Interview

Special Issue TECHNOLOGY SOLUTIONS E-commerce DEEP DIVEVENDOR SPECIAL Special Issue

Amazon divides opinion in our industry, no doubt. But for brand manufacturers certainly, there’s plenty to like about this online giant, VENDOR SPECIAL Special Issue according to Amazon expert John Ghiorso

Friend or foe – Amazon’s omnipresence is something all operators in the business supplies industry have to contend with. One person who arguably knows more about the online behemoth than most is John Ghiorso, founder and CEO of Orca Pacific, a full-service agency dedicated to growing the Amazon business of consumer product brands.

Ghiorso has been convinced for many years that Amazon will ultimately become the biggest company on the planet, utterly disrupting retail as we know it in the process. An e-commerce thought leader with a reputation for forecasting shifts within the Amazon marketplace, he was a hugely popular keynote interviewee at OPI’s recent Global Forum Online (see Event, OPI May/June 2021, page 50).

The core talking points of the conversation are summarised in this OPI interview with Ghiorso.

OPI: Let’s start with a term we’ve been hearing a lot about in recent years – the endless aisle. From your perspective, how does it affect your customers, ie brand manufacturers?

John Ghiorso: The endless aisle essentially represents the democratisation of retail. The biggest innovation that Amazon created is access – for brands and consumers. It’s estimated that today there are about 500 million SKUs on the platform.

Amazon has allowed everybody – from big brands and one-man bands to manufacturers selling direct from China, Thailand or India – access to the consumer. This has flipped the dynamics of national organisations and the traditional status quo, especially the big retailers in the US.

They historically had a certain market share. It fluctuated a bit between the biggest operators, but tended to be shared by just a few giants. Amazon has altered that with the access it’s given consumers, meaning those big nationals have to fight much harder for the same share.

OPI: Amazon Advertising is a big deal now I believe. What should brands be doing to maximise the opportunities?

JG: Amazon Advertising has become non-negotiable in my opinion – it’s pay to play and if you’re not participating, you’re going to fall behind and lose share. Five out of the top ten search results now are paid for.

Amazon Advertising can be broken down into two big categories: Search and Display. Search is sponsored ads, display is Amazon DSP which allows brands to leverage valuable data to reach a highly-targeted audience.

Most brands have been participating in Search for a couple of years now, but many are still underinvesting in my view. They don’t factor in that there’s the real-time, immediate ROI or ROAS (return on ad spend) and then there’s a secondary important effect. The latter happens weeks or months down the line and is difficult to measure.

I would go as far as to say that one of the biggest trends this year – and this will only continue – is adding budget into the Display side.

OPI: How significant are the revenues that Amazon derives from advertising?

JG: Advertising is a high margin business. If it’s not its number one profit centre right now, I’m sure it will be within the next two years.

JG: Amazon is pushing the notion that its platform is a place to shop, not just buy. Amazon was not built for browsing; it’s not the equivalent of visiting a shopping centre for a few hours. Historically, the concept was: “I need a product and I need it now – at the lowest cost, or at least on par with other operators – and I want to buy it conveniently with one-click checkout.”

Convenience, speed and cost were the main parameters and instant gratification remains the core of its business. There’s a statistic which says 30% of purchases on Amazon take less than three minutes to execute – that is astonishing.

The company wants to keep this percentage high, but it also wants to layer on another segment of customer inspiration and discovery. This will generate incremental revenues. In addition, it’s a defensive move, as there are so many other digital buying platforms now, as well as social media like Facebook and Instagram which are getting into commerce in a much bigger way.

Amazon aims to be the place where customers start and end their journey. The starting point – the discovery part – is where the biggest competition is now and Amazon is conscious of the fact that, if it doesn’t offer this customer journey, it will be cut out of the loop which will ultimately reduce sales.

OPI: How is it doing that?

JG: It’s launching a lot of new initiatives brands can participate in. Things like the Brand Store, Amazon Posts or Amazon Live – the idea is to capture customers before they even know what they want.

Most companies become less innovative as they get bigger and slow down. Amazon does the opposite. This year, I estimate it’s launched more initiatives than ever. That can be overwhelming for brands, monitoring them all, knowing when there’s an opportunity but also realising when something is not a smart use of resources.

Amazon Live is a good example: it’s essentially replicating something like the QVC shopping channel, with live videos, ie product demonstrations, on the landing page. I’m convinced it’s going to be huge in a year or two, but it’s not for everyone, because not every product is suitable for this kind of exposure.

Amazon Posts is another one: it’s like an Instagram clone on a product detail page. You have your brand-driven content, ie images and videos, and your consumer-driven content such as reviews and feedback. Posts sits somewhere in between. As a brand, you’re taking influencer, customer-created content and then you’re repurposing it.

It’s also worth bearing in mind that, when Amazon launches something, it tends to do so in beta and it’s free during that stage.

Amazon Posts is free at the moment. It won’t stay like this I’m sure, but for now there’s not a real demonstrable ROI, it’s for certain categories only, etc. This initiative is something worth looking at in my opinion, potentially testing its viability because there can be a first-mover advantage with programmes like this.

OPI: What should brands be looking for when they work with Amazon?

JG: The Amazon Flywheel is a concept many people have heard of. It seems a lot like business jargon, but the flywheel is important because it’s a self-enforcing feedback loop which is coded into the Amazon platform.

The idea is that the best way to know when to promote a product to a consumer is when other consumers have had a good experience interacting with the product. This is an organic phenomenon, but there are ways to spin the flywheel even faster. The most efficient one is through advertising.

On any ad campaign, businesses are looking at the ROAS, ie you spend $1 and sell $3 worth of product. But, as I mentioned earlier, there are also second-order effects. Because you spent $1 and sold an incremental $3 worth of product that you otherwise wouldn’t have sold, all of a sudden you have more customers who see your product and you subsequently sell another $6 worth.

Like I said, that later effect is harder to measure, but weighing into this idea of maximising the flywheel effect is how you grow a brand exponentially on Amazon.

The best way to know when to promote a product to a consumer is when other consumers have had a good experience interacting with the product

OPI: But isn’t it also a fact that Amazon uses the flywheel to find new categories and private labels to sell direct?

JG: I guess so. Ultimately, it’s the customer interaction and the customer dollars which drive the flywheel forward. It’s true, the better a product does on the platform, the more likely it is that Amazon is going to create a private label. But it’s the same with any other retailer, perhaps more so.

OPI: Many manufacturers in our industry have concerns about data collection and Amazon using that data to make own label products under the well-known Amazon Basics range. What’s your view?

JG: It’s a concern, no doubt, but you would have similar concerns about Staples or Walmart – it’s the same data. Let me just say that Amazon’s private label initiative is not going too well. This may come as a surprise to people because it gets a lot of coverage in the media. I think Amazon Basics presents less than 1% of total sales. By now, this number should have been 5-10% judging by its own goals.

That’s not to say it’s not a threat. If Amazon is knocking off your number one seller with its own brand, it’s painful, but I do believe context is important here. Amazon, from a private label perspective, is still going after the lower hanging fruit, ie commodity top sellers. The best way to defend against it is for brand manufacturers to do

what they’ve always done – continue to innovate, come up with new products, better quality, etc.

I would also add that, if I were a national brand, I would be much more worried about direct Chinese imports – what I would call white label – than about Amazon knocking my product off. Amazon has a lot of restrictions, proof points and internal hoops to jump through – these Chinese brands don’t have any of that.

OPI: That brings me to counterfeits. How serious is Amazon about blocking these? And I mean real counterfeits as opposed to annoying private label.

JG: It’s serious about counterfeits and has put a lot of resources into it. Because it’s such a massive platform, it’s a difficult thing to control, of course.

Amazon’s strategy with counterfeits has been to create the resources, opportunities and touchpoints for brands to control this themselves on the platform. There are a few initiatives, such as brand registry and transparency which manufacturers should definitely be participating in.

OPI: What would be your advice to companies in industries such as ours which suffer from secular declines?

JG: Well, if you witness your product dying a slow death and you’re looking to reinvent yourself, Amazon is a really good place to do it. And this is because you don’t have to convince a buyer to partner with you on a new product – just put it on Amazon and see what happens in terms of reviews, customer feedback and ROAS. No other retailer – online or physical – can offer the same.

John Ghiorso through all of them is that in some way they use technological innovation as a method to disrupt the existing format and make the customer experience in bricks-and-mortar stores better. All projects are in beta at this point I believe. There’ll be more too, but many won’t get out of the testing stage because they’ve failed.

OPI: What’s the ultimate aim of a store? Selling top SKUs, showroom, collection point...?

JG: I don’t think there’s ever going to be the ‘ultimate store’ where all the good bits of all the betas are being combined. There’ll be different formats for different purposes, but also a couple of things you will see throughout. One of these will be the customer walk-through, meaning consumers grab what they need and walk out without interacting with anybody, so there’ll be no staff in the forward part of the store.

Another thing I believe will happen is that you’ll have a customer front end, similar to what I’ve just described, but also a space which deals with last mile fulfilment. Eventually, this might be drones taking off and landing. So retail – seamless and effortless – combined with delivery or collection.

Something else I can see happening, perhaps at airports, is the creation of a shop smaller than the smallest convenience store but bigger than a vending machine – kind of a walk-in vending machine. There’s going to be a lot of cool stuff.

OPI: Finally, but obviously very relevant to our audience, where does Amazon Business fit into the picture?

JG: Good question. I wouldn’t say Amazon Business has plateaued, but it’s not growing as fast as it has been. Amazon had very audacious plans for the B2B side. It grew Amazon Business exponentially to about $20 billion, with clearly some shift from the existing platform but also some incremental gains.

The reason growth is slowing is because Amazon hasn’t really broken into the enterprise segment in a big way. It’s done very well with SMBs – arguably already before Amazon Business came to be – but the company hasn’t been able to truly disrupt the big B2B distributors and suppliers. They are all about relationships, salesforces, technological integrations and service levels. Amazon is never going to be a company with 20,000 sales people visiting offices. It will try to find digital ways to replicate that, it’s just taking longer than anticipated.

All that said, I do believe that long-term, Amazon Business will become a $100 billion giant, but it will take 15 years, not five.

Amazon Business will become a $100 billion giant, but it will take 15 years, not five

OPI: Talking of bricks and mortar, what do you make of Amazon’s physical store efforts? Is this just a gimmick or a real strategy?

JG: It’s definitely not a gimmick. Physical retail overall is a huge initiative for Amazon and I would be shocked if, in five years’ time, it didn’t have hundreds or thousands of stores. Outside Whole Foods I mean.

Amazon sees omnichannel as completely pivotal to its long-term success. But Jeff Bezos has always said he didn’t want Amazon to get into physical retail if it’s just a me-too offering.

There are many different physical store format iterations being tested currently. The thread

ORCA PACIFIC AND WHAT IT DOES...

Founded in 2008 by CEO John Ghiorso, Orca Pacific’s remit is to help consumer product brands grow their Amazon business. It does so with a team of 50+ former Amazonians and top industry experts who work from within Amazon’s backyard in Seattle in the US. They use a combination of know-how and machine learning software to develop and implement custom Amazon strategies towards sustainable topline growth.

Orca’s philosophy mirrors that of Amazon – to improve the customer journey. As such, its services cover every stage of that journey, from Amazon SEO and advertising management to content optimisation.

In 2020, Orca merged with MightyHive, a global leader in advanced marketing and technology services. The partnership brought it into the fold of S4Capital, a new-age marketing services company dedicated to bridging the gap between media, creative and measurement.

OPI: And many in our sector will be very pleased to hear that. Thank you John for these fascinating insights.