The consumer brands market is changing, and it’s no surprise that Amazon is connecting with consumer packaged goods (CPG) manufacturers in an effort to jump on the revolution. While brands such as Proctor & Gamble have already sought to drive sales through subscription programs like Tide Wash Club and Unilever jumping on the bandwagon as well with Dollar Shave Club, CPG brands are looking to Amazon as a window to bypass retailers and sell directly to consumers. The way Amazon sees it,
supply chains offering direct-to-consumer business can improve the overall customer experience and global efficiency.
So how does a CPG brand make Amazon work for them? The following are a few ways that companies can benefit from an Amazon strategy.
While the concept may still be hard to grasp, particularly for those brands who, up to this point have seen success in brick-and-mortar retail stores, the truth is, about half of all growth in the US market will be from online sales. CPG brands should plan that in the next five years 1% -2% retail saturation will most likely expand to 5%, but could easily escalate to 10% or more depending on geography and products. The data is clear, CPG brands can no longer depend on the same tactics they’ve used for decades. Now, they need to consider what it takes to win in digital during this critical period of overall growth. An effective digital strategy includes addressing Amazon, the biggest US online store.
Amazon is clearly different. With their ambitious business model, advertising, and interaction with companies and customers, they depart from the typical brick-and-mortar mindset that so many CPG companies are familiar. In essence, Amazon’s goal is different, it wants to be the go-to destination for consumers for everything, and in turn, growing their share of the household budget. Because of this, Amazon typically looks at their success based on the perspective of total household spending, rather than just one particular product. This is very different from what CPG companies are used to as they generally don’t look at things from that perspective nor do they operate on those terms.
The Amazon business model is different as well. Amazon is constantly trying new things, testing new models and completely unafraid to fail. Most CPG brands are not as flexible and are much more cautious in their endeavors.
So, in order for CPG brands to succeed, they need to keep in mind Amazon’s overall goal: to gain the greatest share of household spending. This means, evolving to adopt Amazon-optimized product designs, minimizing negative returns, actively managing inventory, and adapting supply chains to avoid being out of stock, and so much more. Those companies that evolve with the Amazon revolution and invest time and resources to succeed, most likely will. Those that balk at the extra work and refuse to invest in the channel will easily be left in the dust by the competition.
Beyond adjusting their system to send a bulk of their products to the Amazon fulfillment warehouses, CPG companies need to re-think their marketing strategies for Amazon, too.
For many companies, this means creating different pack sizes or slightly different volume options, which can make it harder to make direct comparisons. Offering unique packaging, dropping prices slightly, and managing overall channel conflict – including pricing – are all part of successful marketing tactics that CPG brands can utilize for Amazon success. Additionally, brands can work to become a preferred partner, by building dedicated vendor relationship. Premium partners are at the top tier of Amazon partnerships and are typically large manufacturers marketing national or even global brands. CPG brands wishing to further gain credibility with Amazon should participate in Prime Now, AmazonFresh, and other “click and collect” options. The more ambitions the CPG brand, the more intriguing it is to Amazon.
While the CPG industry is more complicated than ever, CPG brands that are willing to keep up and be present in digital channels, will be among the most successful. Making the investment to learn how to “play the game” is essential to maintain sales and grow as a brand.