An Open Letter from the Managing Director of Edge by Ascential: Boren Novakovic
Keep Calm, and Amazon On
This past week, Amazon abruptly cut off thousands of vendors, encouraging them to set up as 3rd party sellers on the Amazon Marketplace. The unexpected arrival of the emails set off a wave a panic through the industry. What was happening? How deep would the cuts go? Was this the end of vendor central for all vendors of all sizes?
The last few weeks have been tumultuous and stressful for vendors in the land of Amazon. Unless you unplugged on a sunny beach without a signal, you probably noticed Amazon abruptly cut off thousands of vendors, encouraging them to set up as 3rd party sellers on the Amazon Marketplace, only to reinstate most of them a few days later with a note encouraging utilization of Brand Registry. Plenty has already been written up about this particular action by Amazon, as well as the subsequent reinstatement.
At Edge by Ascential, our Market Share solution is most frequently used among the Fortune 500 brands to track their Amazon category sales and share and as we assessed impact across our client base, it was fairly negligible. However, it prompted us take a broader assessment of the ever-evolving Amazon supplier landscape and consider what all this mean for vendors, particularly the mid size to large ones that may have been unaffected. Should they consider themselves "safe?" As the frequency of these questions was very high, I decided to share my thoughts with the broader community.
First, let’s take a moment to consider whether this move was really all that unusual. If we strip out the name Amazon, the core of the action is nothing more than a standard supply base rationalization program. Every brand has faced it at every retailer at one time or another. What is it? The first google result: “Supplier rationalization, also known as supply base reduction [SBR], is the process of shrinking the supply base by reducing the number of active suppliers. The primary agenda of supplier rationalization is to streamline the organization’s spend to fewer suppliers and driver better value from those relationships.”
SBR should not be anything unusual. What makes it interesting in the case of Amazon is that for its first 25 years of its existence, they have relentlessly pursued their flywheel strategy, of which a core tenet is to endlessly add selection. At first glance, this appears to be a crack in the flywheel, but perhaps it isn’t.
To help us understand what this is really about, let’s connect the dots of the 1P seller reduction and Brand Registry move with another recent press release announcing Amazon Project Zero. You can read more about it here and here, but in essence it gave brands the ability to take down suspected counterfeit product listings, not unlike eBay’s Verified Rights Owner (VeRO) program. When brands sell through Vendor Central, Amazon is the “merchant of record.” Therefore, if a counterfeit item makes its way into their system via bad actors, Amazon is now part of that value chain with no means for shoppers to know or provide feedback on the original source supplier, creating a massive headache for internal Amazon teams.
Taken together, these moves appear to be coordinated to produce one outcome: clean up the platform from bad actors, and do it fast.
To solve the problem, Amazon went to their playbook: apply technology or outsource the problem. In this case, they did both: used technology to reduce the size of the problem by pushing the long tail 1P sellers to the 3P channel and then outsourced the whack-a-mole game of brand protection to the remaining registered vendors. From an Amazon standpoint, by pushing smaller sellers to the Marketplace (where there are better checks and balances through the ‘seller feedback rating’ that shoppers provide) and remaining vendors to Brand Registry and Amazon Project Zero, we believe the intent is to produce no major loss of selection and while putting better controls in place.
So, what does this mean to various parties involved?
- Ultimately, this particular initiative is about cleaning up the 1P marketplace, which should improve consumer trust and increase volume of transactions on the platform
- Brands will have more control over their products and the shopper experience by being able to combat counterfeits and bad actors
- With higher barriers to entry for 1P, competition within a category will become more concentrated and favor brands with the more resources, better execution and better data
- Brands remaining in the 1P marketplace will potentially gain back some leverage with Amazon and be able to more effectively build partnerships with them
- Last, even the largest vendors should consider this a wake-up call to test 3P hybrid strategies, as Amazon (like any other retailing platform) will continue to aggressively pursue the automation of relationships, and relentless focus on their own bottom line
The only constant with Amazon - and ecommerce in general - is change. There is a large and growing community of ecommerce practitioners and experts eager to share growth hacks, ideas and best practices on dealing with this change. If this sounds interesting, consider attending on of our upcoming E^HACKTHONs. Or leverage our 40+ ecommerce experts at Edge by Ascential who can help you with solutions and strategies to grow your business. To get more information, click here.