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Asha Bhalsod Asha has 10 years eCommerce account management experience, including at Amazon and managing the Amazon/ eCommerce businesses at Tomy UK and Melissa & Doug. She now runs Etopia Consultancy, to help brands create their eCommerce strategy and grow their Amazon business, and can be contacted on asha@etopiaconsultancy.co.uk for guidance with trading on Amazon.

The truth aboutAmazon’s profitability

As Amazon increases its focus on growth and profit, Asha Bhalsod of Etopia Consultancy reviews how brands should look to adapt their business strategies in response.

Do you know (accurately) how profitable Amazon is for your business? Over the past few years, we’ve seen most consumer brands experience fantastic growth with Amazon but lately, increasing commercial demands and volatile market conditions have created challenges with profit margins. Rising supply chain costs will naturally have an impact on your margins, as well as Amazon’s. Whilst monitoring your own profit margins, are you keeping a close eye on what Amazon’s margins are? Often Amazon’s margin is overlooked – or just not understood.

The critical factor behind Amazon’s success is its dynamic pricing model; its promise to always offer the best prices to its customers. Coupled with its pricing strategy, Amazon is a price matcher and not a follower. Its margins are constantly challenged, and Vendors selling through 1P need a structured approach to help them gain control over their profitability metrics. Creating a channel strategy and Selective Distributor Agreements can help eradicate price matching in the marketplace and fundamentally help Amazon’s margins. Businesses can also consider the Supply Chain and Operation programmes Amazon offers; this could help reduce costs and in turn increase margins for both.

Until recent years, Amazon almost never discussed its margins and profitability with Vendors. Selection was key, as was participating in deal events. Having “good” terms was the foot in the door for Amazon to introduce the topic of profitability. This driver changed in recent years, and now there is a clear shift towards profitability. Vendors are under far greater scrutiny; almost asked to meet a guaranteed net margin. But at the end of the year, when those margins are not met, trading term negotiations get very tough. Amazon’s Net PPM (Pure product margin) needs to be tracked monthly and should almost be fixed; it simply can’t drop. The risk of Amazon not making enough margin from your brand and its products could lead to detrimental consequences for your business.

It's also useful to understand how Amazon is evolving towards an automation mindset. Its systems calculate what the optimal stock level should be, and its algorithm is adjusted to quantify the profitability of an individual SKU, as well as your Vendor margin. If the system doesn’t pick up a positive margin, then orders will not be placed. So, it’s increasingly important to ensure you’re tracking margin at SKU level for Amazon.

There’s growing pressure on Amazon to ensure its vendors are profitable for the platform. Whether that’s through escalated terms or requests to be involved in retail programmes, brands have to be mindful that (increasing) Amazon’s profit will be the focal point for the next few years. What are the implications of not grasping this renewed focus? I expect individual SKUs – and possibly entire ranges - to be taken off sale, with Vendors showing reduced willingness to interact with your brand. I wouldn’t even be surprised if Amazon stopped ordering from a business altogether if the margins don’t match expectations.

It’s simple - Amazon will grow your account as long as your brand is profitable, so creating a financially viable commercial proposition for both parties will lead to a win-win situation.

Market conditions are tough at the moment, and the pressure on brands will continue to mount. Amazon will intensify its focus on growth and profit, and brands will be forced to tweak their business playbook.

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Richard Gottlieb CEO, Global Toy Experts Richard is the founder and CEO of Global Toy Experts, a consultancy to US and international toy companies. He is also the publisher of Global Toy News, a web-based magazine founded in 2009 that covers toy industry news and provides resources to the toy industry. Richard co-hosts The Playground Podcast and publishes The Toy Intelligencer report.

Gen Z is turning its back on social networks - what is happening?

For the last decade, those of us in the world of toys have watched social networks become increasingly essential as a conduit to end users and gatekeepers. The rise of Facebook and Instagram, in particular, has seemed unstoppable. Until now.

Gen Z, specifically those 18 to 29, is turning its back on social networks. Pew Research has conducted a survey entitled, "Percentage of Americans who say they use at least one social media site, by age." The survey looked at four age groups: People 18 to 29, 30 to 49, 50 to 64, and 65 and up. The only group to show a decline was the youngest, those 18 to 29.

This information is crucial to the toy industry as Gen Z is the newest generation to enter its childbearing years. They are having children and will progressively dominate toy purchasing over the next decade. They like to play too, so it is essential that we know best practices for communicating with them.

Why is Gen Z abandoning Instagram and Facebook? This can be blamed on the toxicity of the social networks and too many stories about people getting into trouble over careless or provocative posts. And let's not forget that every generation ultimately rejects whatever their parents are not doing.

It's not just social networks being impacted by Gen Z. Google is even finding Gen Z challenging. According to an NBC News article by Kalhan Rosenblatt, "Prabhakar Raghavan, a senior vice president at Google, cited the company's internal research that found nearly half of young people use TikTok or Instagram instead of Google Maps or Google Search. The ages of those surveyed range from 18 to 24, according to TechCrunch." Gen Z wants its cohorts to answer its questions rather than soulless algorithms. Facebook (aka Meta) and Instagram are running scared and trying to turn themselves into versions of TikTok. The jury is out on whether their users want them to stay as they are or make the change.

So, make your advertising and promotional decision accordingly. While doing so, don't forget that Generation Alpha is waiting for its turn on the generational stage. Alpha's oldest members are now ten years old. Give it another ten or fifteen years, and we'll be hearing about what changes they have in mind. Until then, keep your eyes on Gen Z.

So, where is Gen Z going? They are going to sites like:

TikTok - bills itself not as a social network but as an entertainment platform.

Snapchat - provides instant messaging with a short shelf-life.

Twitch - provides live streaming and gaming.

Discord - offers instant messaging through a variety of formats.

BeReal - asks you to pose pictures that depict you in "real" moments.

Poparazzi - doesn't want your selfies; it wants you to post pictures of your friends.