If you look at the evolution of Amazon as a business, in the early days, the ambition was simple. Fundamentally, the focus was on reducing prices to encourage more customer visits, in turn drawing in third-party sellers, and ultimately leading to a more efficient utilisation of Amazon infrastructure.
Over time, Amazon has seemingly sprawled into every corner of every industry; marketplace, media, advertising, entertainment, music and offline. The business has evolved from a retailer with a focus primarily on its product portfolio, to one that now offers a service-led value proposition both online and offline. For example, its Prime service is now no longer purely about a quicker and more convenient delivery proposition. Prime offers the customer a range of other benefits that extend beyond its delivery promise, including discounts at Whole Foods and unlimited music/video streaming.
Paradoxically, it is this relentless growth in Amazon’s ecosystem – which increasingly revolves around its Prime offering – that could be costly for the business in the long run. For example, Amazon’s market size gives it the power to inflict increasingly tough terms on its partners, driving down prices and benefiting from higher margins.
Additionally, as more customers rely on the Amazon ecosystem, it becomes more difficult for manufacturers to sell to customers outside of it. Questions have been raised as to whether customers will lose trust in Amazon if it continues along this monopolistic trajectory, stifling the competition on its way.
Ultimately, it is about whether we should be comfortable with one company picking the winners and losers in eCommerce. Anti-trust law (competition law) offers little solution on the basis that this legislation focuses on customer welfare, which Amazon excels at.
However, despite these potential cracks in its long-term strategy, Amazon’s current performance is extraordinary, and its recent Prime Day was no exception.
Established in 2015, Prime Day (typically occurring in July) promises competitive savings exclusively for its Prime members, offering hundreds of thousands of deals sitewide. The event is a prime example of the business’s marketing muscle, as its exclusivity encourages Prime membership sign-ups, which not only increases subscription revenues, but also boosts overall sales as those customers begin to shop Amazon more often, taking advantage of its free two-day delivery and other premium services.
New data from Consumer Intelligence Research indicates that customers who buy into Amazon Prime (subscription has now exceeded 100 million) go on to spend an average of US$1,300 per year with the retailer, nearly twice the amount spent by non-member customers. It is clear that Prime Day has less to do with short-term wins (in incremental sales), but more to do with generating long-term sustained momentum and confidence in Amazon’s business.
2018 Prime Day performance:
According to Amazon, Prime Day 2018 was its biggest shopping event yet (although no year-on-year actuals have been released by the retailer). The value in knowing its impact and scalability is that other brands/retailers can take advantage of the inevitable surge in traffic, whether they promote their offering in the direct or indirect space.
Key callouts from 2018 Prime Day:
- Shoppers purchased more than 100 million products
- Amazon made omnichannel play by partnering with Whole Foods for the first time – Prime members who spent $10 in store received $10 in account credit on Amazon
- Amazon shares hit a record high, topping market capitalisation of $900 billion
- RBC Capital Markets estimates Amazon generated $1.5 to $2 billion in Prime Day revenue
Winners, losers and the halo effect:
Prime Day has not only created an energy around Amazon, but the event has brought a beneficial ‘Black Friday’ effect to all retailers/brands competing for customers’ cash. Many retailers have taken advantage of the fact that consumers are already in the shopping mindset, so those that react quickly enough focus on personalised and targeted offerings, and promotional campaigns around Prime Day can all experience the benefits. For example, Target, eBay and Macy’s all ran promotions alongside Amazon’s Prime Day in a bid to capitalise on increased traffic, meet the expectations of the customer and remain competitive in the market.
The below chart demonstrates the significance of Prime Day in terms of site traffic for major retailers, with a comparison of visits on Prime Day itself vs the month’s average:
The trend is not exclusive to major retailers and consumer packaged goods (CPG) brands can also take advantage of Prime Day. Generally speaking, the most logical route to purchase for CPG brands is in the indirect space (e.g. Amazon) rather than through their own brand websites. As such, CPG brands should aim to capitalise on Prime Day by creating price competitive bundles or deals exclusively for purchase within Amazon, allowing themselves the competitive advantage. They should also leverage Amazon’s ‘Subscribe and Save’ proposition during Prime Day in order to potentialise on lifetime value.
However, the positive side effects of Amazon’s Prime Day are not necessarily experienced by all retailers/brands. According to Adobe, retailers with less than $5 million in annual revenue actually saw a sales decline of 18% on average on Prime Day. Without the buying power, the volume or the distribution channels, smaller retailers/brands struggle to compete with the bigger players, and essentially would be driving themselves out of business. On this basis, the best way for those brands/retailers to prepare for Amazon’s Prime Day would actually be to not try to compete, and to save themselves from inevitable margin erosion.
What can brands/retailers do to prepare for Prime Day?
1) Create your own deals.
- Competitors who decide to run their own sale activity and cut their prices should narrow their focus to the best combination of goods that a) will drive sales and b) have a high margin.
- Ultimately, the decision that needs to be reached is whether the potential cut to margin is offset by the sales boost, and the longer-term benefits in terms of customer acquisition, loyalty and brand awareness.
2) Adjust paid marketing spend.
- Pay-per-click (PPC) campaigns offer fantastic return on investment (ROI) to brands year-round, but special care should be taken around Prime Day (similarly with Black Friday/Christmas), before, during and after the event.
- Increase bids and budgets across the board for successful campaigns and keywords. However, it is important to phase the budget carefully in the lead-up to the event – the pre-sale period is potentially the harshest on PPC budgets, if customers are just waiting to buy.
Amazon specific recommendations:
There are several ways a brand can take advantage of Prime Day if they are already selling on Amazon:
- Brands can work with their Amazon teams to access one of Amazon’s Share of Voice packages (released every year) that include presence on the Prime Day homepage, alongside Flexmedia that drives traffic to the Prime Day page.
- Build historical relevancy by driving traffic to your product pages well in advance of the event, and ensure you also have optimised content (text, images, ratings and reviews).
- Don’t forget about the basics – make sure that you have enough stock to cover the demand.
- Drive external traffic towards the amazon prime deals by using AAP inventory (Amazon’s programmatic offering).
Amazon has managed to create so much more than a sale event with its Prime Day; it has organically generated a shopping frenzy (for the business itself as well as its competitors), during an otherwise quiet promotional period for retailers. The strategic timing of the event is another factor contributing to its success, as it is able to generate as great (if not greater) an impact as Black Friday, without overshadowing or cannibalising its Black Friday performance later in the year.
There is no denying the power of Prime for Amazon and what it has meant for the growth of the business. The entire concept of Prime Day is enabled by its Prime proposition and is causing a step-change in the market, with other retailers/brands beginning to understand the importance of offering a premium service to the customer. For example, ASOS and Deliveroo have both introduced a ‘Prime’ proposition, offering free delivery for a fixed monthly or annual payment.
From my perspective, Amazon’s Prime Day has clearly demonstrated how investment in a particular part of the business can open up opportunities that extend beyond the primary purpose of the original offering. Prime Day not only boosts its overall sales, but encourages sign-up to its programme, and the cycle becomes a self-perpetuating one in which Amazon can only benefit (in the short term, at least).
I have no doubt that Prime Day will return stronger in 2019 – it remains to be seen whether or not its competitors can deliver something impactful for themselves, or whether they will continue to feed off Amazon’s Prime Day.
Similarly, time will tell as to whether Amazon will be able to remain as robust and successful across all areas of the business operation in the long term. Amazon clearly prides itself on its rate of growth and dominance in the market, but the scalability of the business may well become the greatest risk to its long-term stability. However powerful Amazon becomes as a business, it cannot truly dictate consumer perception of the brand, as this ultimately comes down to personal preference.
In light of this, Amazon should tread carefully on its mission to become the “Everything Store”, as it may end up losing more than it gains. To quote Brian Chesky (CEO of Airbnb), “Build something 100 people love, not something one million people kind of like.”