The Amazon 5/50 Trap
Getting 5% of the revenue for 50% of the issues
The question is familiar to all US brands: “Why I am getting so many issues from such a small part of my business?”
In spite of its tremendous growth, Amazon sales are not the way to make a living for most US companies.
Still, the problems arising from the most successful e-commerce platform are often overwhelming.
In this article, we are going to explain why that happens and why every brand should take care of it, now.
Amazon, the rise of the giant
Amazon growth looks astonishing!
In 2010, its share of the US online retail market was 20%, but it has stepped up since then. From 2018, half of the sales conducted online passes through Amazon.
In the meantime, US online sales never stopped to get a bigger slice of the total retail sales.
E-commerce year-on-year growth has been 10% higher than total retail market expansion for more than 10 years. As a result, the e-commerce part of the retail market has more than doubled. In 2010, less than 5% of the retail value was online. In 2018, e-commerce counts for more than 10% of US total retail.
Getting a larger part of a growing slice has had a fantastic effect for Amazon. Today, the retail revenue of the e-commerce giant has reached the remarkable figure of more than a quarter trillion dollars.
Amazon’s 2018 US retail revenue was greater than a quarter trillion dollars.
Online sales get a bigger slice of total retail, year after year...
Ecommerce reached 10% of US total retail sales during 2018
Source: Retail Indicators Branch, U.S. Census Bureau - Last Revised: May 17, 2019
...and Amazon is getting an even bigger part of the slice!
Amazon has gone from 20% to 50% of US Ecommerce market share
Source: Euromonitor International - Market share for retail selling price, excluding sales tax.
Amazon is still 5% of total retail
Amazon today enjoys a dominant position in the US e-commerce market. Its first follower, eBay, is at 6.6% of market share, well behind. The combined revenue of its first nine competitors does not reach half of Amazon sales. And Amazon is not only retail! It also owns 34 percent of the world’s cloud-computing capacity. Its logistic network is challenging industry leaders such as UPS, DHL and FedEx.
All this is raising concerns among analysts. Some of them arriving at saying that Amazon’s strategic goal is to become the fabric of the market, more than a player in it.
Yet, for the average US manufacturer, Amazon is not worth more than 5% of its total business. It is simple math: 50% of 10% is 5%. Amazon retail sales are 5% of total retail! Sure, that is a big number, a huge one, but it is not the replacement of all the retail sales with online ones.
That means that most of the people have still to manage their traditional channels. The sales departments cannot depend only on Amazon to reach their goals.
Here is where the real danger hides!
Exponential growth can lead to dramatic market changes in a few years. Even so, it will take some time for analysts’ fears to materialize. The point is not what will happen, but what is already here. More than half of online product searches happens on Amazon!
Amazon sales are still 5% of Total Retail, but 50% of online product searches start on Amazon!
Top 10 US companies based on % of e-commerce Sales
US retail e-commerce sales in 2018 topped $525 billion. The top 10 companies' sales share represented 70.1% of total retail e-commerce in 2018. Amazon held the largest share of sales among the companies with 49.1%.
Source: eMarketer, July 2018
More than half of US shoppers start their product search on Amazon
The news spread on the web in 2018 supported by various researches and analyses. Amazon surpassed Google for product searches.
Even more important, shoppers also search online even if they then buy in stores. Most of them starting on Amazon.
Such a behavioural shift is of paramount importance to brands. The outcome is direct and simple. Amazon product presentation and pricing play a major role also on traditional channels.
Consumers also search for products on Amazon when they plan to buy in traditional bricks and mortar stores. Brand and product positioning on Amazon is more important today than on Google.
That is the source of so many issues for brands.
Indeed, the lack of a well-defined Amazon strategy often leads to terrible results:
Poor product presentation;
Lack of visibility;
Take care of your Amazon presence
A brand can avoid to believe in its Amazon marketplace presence. Even so, that presence will influence its business.
The break of a pricing policy in a brick and mortar store is annoying. Constant MAP infringements on Amazon are devastating.
Traditional and even Internet ads can be useless if people search products on Amazon. When they do not find your products among the first, all your efforts vanish.
"We want to mitigate our Amazon presence" is a sentence we hear from brands and it is wishful thinking.
Renouncing to Amazon, today, means losing the most important channel to reach customers.
Taking control of your own products on Amazon can be a long journey, but it is not an impossible one.
Amazon has 49.1% of all online retail spend in the US, but that is 5% of all retail sales.
More than half of US Internet users start product searches on Amazon compared with 34.6% who went to Google first.
Consumers also search products on Amazon when they plan to buy in traditional brick and mortar shops.
Brand and product positioning on Amazon is more important today than on Google.
While it can be limited in revenue, the Amazon channel is extremely relevant for marketing.