Episode 6: Amazon s Growth Flywheel

Transcription

1 Episode 6: Amazon s Growth Flywheel profitero.com/the-profitero-podcast Patrick Miller Co-Founder, Flywheel Digital Keith Anderson VP of Strategy and Insights, Profitero Hello, and welcome to Episode 6 of the Profitero Podcast. I'm Keith Anderson, VP of Strategy and Insights for Profitero. Today I'm delighted to welcome Patrick Miller, co-founder of Flywheel Digital. Patrick is truly an expert when it comes to optimizing performance on Amazon, and as always, I learned a ton from our conversation today. If you've been enjoying the podcast series, please tell a friend or consider a living a rating and review on itunes or wherever you discover podcasts. We'd also love your feedback, , insights at Profitero.com with what you'd like more of, what you'd like less of, questions, comments; we'll take everything. Without any further ado, let's hear from Patrick. Well, Patrick, thanks so much for joining us today. Thanks so much for having me, Keith. I gave folks a little bit of an intro, but tell us about your background and what you do with Flywheel Digital. Great. I'm co-founder of Flywheel Digital, and we help various CPGs really figure out Amazon from a brand, a sales and a supply chain perspective. Amazon is sort of unique in that all three of these, oftentimes isolated tactics converge on Amazon. So we work with different CPGs to best be successful on Amazon, and part of that is helping Amazon be successful. Previously had a manage background in managing websites and also working on political campaigns and Episode 6; Amazon s Growth Flywheel 1

2 also worked for the Chesapeake Bay Foundation, overseeing their website, social media and volunteer engagement. I had totally forgotten about your political background, and we're not going to go there, but man, after I stop the recording, I definitely want to catch up with you about some of what's happening out there. This has got to be the most interesting election. It's much better as a spectator sport. Happy to be working with CPGs and not in the political realm anymore. Yep. So, if I'm recalling correctly, you've worked with big CPGs, small CPGS; what's your sense of the state of the industry as it relates to ecommerce? It's really fun right now. There are so many really smart people that are working in this space, that are figuring it out every day, that are being collaborative, that are helping one another, that are competing with one another, and just making the industry better. Really, it's a lot of fun right now. However, it's challenging in the sense that this is a game of granularity, and the folks that dug in a few years ago, they have a real head start here. They're figuring it out every single day, getting smarter and better, and iterating more and more quickly. Those that were waiting, still doing size of the prize analyses, they're falling behind and getting lapped by the competition. Hi. It's Keith here with a quick note from our sponsor, which is totally ourselves. I wanted to be sure you knew about Profitero's free Amazon Fast Movers Reports, which we release every month. The Fast Movers Reports identify the 100 bestselling products in more than 10 Amazon categories like baby, beauty, grocery, electronics, toys and more. We benchmark product content characteristics like price, star rating and review count to help you set goals and improve your own performance. They're available in the US and the UK with more markets coming soon. We also produce custom reports for Profitero clients. Head to Profitero.com and visit the Industry Insight section to get yours or see the link in the Show Notes. Let's get back to the show. We hear that a lot, that there's a big first mover advantage in ecommerce, both for the retailers but also for brands. Can you talk a little bit about what that looks like? What are some of those early mover advantages in ecommerce? Sure. It's the reason that we named our company Flywheel, the idea that you can take disparate pieces of energy and spin out something much bigger. So by having that first mover advantage, one, I think institutionally within organizations, within brands, people learn to see things differently. I think a great example is supply chain and the customer service function. So often, if you Episode 6; Amazon s Growth Flywheel profitero.com/the-profitero-podcast 2

3 think about the customer service function, that is somebody who is metric'd around efficiency, not ability to grow topline sales. However, there is nobody more valuable in the entire chain that that customer service rep, that person who is ensuring that that first order, that pipeline order that's the most underwhelming pipeline order of your career, is actually confirmed, is actually filled and is actually received. It's just a very different way of thinking and a different way of valuing traditional functions within a CPG, but it's absolutely critical to have success in a channel where the pipeline order, there are no trucks backing up to the factory; it's a small partial order going to a couple different FCs. Yep. Since you mentioned the name of your company, Flywheel Digital, it may be interesting to spend a minute just unpacking Amazon's growth flywheel. In other words, there is this virtuous cycle that comes from understanding the platform and some of the points of influence, and continuously optimizing around those. You want to spend a minute, for those that may not be familiar, just introducing that whole concept? Sure. I would think of it almost as you're teaching the machine how to sell your items. Just as in a traditional brick and mortar call, your sales executives are going in there and talking to the buyer, and they're talking about the attributes of your item and why it should be slotted here or there, or who the demographic is of who likes this item and where it fits in from a mixed perspective and a profitability perspective. You're doing the exact same thing on Amazon except you're doing it through data, you're doing it through attribution, and you're doing it through technology. So really, what you're doing is you're teaching the machine how to sell your item and how to make your item relevant. Ultimately, Amazon cares most about having an awesome, awesome customer experience. So shop the site as a shopper. How do your items show up? If you're doing a non-branded search, are your items popping up? What are people saying about your items? I mean, quite frankly, if we look at what is the CPG investment in broader media, look at how much people are spending on social media. I would argue that Amazon ratings and reviews are the world's largest unacknowledged social network, and these are people who are having a conversation about your product. They're not anonymous Twitter followers, and, oh, by the way, they've purchased your item, because it says right there it's a verified purchase. They're having these conversations about your item, and there's a Buy Now button right there. Are you engaging with those people? Are you talking with them? If Amazon did not sell a single widget, it was just a website, it would be, people would be spending so much time looking at it from a search perspective, a social perspective, and then just as a publisher, it's a Top 10 publisher at this Episode 6; Amazon s Growth Flywheel profitero.com/the-profitero-podcast 3

4 point. It's so much bigger than just the incremental volume that's moved on Amazon. This is where your brand lives and dies on the web today. We always say that the half-life of a rating or review on Amazon or really any retailer, but Amazon specifically, is so much longer than most forms of social media. I mean, a tweet vanishes in a second. A Facebook life maybe has a little bit longer life cycle, but those ratings and reviews get aggregated to an average star rating and a total review count, both of which can influence your position in search and certainly influence conversion, and the text of those reviews lives on that product page where, to your point, shoppers can actually buy. So many brands are still awakening to the importance of first understanding the condition of their products and their ratings and reviews, but also some of the tactics around incentivizing some of their loyal shoppers and brand advocates to leave more reviews and actually mining the text of those reviews for shopper and consumer insights. Totally agree. I mean, I would say, if you think about Facebook or Twitter or Instagram, the second you post something, it disappears down the feed. On Amazon, it's the exact opposite. A rating and a review, every time somebody finds it helpful, it goes up and up and up. If you think about the cost of that review, which is oftentimes nothing, it has a compounding effect over time as it rises up. So yeah, it's a social channel. Social media managers see this as customer service 101 to engage and to have a dialogue with these folks that are having a conversation about their products, and there's a Buy Now button right there. Absolutely. You also emphasized that notion of relevance. I'm still hung up on this Flywheel concept. We were talking about the power of being an early mover and the advantages that that conveys. I think it's just so important to understand that that notion of relevance at Amazon and the way the platform operates does reward those that understand the platform and optimize their presence around the way the platform works. The way that you train the system and the way that you train Amazon's algorithms is important because success early on becomes a factor in success later on. It's not necessarily that the biggest companies have all the advantage, but Amazon does consider factors like sales velocity and popularity when it's choosing which products to display on those search result pages or category pages. Also, just put the customer first. If they're asking Amazon a question and they're saying, "I had this need set. I have this question." Can your product answer that question with a straight face? If customers do click on your item and they find it relevant and there's great content there, they're going to convert, they're going to click, and then your product is going to rise up over time. One of the things that I find very surprising is how much CPGs struggle with getting great content. It's not exactly the sexiest job, but it works so, so well. Episode 6; Amazon s Growth Flywheel profitero.com/the-profitero-podcast 4

5 Think of your Amazon detail page as a micro site. If you look at Amazon's reach and how many eyeballs are going to your detail pages, it's probably more than whatever your brand.com is. Think of this almost as an earn media opportunity to own real estate that most of the time is free. All you have to do is make your detail page some place you actually want to visit as a shopper, not an afterthought with awful bullets and blurry images. Make it a place that you would, as a shopper, want to spend time, want to read more, understand a brand and understand a product, because ultimately, you don't have that first moment of truth and that ability to pick up and kick the tires. The detail page has to accomplish that, and having great content, making sure it's right, monitoring it and using tools that scale across thousands of items, across multiple retailers is really, really key. Well, you mentioned how many brands struggle with getting great content. Do you have any thoughts on why it's so challenging? It's not fun. I mean, it's very granular work, and I think that's a problem that a lot of folks have within Amazon. There are lots of folks that want to be strategists. In our minds, strategists sort of don't exist. What you need is to work with people that want to get their hands dirty, that want to dive into it, and that want to figure out on a very basic, on an ASIN level, what's working, what's not. We always say to clients, "Love your ASIN. Your ASINs have a life cycle. You want these to be the prettiest ASINs on the block. You want these ASINs to be just awesome, awesome places that you want to spend time." It's a clunky interface on the back end, and it takes a little bit of time to learn it and understand it and sort of, what works, what doesn't, but really, if you put the same effort that you put into brand.com onto your detail pages, you're going to have phenomenal success. As someone who's title is VP Strategy, I think this idea that in ecommerce and at Amazon, strategy is really execution is really key. I think, to your point, it's not just about, "These are some good ideas," it's really about how effectively you execute. I think part of the challenge inside a lot of companies is when they try to bring a traditional organizational model to bear on Amazon, you think about what a Walmart account team structure looks like. You've got the sales person, you might have sharper marketers. They're liaising with brand managers back at headquarters. There are reasonably clearly defined roles and responsibilities for the various activities that go into generating demand and then managing getting SKUs in distribution and managing programs. At Amazon it's almost an all-in-one role, and that work stream of developing the content and then making sure that it makes it to the digital shelf is really, really granular, to borrow your term. It's just tactical execution, and it's unconventional work for somebody that comes from a traditional CPG account management type of background. It's painful, it's tedious, it can take weeks, it can take months Episode 6; Amazon s Growth Flywheel profitero.com/the-profitero-podcast 5

6 to get everything right, and even when you think you've got it right, you can go visit that ASIN page and discover, "Well, it's not right yet." It breaks sometimes. The folks that tend to do best in this field are the ones that get the joy in digging in, the curiosity and figuring out the puzzle and how people are interacting with the site. This is a cultural shift more so than anything, and how people's behaviors change, how they ask questions, where they ask those questions. It has moved online, and selling in is the easiest part. So a traditional sales manager, who has worked in teaching buyers how to buy an item and what items to buy, I don't want to say it's irrelevant, but it's close to it. Instead, is it profitable? Does it make sense? Then doing a new item setup. Instead of it being a selling task, it's an Excel task. That's a very different proposition in how CPGs are typically built around the sales executives. You mentioned that product content is one of the pillars of success with Amazon. What are some of the other fundamentals that people need to be focused on when they're just getting started? Ultimately, what is a sale on Amazon? A sale on Amazon is nothing more than a glance view times your conversion rate assuming that you are in stock. It's sort of dead simpleness in that, how do you efficiently drive an eyeball to your detail page? Once the eyeball gets there, is it in stock? If it is in stock, you have the opportunity to convert. Does your content and your price allow that opportunity to happen? When we look at, especially folks first getting going, getting stuff in stock. It's just go spend the time with your customer service team, with your supply chain team. How low can you get your vendor lead time? How quickly can you get items to Amazon? Because Amazon, especially for new items, tends to not have very much cover, and it's great. You have national distribution the second your ASIN is in stock; however, that ASIN can go out of stock very, very quickly because the millions and millions of users on Amazon on any given day can spike that item out. So how quickly can you get back into stock? It becomes much more of an exercise around these in-stock metrics and the supply chain more so than in a traditional selling perspective. That makes a ton of sense. Talk about some of the more common challenges that you encounter or that you see brands encounter as they graduate, in a sense, from some of those basic early steps and start getting more sophisticated. Finding people that you can empower to make decisions quickly. Who is the ultimate decision maker and the idea of a brand brief and going back and forth 100 times in order to make a slight incremental change, when the platform is changing every single day? How do you create an organization that supports iterative decision-making that's very, very quick, that's reactive? That's listening to the data, which is ultimately listening to the shopper. I think that's a biggie. Episode 6; Amazon s Growth Flywheel profitero.com/the-profitero-podcast 6

7 Again, sounding like a broken record around supply chain, but think about it. If you were driving and you were doing traditional display advertising and you're sending to brand.com, but you have a 404 page. That's what it's like sending to a detail page when you're out of stock. I just saw one the other day where somebody was running a really nice looking A&G campaign, clicked on the ad, and it was out of stock. It might have spiked up, they might not have had enough cover, there's a million reasons, but ultimately, that in-stock perspective is just so, so critical. It's not sexy, but this is the fundamental to the business because you can do a better job teaching the machine how to sell your items if you are actually in stock. It's so fundamental. You mentioned how quickly things are changing, and you actually wrote a great piece that we republished on our blog about Amazon Prime Now. As you know, Amazon's portfolio of formats essentially for CPG products is evolving and expanding, between Dot Com, Pantry, Fresh, Prime Now. How do you think about these evolving formats? How do you treat them differently? Are there different keys to success with each of them? That's a really good question. Being outside of Baltimore, we were the second market with Prime Now, and we now have Frozen and Perishables. I may become a hermit because I don't have to order from anywhere else but Amazon. I can get my groceries delivered to me in sub-two hours for free. A week's worth of groceries, it took me maybe five minutes to shop. When I go back and I go to order again on Prime Now, all those items that I had previously purchased, they're right at the top of my list. So now all of a sudden, I'm just going back to those brands. There's brands that had that first mover advantage that leaned in with Amazon and said we're going to give this a shot, this is different, this is new. They are now benefiting because they're at the top of my list and I'm hitting the button when I come back into Prime Now, and they're showing up at my doorstep over and over again. It creates that virtuous cycle. I'm now going to write nice reviews about them because they're great products, and then they're going to be served up to other people because it's teaching the algorithm how to sell your items. I think with any platform that Amazon launches, they're not launching platforms to fail. Wall Street makes fun of Amazon's lack of profitability sometimes, but they're trying really hard. They have really smart people that are trying some real cool, difficult things, and they're not going to launch something like Prime Now or Prime Pantry or even Fresh designed to fail or designed just to take money from vendors. They have a sincere desire to be successful and to help shoppers discover great items. I think as they launch platforms, as they get into different platforms, not all of them are going to work, and that's a good thing. It's a chance to learn, a chance to experiment and figure out where the shopper is and what makes a great experience. Episode 6; Amazon s Growth Flywheel profitero.com/the-profitero-podcast 7

8 We're specifically looking at the different platforms that are out there. Items that are not profitable on Dot Com, maybe they're liquid, maybe they're heavy, maybe they have a low selling price, those are items that can do really, really well on Pantry and on Fresh and on Now because your outbound freight calculations are much more forgiving than they are on Dot Com. To some manufacturers, if you're an ice cream manufacturer, it's never going to work on Dot Com or it's going to be really difficult for it to work on Dot Com. Now all of a sudden, between Fresh and between Prime Now, you can now sell ice cream. So I think for manufacturers that sell lots of different items, figuring out what product works best where is a really important exercise, and Amazon increasingly is able to sell all of those items and really aspiring and then achieving their stated goal of being the everything store. I totally agree, and I find as some of these emerging programs evolve and mature, it's getting really interesting to see how what was historically true about Amazon.com is a little bit less true in the sense that these are not endless aisles where any brand can simply list a SKU with almost no friction. Some of those traditional category management principles, while they don't translate perfectly, it is an edited assortment if you're talking about Prime Now or Pantry or Fresh. I think Amazon is starting to be more receptive to some of the expertise and the insight that vendors bring in a more traditional category management sense. I don't want to suggest that there's necessarily a scale-based advantage, but when you look at some of these programs that you already mentioned, whether it's a replenishment program like Subscribe and Save or whatever it is, I think the early mover advantage is profound in all of these areas both for Amazon and for the brands that jump in. Because to your point, once somebody's a Prime member, we know there's overwhelming data that the lifetime value of those households is orders of magnitude higher than non-prime households. Then if Amazon locks somebody into a subscription on a given item, they've won that category and that brand has won that household's loyalty for some fixed period of time. Now you look at things like the Brita Infinity and these other dash replenishment service integrations, and all of a sudden, you're basically winning the shopper to a single decision point, but that single decision has exponential implications. The reordering potential, whether it's explicit in the form of a subscription or whether it's implicit in your example of, "We ordered it before so it's at the top of my list," it is creating this dynamic that I think has huge potential to consolidate a lot of demand into fewer and fewer hands, which is a very different dynamic on some level than what we saw with Amazon over the last decade. Even with our Fast Movers Reports on Amazon.com, we still see, while more and more familiar brands are climbing the ranks, there are still so many emerging brands that people wouldn't necessarily identify as the number one or number two share leaders in the offline world. Episode 6; Amazon s Growth Flywheel profitero.com/the-profitero-podcast 8

9 I think you're right, but I also think that Amazon is going to listen to their customers and listen to their shoppers. If they find that certain smaller brands are not getting their fair share and their opportunity and shoppers are saying we really want these items, they're going to attack. Certainly there isn't necessarily the endless aisles on some of these new platforms, but ultimately, Amazon, they've got their ear to the ground. They want to listen to shoppers, and there's a huge opportunity for these smaller brands. I think your Fast Mover Reports have done a great job of showing it's not the really big CPGs that are winning, but these smaller ones, and then getting a step beyond that, the entire market place system, the third parties. There was a fascinating story in Inc. about a week ago on Pharmapacks. It's a [three-peat 26:07] that anybody in CPG has seen and all of a sudden, who you're battling with is no longer your traditional other CPGs but against these third parties who are concurrently sourcing items, sourcing your items, sourcing competitive items as well as private labeling. This is a very different field of play than a traditional grocery store or traditional mass store. We've begun estimating that volume mix between first party and third party for some of our clients, and it's really eye opening because, as you know, a lot of brands only get credit for direct sales by Amazon, the first-party business. So historically they've sort of looked at the third-party market place as something that maybe is interesting to monitor but really, why bother, because we can't manage it. As it turns out, when 20% or 30% of the volume for your brand is being captured by third-party sellers, it does open your eyes a little bit, and all of a sudden, you start trying to unpack. Why are we losing the buybacks? Is it because there are SKUs only in distribution by third-party sellers? Is it because we can't keep stock on hand? Is it because the price delta between Amazon first-party and these third-party sellers is so profound that the buybacks is going to third-party sellers? We've definitely seen an awakening over the last six months or so among brands that are saying, "There actually is a meaningful pool of demand that's there for our brands at Amazon that we might not be capturing." I love that article. I think I saw it first when you shared it, because it really does highlight the scalability of some of these very sophisticated third-party sellers that are making a big impact on some of our clients and the industry at large. Totally. The idea of a channel is disappearing. I would say it's already gone. Shoppers just want the item that they want. They don't care, and quite frankly, I think they're insulted by the idea that certain stores or certain types of stores get one item and other types of stores get a different item. They have a need set, and they just want to find an item efficiently and be able to get out of there. Episode 6; Amazon s Growth Flywheel profitero.com/the-profitero-podcast 9

10 They're happy to pay a fair price, but it's just let them, help your shopper find your brand. There's lots of reasons for the existing channels, and it makes a lot of sense, but from a shopper perspective, you go onto Amazon and you're looking for a certain item. It's frustrating to see that the manufacturer isn't necessarily offering that item up for sale. That feeds into the third-party system because the third parties, they're scrappy. Just down the street from us in Annapolis, Maryland, the number one Sam's Club shopper there is a third party. She buys millions of items a year from Sam's Club and just resells it as a third-party on Amazon. It's mostly because manufacturers have said, "No, we're not going to sell these items on Amazon." That makes sense. I understand it, but it creates this secondary market place that is I think best exemplified by that Inc. article. That's a real challenge long-term for manufacturers. Definitely. Patrick, any other leading practices or great ideas you want to share with folks? Amazon Marketing Services has been getting a lot of attention recently. It's a great tool. Really interesting what those folks are doing and it's empowering vendors to manage cost-per-click advertising, both on a search and a display perspective. The tool is pretty new, so there's a bit of a learning curve there, but we're seeing really strong ROI there, and it's a great experience. I think that's a newer tool that's out there that a lot of folks are starting to work with, and a lot of folks are seeing success with. Great. Well, Patrick, this has been fantastic. Thank you again for joining us. If people want to find you, how can they reach you? You can go to our website, Flywheeldigital.com, or reach out on LinkedIn. Really enjoyed the conversation, as always, and I think this is a great series. Appreciate the opportunity to have a conversation with you. Well, that's another great episode of the Profitero podcast. Always great catching up with Patrick, and it was great to hear about why they named their company Flywheel Digital, more on that early mover advantage at Amazon, brand sales and supply chain as the pillars of performance at Amazon, and I love that concept of Amazon as a game of granularity and why it's so important to learn to love your ASINs. As always, we thank you for listening, and we'd love your feedback. Please us at Insights@Profitero.com, tell a friend or leave us a rating and review over at itunes. Till next time, I'm Keith Anderson, and we'll talk to you soon. Episode 6; Amazon s Growth Flywheel profitero.com/the-profitero-podcast 10