that not only should PedalSpark put the cheaper $900 model on Amazon, but it should also consider putting the $4000 model on Amazon. The extra reach that Amazon offers, according to this expert, overrides any negatives.

On the other hand, Expert Two suggests that PedalSpark should focus on building the brand. And consider launching the brand on Amazon once the brand strength reaches a level where it can be sure that a substantial number of potential buyers on Amazon would search for “PedalSpark e-bikes” instead of just “e-bikes”.

The HBR case study is available at around $10.

While “To Amazon Or Not To Amazon” is a sticky question, the question of whether or not to invest in reading the entire case study is not.

Just do it!

 

PS: I published a version of this article under the title “To Amazon Or Not To Amazon” on my blog on March 11th 2019.

 

 

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