In a move called out as “abrupt” or “a rude surprise,” Amazon recently stopped buying from many of its smaller 1P (first-party) wholesalers*. Whether it was an attempt to eliminate counterfeiters or a move away from being a buyer, seller and owner of inventory, Amazon delivered a clear message to brands: you will only thrive when you diversify your channels.
So how do you recoup lost cash flow with this news? By evolving your brand into something new — and hopefully even more successful than what it was before. Consider the questions below in order to rethink who your customers are, how best to serve them and how to anticipate the ripple effects of Amazon’s changes.
Who Is Your New Customer?
The first thing to remember is that Amazon is, in its purest form, a platform that fulfills demand in the market. The demand for your product is still there — but to meet the demand, your product needs to be fulfilled by other sellers. Who will those sellers be?
You have a couple of choices:
Trusted authorized retailers are vetted, familiar brands who will resell your product. With credibility and trust baked in, these retailers can fill the void with bulk orders. They might, however, not be adding much value to your brands. More than a few simply sell them on Amazon without the branding and media needed to really amp up sales.
Consumers are the ones who take the product home to use. Marketing and selling products directly to consumers, however, is quite different from the bulk sales that 1P sellers are used to. Yet consumers offer a new opportunity for brands to earn trust, customer loyalty and more money, by taking the 3P middleman out of the equation. Expect a learning curve with some adjustments, and a very worthwhile outcome.
Retool The Customer Journey
Depending on who your new buyer is, the customer journey changes. From advertising to inventory management, supply chain to taxation, there are various aspects to consider. Here are a few of the most important ones:
- What makes your brand stand out?
Often, it’s too easy to just perform the basics, but as Amazon has shown, you’re never far away from being commoditized — or ignored in favor of some other brand. If there’s nothing differentiating you from your competitors, the price will be the tiebreaker. Instead figure out how to broadcast what is unique and compelling about your brand, then reach out and home in on your target demographic.
- Is your inventory healthy?
Due to the Amazon purge, your volume of orders suddenly changed. When you diversify into direct-to-consumer sales, the next step is to proactively assess inventory to maximize cash and avoid unpleasant surprises.
What is your present and projected future demand for each product? Do you have any unsellable goods in stock? Avoiding stockout — running out of stock — and overstock are both crucial to keeping your business healthy during this time of transition. Stockout loses sales and customers, while overstock ties up capital in products that are costly to hold. Ensuring the health of your inventory is a critical step towards ongoing profitability.
- Is your supply chain optimized?
Each sales model has its own optimal supply chain. If your 1P agreement with Amazon fizzled in the purge, and your brand needs to pivot, it’s time to reexamine your supply chain.
First, do a Prime check. Selling on Prime gives you automatic access to an already existing customer base — using Fulfillment by Amazon. The dizzying arrays of fees (revamped earlier this year) and subscription pricing can lead to accounting confusion for most brands — so be sure you’re up-to-date and have your books prepared.
If you’re pivoting to selling directly to customers, audit your supply chain costs. While third-party retailers fulfilled this when you were a 1P seller, direct-to-consumer supply chains are more fickle, due to demand surges. Seek the lowest possible costs in your supply chain to ensure that inventory is always in stock.
- Are you protected against compliance issues?
If you wish to sell direct to consumers, sales tax collection becomes a much bigger issue. States are coming after Amazon sellers who fail to collect and remit tax. If slapped with a tax bill, you are faced with the expensive, complicated process of recouping records and lost payments. Be prepared for this eventuality — or seek someone who can help.
Evolve And Thrive
The Amazon purge, while dramatic, isn’t a death sentence. Rather, it is a call to adapt. Thinking through your 1P and 3P strategies, and preparing for the ripple effects of change, will line you up for success.
As Jeff Bezos said, “you need to be constantly figuring out who are your new customers and what are you doing to stay forever young.” What happens on Amazon, happens to Amazon sellers. Are you ready to take the right steps to stay in the game?
*After ensuing panic, Amazon temporarily reinstated its purchases for many accounts for another 60 days.
Ethan McAfee is the founder and president of Amify, an Amazon strategy partner that delivers a specialized suite of services to maximize brand exposure. Previously he was the Director of Research at Ramsey Asset Management and an Associate Equity Investment Analyst at T. Rowe Price. McAfee has a Masters from the Paul H. Nitze School of Advanced International Studies (SAIS) at John Hopkins University.