Amazon’s top initiatives
Several areas have emerged as the priorities for 2020 across Amazon’s many business lines.
Shifting the retail business from profit emphasis to growth mode: In a rapid reversal Amazon appears to be deemphasizing profit within its retail business to reignite growth. This is a direct competitive response to omnichannel rivals, with Amazon looking to defend current market share in the mass merchandise market and take new market share in online grocery. One outcome of this shift is suppliers seeing traditionally unprofitable items listed with rapid delivery options, when they might have historically been sold as add-ons only or delisted altogether. Leading the delivery arms race: With Prime membership growth in the US slowing, Amazon is looking for new sources of growth. In the US, Amazon is rolling out enhanced one-day delivery on millions of items to much of the country, bringing new items into consideration for shoppers and driving sales. Amazon will look abroad to grow Prime membership and drive future retail sales growth.
Grocery category dominance: Grocery is an attractive category due to its size and share of total consumer spending, high repeat order rate, and low online penetration. Beginning with its 2017 acquisition of Whole Foods Market, Amazon has aggressively advanced its grocery offering with the addition of a new format in 2020. The retailer is now in the process of consolidating PrimeNow Whole Foods delivery and AmazonFresh into the main Amazon platform, as well as expanding store-based operations with additional Go stores and a new, less-premium chain.
Brand Planning Guide: We’ve identified 9 key areas for brands developing their 2020 Amazon plan:
Constantly Improve Product Content: Consistently monitoring and improving product content with a willingness to test new features will enhance placement, conversion and help create ecommerce-ready content. Brands should monitor competition, top 3P sellers, upstart brands, and their own product questions and reviews to push the boundaries of acceptable product content that both appeals to the shopper and reveals their top pain points.
Heavily Resource Amazon Advertising: Amazon advertising placements are increasingly competitive, but critical to shopper visibility in high-stakes ecommerce. Brands should defend key ad locations on important search terms and product display pages, and prioritize winning new ad placements on more nascent parts of Amazon’s platform like grocery listings.
Consider the “Halo” Effect: Shoppers utilize Amazon for reviews and research for purchases made off Amazon, making Amazon investments influential to other channels as well. Brands should resource Amazon with spend and headcount appropriate with its overall effect on brand perception and off-Amazon sales.
Build Regionalized Strategies: Amazon’s regional operating model and cross-border aspirations can be disruptive to brands’ pricing, promotion, and assortment strategies across markets. Brands should foster global best practice knowledge sharing and consider assortment and pricing strategy regionally. Police 3Ps: 3Ps can destroy brand equity with consumers. Amazon now offers a growing suite of tools for brand defense, and external tactics can also be effective. Brands should enroll in Amazon’s various brand defense programs and consistently monitor 3P activity on their listings and in relevant search results.
Fulfillment Diversification: Developing more paths to the consumer hedges brands against future Amazon risks and can eventually deliver better economics. Brands should anticipate Amazon’s unpredictable shifts of 3P versus 1P merchant classifications and build out supply chain capabilities for home delivery to provide optionality going forward.
Develop Holistic Grocery Strategy: Amazon’s many consumables-focused offerings need tiered prioritization within overall grocery strategy, with investment for volume today, while innovation should focus on high-potential and future-looking programs. Brands should seek distribution through the new grocery format,and prepare to run perishable grocery content and ad strategies on the main Amazon marketplace as integration occurs with home delivery programs.
Stay Ahead of Packaging Innovation: Packaging innovation helps brands not only to meet new Amazon requirements but to generate cost savings. Brands should devote resources to anticipating Amazon requirements in new product development and packaging innovation.
Launch Amazon-Specific SKUs: New product development for Amazon allows brands to minimize channel conflict while testing new items quickly with Amazon product launches. Brands should build Amazon-optimized SKUs for a few key products as a long-term investment to differentiate from competition, minimize price matching, and create a strong shopper experience.
In 2020, we predict Amazon will:
- Layer Pillpack home pharmacy delivery into a scaled, consumer-facing healthcare system that includes physical clinics, health insurance shopping, and integration with the rest of the Amazon ecosystem.
- Monetize Alexa through greater advertising tools.
- Gravitate more small-scale 1P vendors to the 3P side of its retail business.
- Offer ad tools utilizing shopper data that marries in-store (WFM, Go, Books, and the new format) activity and online.
- Phase out PrimePantry as Fresh and PrimeNow reach more consumers.
- White label Go technology.
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