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INTERVIEW: AMAZON INSIGHT FROM CHAD ANNIS OF MARKET DEFENSE

October 26, 2017
October 26, 2017

Amazon has become the universal scapegoat for the current challenges in the retail landscape—almost 60% of retailers now consider Amazon at least something of a competitor. As a brand, if you don’t develop an Amazon strategy, someone else will do it for you. There are simply too many eyeballs to convert to sales. So if we agree that a brand needs to have an Amazon strategy, the next question is where do you start, how do you control diversion, and what role should it play in your overarching distribution strategy? We reached out to Amazon expert Chad Annis to provide some context, some cold hard facts and very valuable insight.

With the growth of Amazon in the beauty category, there is a whole service industry that has cropped up around the platform. How did you get into the Amazon business?

In 2014/2015, I bought a thriving online business with some partners. It was a nice-sized Prestige Beauty reseller. It was purchased with the intent to grow it through expanding brand partnerships via more face-to-face interactions. The original owner did a terrific job marketing but did very little traveling or relationship building, and we felt we could leverage some existing credibility with well-known brand partners into even larger partnerships in different beauty categories. We were also highly intrigued by the early changes from traditional brick-and-mortar focus to this booming online retail phenomenon, and wanted a business that could scale faster than real estate–based retail plays. Our first trip was to the Vegas Cosmoprof show after closing on the business. It was exciting with several brands eager to meet us and discuss stronger relationships. However, on the last day of the show I noticed a handful of folks in white polos handing out cards to anyone who would take one saying “Go direct with us” … it was Amazon! We did a significant portion of our online business with Amazon and I remember thinking, “That’s odd Amazon isn’t set up to do what we do well.” That naiveté turned out to be a hugely pivotal moment in our professional lives. Within 90 days we had lost a lot of our business to Amazon and were reeling from how quickly our investment (7 figures) had gone from humming along to plummeting overnight … due in part to our biggest online channel turning from partner to aggressive competitor.

I considered admitting defeat. Do I lick my wounds and go quietly into the sunset? Or do I try to fight? If I fight … how? I mean, honestly this wasn’t just another everyday dot-com doing a better job at brand relationships or marketing—this was flippin’ Amazon!

Call it “nothing to lose” … hubris … or even grand idiocy … I decided to fight. I ended my relationship with the website and opened a new business names Market Defense, who is solely devoted to helping brands navigate Amazon. Through a series of determined (and expensive) lessons over the next 6 months, I figured out where Amazon is most vulnerable and developed a set of solutions which nearly every brand we meet tells us they need and want. Market Defense now manages several well-known brand’s Amazon presence from soup to nuts. In doing so, we give back not only control of the brand’s online equity but also a nice chunk of margin as well! We have several brands who have renewed our contracts and tell us they wouldn’t dream of doing on their own what we do for them … it’s simply too much to manage. One day Amazon may figure out how to be more brand friendly, but that day is a long way off given how Amazon continues to behave even with large brands they actively woo.

As an industry I think we’ve stuck our heads in the sand on Amazon, but they are simply too big to ignore and they have their sites on beauty. Why do brands need to have an Amazon strategy?

Let’s establish some facts first and see if it will help answer this question:

  • FACT – Amazon owns 56% of ALL online product searches and 40% of ALL searches. Think about that … more than HALF of all searches wherein someone is intending to make a purchase now starts in Amazon’s search box.
  • FACT – 1 billion dollars … per month. The amount of money Amazon spends on online advertising each and every month. As much as the next 14 largest online budgets combined! That includes Walmart, Best Buy, eBay … let alone Macy’s, Sephora, Ulta, Nordstroms et al.
  • FACT – more than 1/3 (38%) of all beauty products purchased online are now bought through Amazon. Brick-and-mortar retail is still where people go to discover new beauty products, thus getting that first sale. Amazon (online in general) is where they go in ever-growing numbers to replenish what they already like. People are more brand loyal than store loyal, thus making Amazon’s simple, easy, and quick shopping experience where a lot of us go to get the things we want.
  • FACT – Amazon sources product any way they can. They have regularly been caught red-handed with grey and highly suspiciously obtained product. We have even caught them buying counterfeit goods knocked off from our own brand partners. They simply do not care about a brand’s reputation. That means the brand itself must develop a strategy that puts it’s own interests first.
  • FACT – Your competitors are already on Amazon and therefore likely ahead of you in experience and marketing sophistication, learning every day how to woo your customers. So being frozen or stubborn (“We don’t need to have an Amazon strategy.”) turns out the be the WORST kind of Amazon strategy … i.e., abdicating your customers on the largest and fastest-growing channel in the world!

Do you see Amazon as a platform that needs to be “managed” or is it an opportunity that many beauty brands are missing?

Absolutely Amazon must be actively managed … and daily. And yes, many beauty brands are missing a huge opportunity to proactively create a stellar presence on Amazon. Even if online sales aren’t necessarily a brand’s main focus, brand image and visibility fall into the “perception is reality” axiom. We hear story after story where a brand gets some nice press or visibility and earns an invitation to present to a large department store only to have the buyer show up to the meeting with notes on the brand’s Amazon presence. Questions ensue about why the product reviews are poor or average, why so many resellers are discounted and so on. Yet brands with a well-managed Amazon presence enjoy credibility and momentum that other brands frozen by fear or simply how to get things fixed don’t. Like it or not, we are hearing more and more Amazon has become a proxy for how well (or poorly) a brand is managed and perceived and those perceptions have monumental impact on future opportunities.

The elephant in the room when it comes to Amazon is diversion and controlling pricing, especially for prestige and luxury brands. Both are daunting tasks for indie brands—what’s the solution?

The best solution is to partner with a proven group of experts like Market Defense. We get a brand’s Amazon presence cleaned up quickly, realigned with it’s core messaging and desired image, resulting in high visibility and growth. There is no substitute for experience and knowledge. We have already made all the mistakes and learned where to invest, not to mention we are at scale and highly efficient. These top online channels are too unforgiving and change too quickly for a brand to have any chance at a return on investment that’s positive. We know what works and what doesn’t—what is an expensive route and what methods are cheap and effective. For instance, one of the most common mistakes we see made (other than doing nothing) is a brand believing their existing e-commerce person/team can manage Amazon alone. In our experience it is a rare occurrence and usually only well done by a brand who pays C-level compensation to a highly experienced online professional who is willing to not only do the tedious day-after-day “whack-a-mole” effort, but is also given a substantial budget for software, legal and consulting. Most brands don’t have the free cash to tackle it effectively. We not only have best-in-class experts and software but long-standing relationships with the two best legal teams in the space. Our team has a 3-year head start focused exclusively on providing proven world-class solutions for the top online channels in North America, Europe, and Asia. Our program gets immediate results (60-90 days) and is so cost effective it actually drops more margin into our partner’s bottom lines within just a few weeks. We are not saying that a brand can’t do some of this on their own, of course they can. We are saying they can’t do ALL that is required in a lightning-quick, cost-effective manner. It’s simply not the core competency of most brands.

There are “urban myths” of one-off products or Amazon-only brands making millions. We all know things are never as easy as they appear. How difficult is it to build business as a beauty brand with Amazon as your only outlet?

With the next greatest spatula or bamboo pillow (I actually know the pillow guys), its about 1/10th of 1% who hit it big (the original bamboo pillow does $400K/mo and is Amazon centric). With a beauty product? Nigh impossible. Remember Market Defense is predominantly Prestige Beauty focused. We know this category extremely well and I have never seen a successful beauty brand whose Amazon sales are more than 30% of total sales. Maybe they exist but if so, they are likely a cheaper knock-off of an original product (think beautyblender sponge … incidentally great clients of ours) versus an original, innovative beauty product. Beauty is a category that will always be brick-and-mortar focused. So building a beauty brand with Amazon as the core marketing focus isn’t going to work.

How does Amazon factor into the overarching retail landscape? What should their role be in a brand’s distribution plan?

This is a very good question and one we hardly ever hear a brand ask until their presence on Amazon is a mess and they need help cleaning it up. Let’s start with a truism to remember: Amazon is not a place where demand is driven, Amazon is a place where demand (the brand created) is fulfilled. Distilled to its essence, Amazon is a product demand aggregator. So how do the successful brands who understand this truism behave? They proactively protect their online brand equity by making their Amazon presence a priority so their brick-and-mortar partners can thrive. Most of the brands we see have only 5-10% of their total sales on Amazon. Without managing and protecting this 5-10% of the business, all sorts of difficulties begin popping up. Discounting, poor customer experiences with unknown resellers, old or used products, etc. These are all eliminated when the brand finally comes to understand that an effective Amazon strategy makes ALL their wholesale and retail partners happier and more profitable.

What is the most common mistake brands make when it comes to Amazon?

  1. Is easily doing nothing and hoping issues go away or get better.

  2. Closely behind #1 is dealing directly with Amazon itself. It is by far the most expensive route to take but many brands don’t know they have viable alternatives and simply hold their nose and do a “deal with the devil.” Amazon’s famous for making promises of gating unauthorized resellers and eliminating discounters only to quickly break those promises and become the lead offender and discounter; it’s literally written into their Vendor Central / Vendor Express agreements allowing them to do so.

  3. Is believing the brand’s own in-house digital/Ecomm staff are capable of fixing things quickly and efficiently. There are many very capable online people, but let’s face it, most online/digital staff were hired to be “on offense” (promoting the brand) not “on defense” (dealing with constant Amazon or eBay issues). Not only will it consume a tremendous amount of time away from other very valuable brand promotion efforts, it becomes a draining, never-ending fight they are ill-equipped to deal with.

What is the biggest misconception brands have related to Amazon?

Easy… that Amazon plays fair or wants to be a good partner. We’ve all heard the stories how you can’t get a live person to talk to and emails go unanswered for days or weeks while an issue created by Amazon itself hurts the brand’s customers and ultimately the brand’s reputation. Worse yet, we have lately seen them decide on their own what is best for the brand without the brand’s consent—content changes, image tweaks, warranty language not accurate. You name it and it’s being done. Bottom line—Amazon MUST be managed. That is what we at Market Defense have become expert at: wrestling Amazon into submission and aligning the platform to the brand’s needs.

What does it take from a marketing concept to compete on Amazon? And in your opinion what’s the most important marketing lever for beauty?

Control your content! We teach brands how to lock down their IP and brand image. Without setting up their brand presence properly on Amazon, a brand leaves themselves open to the inevitable wolves who know every trick of the trade to take over everything from UPC codes to brand content and pricing, and act like they are the brand. Once content is locked down, search terms are the key to converting your customers on your products. We have very successful methods of figuring out what terms are best to own including often overlooked competitor’s terms. There are other areas that can be effective during holiday or promotional events but need to be highly targeted in order to have an ROI that makes sense. Otherwise, impression share is way cheaper and more effective off Amazon.

Should retailers with strong online businesses like Sephora and Ulta be concerned with Amazon’s beauty strategy and potential partnership with Violet Grey?

No. True Prestige or Luxury brands will not see much benefit from Violet Grey trying to partner with Amazon. If they do, I predict a mass exodus of half their brands in revolt. Violet Grey may be wowed by some insane dollars being thrown around by Amazon but they are ultimately at the mercy of what the brands want to do. Amazon is still mostly mass market play (even if on the Luxury Beauty platform) and most luxury brands who aren’t already on Amazon won’t be interested. In my humble opinion, Violet Grey should stick to their knitting—they’re very good at it.

In your opinion what role does Amazon play in the current retail environment? Are they to blame for brick-and-mortar woes or are they an easy scapegoat?

Although I spend most of my time figuring out how to beat Amazon at its own game and would therefore love to blast them as the reason for the brick-and-mortar woes brands are seeing, they are not 100% to blame. It should be obvious to everyone we are in the midst of a massive paradigm shift brought about by Amazon’s intensely aggressive and very rapid innovation. The old0guard retailers who are nearly all legacy-entrenched, excuse-making elitists who refuse to embrace this change will either adapt or watch as their empires get swallowed by the next evolution in retail. Name me a retailer that is growing 24, 25, 26% every year? Amazon is—and yes at the expense of the top retailers. Those brands that get ahead of the curve and put in place a proven Amazon strategy are the ones who will enjoy a competitive advantage and create relationships that are capable of guiding them through this next step revolutionizing retail. The old saying “Adapt or Die” has never been more true.

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