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Interview

Interview: Controlling Your Brand in the Age of Amazon, With James Thomson, Chief Strategy Officer at Buy Box Experts

The explosion of marketplaces is both opportunity and crisis for brands. There is an continuous danger of losing control of your brand, and only a multifaceted, ongoing effort will win the day. James Thomson, Chief Strategy Officer at Buy Box Experts and co-author of the new book “Controlling Your Brand in the Age of Amazon” outlines the three-pronged strategy for minimizing risk and maximizing success on the world’s biggest marketplaces.

TRANSCRIPT

Peter:

Hey everyone, Peter Crosby, executive director of the digital shelf Institute here, the explosion of marketplaces as both an opportunity and a crisis for brands, there's a continuous danger of losing control of your brand. And only a multifaceted ongoing effort will win the day. James Thompson, chief strategy officer of buy box experts. And co-author of the new book controlling your brand. In the age of Amazon joined Robin meta outlined the three-pronged strategy for minimizing risk and maximizing success on the world's biggest marketplaces. So, James, thank you so much for joining us on the DSI podcast today. I've I've just noticed I've been following you for a while on, on social media and uh, over the last several years, you've definitely made making sense of Amazon for brands, a personal calling of yours. Like where did that obsession come from?

James:

Peter, I had the opportunity to work at Amazon for about six years. And I like to think that a lot of what I'm doing post Amazon is essentially doing penance for my time at Amazon. And I say that a little bit sarcastically, but back in the day, Amazon, wasn't very good at educating potential sellers on the issues that they were likely to face. If they joined the marketplace, I ran Amazon services, which was the group that recruited most of the sellers to the marketplace. And so I got to see every kind of entrepreneur you can imagine who would walk in the door and say, you know, I'm going to be a millionaire next week when I start selling on Amazon, the reality is a lot of these companies were not set up to be successful on Amazon. They didn't understand the dynamics they were walking into.

James:

They didn't understand the discipline daily week, monthly operational disciplines that they would need to put in place to be successful. And when the time came for me to leave Amazon, uh, I very quickly decided that it was important not only to make a living, but also to look for ways that I could be constructive and help people make better decisions about the choices they made when they ultimately ended up on Amazon. So whether that's through podcasts, through a conference, through books, you know, various ways of getting information in the hands of people, so they could make better decisions around what it's going to take to be successful on Amazon, hopefully content that they can leverage before they dive into the Amazon pool and realize, oops, I'm in over my head.

Peter:

Yeah. I mean, God knows it's a, it's a continuously and rapidly changing marketplace and all of the, uh, ancillary, um, platforms, ad platforms, et cetera, that are being sort of built around, make it quite something for our brand to tackle these days. And you mentioned books. So I, um, I have to mention your new book controlling your brand in the age of Amazon, which is tremendous. And you wrote it with Whitney Gibson w uh, an attorney that we at the DSI know well from his groundbreaking work on brand control through the, through the Regal legal framework. But, um, but so that, that book just coming out just feels like in some ways it's a bit of a, at least a temporary, uh, culmination of some of the thoughts that you've put together

James:

Back in the day, you could show up on Amazon, you could start selling there. Wasn't a lot of competition on specific listings. If you fast forward 20 years, Amazon has become a highly desirable destination for unauthorized sellers companies that find ways to get their hands on products can come to Amazon and leverage the huge demand that exists for so many brands. Quite frankly, a lot of brands haven't figured out how to change the way they think about their overall channel strategy, what they do in terms of making products available to traditional distributors, traditional retailers, without putting the necessary, uh, steps in place to prevent that product from being diverted and ultimately sold at lower prices. Usually on a channel like Amazon. So much of the work I do today is working with brands to help them evolve the way they think about their overall go-to market strategy.

James:

It's not just, Hey, I sell a bunch of stuff on Amazon, and I want to sell more. It's actually recognizing that because there's this large marketplace called Amazon brands need to be rethinking how they go to market in every channel. So Whitney Gibson and I have had the opportunity to know each other for several years, we decided, Hey, let's make absolutely no money and write a book together. And he said, yeah, let's do that. But at the end of the day, being able to share ideas and look at both the legal side of addressing this issue, as well as the business side of addressing this issue, how does a brand take back control over their distribution, take back, uh, the situation around all the price erosion that can never really happen if you don't control what's happening. Those are really important questions for C-level executives to be working through.

James:

And so Whitney and I spent a year and a half from our lives, putting the document together, uh, working with a number of clients to create case studies and identifying what are some of those use cases that so commonly happen when a brand executive wakes up one day and discovers, uh, why do we have 15 companies? I don't even recognize selling our products on Amazon and typically doing it with low grade product listings, you know, a crappy iPhone photo and 10 seconds of, of content put together to represent the brand as a brand owner. You want to control your brand. You want to make sure the consistent messages are put in place for consumers, no matter where they're shopping. These are big, important, ugly for brands to tackle. And it's very, very different from what often happens with brands where somebody in the sales team says, Hey, let's go see if we can sell some more units on Amazon.

James:

Well, off we go and we sell some units, but it's not looked at holistically in terms of where does this all fit together with all of our other distribution efforts? So lots of heavy stuff. Um, it was enjoyable writing the book. It's fascinating to see that even in the time from when we created the manuscript to now, things are evolving so quickly, different countries have different rules around what brands can and can't do to control, ultimately, who represents them, uh, in retail channels. But, but the nuts and bolts are still the same as a brand. You need to control your content. You need to make sure that the brand message is on point everywhere. To the extent that you can control, who's representing you and ultimately try to stabilize prices across channels. Those are big complicated issues, but they can be solved. And that's, that's the exciting part of putting the book together is there is a path to solving these problems, but it involves difficult choices, but Hey, we're all here to help work people through difficult choices.

Rob:

So th the scope of the book controlling your brand on Amazon, there's a, there's a narrow way to understand that, which is the content and the branding, but the broader way to understand it, which is the scope of the book is, is an in my view, ambitious and also necessary at the same time, the, the scope of controlling your brand is the branding, but it's also price control. It's also, um, in order to control the branding and the price, it's also getting your distribution channels under control and, and so on and so forth. So your, your, your point here is not actually controlling your brand on Amazon. Although that's the catchy title, it's really controlling your brand online distribution channels, pricing strategy, uh, mechanisms that you used to get those under, uh, in order and all that type of stuff. So it's an ambitious, it's an ambitious tone that you've built here.

James:

So the title, the title is actually controlling your brand in the age of Amazon. So we recognize that marketplaces like Amazon create problems for brands. It may be Amazon. It may be eBay. It may be other online channels, but this evolution of all these online marketplaces that invite anybody practically to show up and sell a product that creates incentives for individuals to say, wait a minute, I can go and source this product through strange dark shadowy corners of the world. And I can bring that product to online channels and make it exciting for, for me to make a few bucks that's happening every day. And so the brand that says I'm used to a model where if I want to sell an, a channel, I send a sales person down to that retailer and say, we want to sell in your channel. That's not the way the world works anymore. And in part, because of the evolution of some of these online marketplaces, you've got to tackle the problem holistically. You've got to recognize it's not just about Amazon. It's not just about e-commerce. It's about the freedom of, well, basically the low barriers to entry for folks like you and me to decide, Hey, I'm going to have a side business and sell product. There are now channels where we can go and sell and sell a lot of volume and do it without the brand, having any say in it. So, Jack,

Rob:

This is like a Benedict Evans, like to say, when we lost the internet, we connected everyone in the world. And that includes the bad people. And when you got the marketplaces, you connect to all the buyers and all the sellers, and that includes the bad people. And that means that you're not just doing, hand-to-hand combat with a buyer and a seller where people's reputations and careers and other things are aligned in such a way that you're preventing bad behaviors. That those types of social preventions are no longer there it's now anything goes, and when anything goes, you get you're, you're almost, you have to become your own police force. Right. Um, so yeah, no. Yeah. Thanks for that. Thanks for that, that officer, that observation on that, the title correction in the age of Amazon,

James:

That was, that was, that was what he's calling. He came up with that one and I said, yep, let's do that.

Rob:

So James, tell me when, when you, um, kind of put this, this issue in front of brand leaders, when you're, you know, in a, in a board room or talking with executives about it, what does it take to get their attention that this is a problem they actually need to focus on as holistically as you talk about it?

James:

Uh, I like to lead with data and I know that sounds cliche, but there's so much publicly available data that I can pull off of an Amazon marketplace page and be able to show a brand executive. I know you don't want to be here in the meeting, but let me show you how much you're hemorrhaging. And by the way, let me show you how much some of your competitors are also hemorrhaging. And so it's not that you're doing terribly, actually, everybody's doing terribly, but you just need to be a little bit better than everybody else. And the opportunity for you to grow top line and bottom line is substantial. I did this workshop a couple of years ago. I will never forget it. I was in a room with about 15 people and I'm sitting at one end of this rectangular table. And the CEO is sitting in the exact opposite corner.

James:

And I, I'm not a big fan of PowerPoint, but that's the way we normally do things. When we're doing presentations. My third slide, I put up a chart of just how easy it was to source this particular company's products, how easy it was to do, uh, to source this product from multiple parts of the world at incredibly low prices, basically at prices lower than the wholesale price is typically available in the U S and the CEO looked around the room and said, what, what, what, what's all this stuff? How does this work what's going on? And I explained a little bit about, Oh, by the way, many years ago, I was actually an unauthorized seller myself. I know how easy it is to get some of these products. The CEO got up and came and sat right next to me. And literally didn't move for the next two hours of our conversation.

James:

And we went through and I basically ripped apart their whole distribution model. And then I put it back together and said, you need to make these tough choices here and here and here and here. And when it was all said and done, everyone was exhausted because they realized a lot of hard work, awaited them a lot of difficult conversations that way to them. But they also saw that they were going to have to do this now, because it was only going to get worse. If they sat back and pretended like somehow Amazon is still a small channel, and this is all going to go away. It's not going to go away. The world has changed and brands needs to evolve plain and simple,

Rob:

And their, their bottom line

James:

Gets better as a result of the way you were showing them. Well, this is an interesting question. Quite often, I get asked by executives, wait a minute. We're still making wholesale margin on all those diverted units. Do we really need to tackle? What's going to happen here? Do we really need to have those difficult conversations? And the answer is yes, because the moment you start to create a situation where consumers actually are going to prefer buying your products and certain channels, because the products are cheaper because there's more price erosion in certain channels. That's, that's a bad situation. You don't want to drive consumers to certain channels. And typically those channels are e-commerce channels. So all of those long time, long longterm relationships you have with retailers, the physical inline retailers, those are getting hurt because consumers know they can get the product for five, 10% cheaper in an e-commerce channel.

James:

That's not a good long-term situation. You want to be where customers want to buy, but you also don't want to create the wrong kind of incentives where customers are running to certain channels. Not because the products better, but because it's just inherently cheaper because you can't control what's happening. So let's stabilize pricing, let's stabilize the brand message. And let's be where customers are everywhere. That's a much better long-term model, but it requires discipline. It requires telling your sales team, Hey, listen, if you're going to start selling products to a bunch of people that you don't even know who they are, chances are, you know, a one shop store in Idaho, that's selling 50,000 units a week. They're probably not a physical store. That's just a storefront facade for an online operation. You know, you've gotta be asking the tough questions, even if the salesperson's making a commission, that's where you've got the wrong internal incentives where what's best for the brand is not what's best for the salesperson. That that's a, that's a tough conversation to have, but one that needs to be had

Rob:

Nice. And we saw Nike over the last few years, go from thousands of distributors to 40, as a, as an example of that, where they, you know, they, they did an extreme calling of their, um, distributor channels in order to gain in order to control their brand because they're a premium brand and they are, they care more, their brand protection long-term for the long game than, than most companies. And most companies, they, they see the problems that you're showing them. They, they, they, they see that there are bad actors in the distribution channels, but cutting off the bad actors, it looks like on a spreadsheet, like you're cutting off your sales, you know, it looks, and so there's this, there's this cleaning up your distribution channels, um, can be scary for some of these folks, especially if it's long-term relationships that they've been talking about.

James:

If you decide to be a brand that is primarily focused on your retail channels, not on your consumers, then you will never have those tough conversations. Unfortunately, you will have to say no to some of your retailers. Yeah. And that's, that's part of the discipline needed to get to a place where your brand actually means the same. It's priced the same for consumers no matter where they purchase. Yeah. But by the way, if I could just one more thing about Nike, you know, Nike and Birkenstock are two very popular examples of brands that decided to change the way they interact with Amazon. You know, both those brands today still have literally thousands of unauthorized sellers selling their products on Amazon. The content is all over the map in terms of whether it's consistent with the way the brands, a hundred million dollar marketing budgets are being spent in other channels. These are the types of challenges that every brand faces. So walking away from Amazon, isn't going to fix the problem. You have to have the disciplined difficult conversations to start to fix some of these problems.

Rob:

And James, if you walk away from Amazon, does that give you less, uh, influence over controlling the unauthorized stuff that's on that channel? Or do they, uh, you know, treat everyone the same in terms of their brand registry and things like that.

James:

So with the exception of maybe a handful of brands like Apple, Amazon, doesn't get involved in distribution control on Amazon. So if someone's an authorized seller, as long as they're selling legitimate product, as long as it's not counterfeit, Amazon welcomes them. In fact, my last job at Amazon was to go out and recruit sellers. I never asked whether they were authorized or not. My job was to bring them onto the channel. And the more competition you have on the listing, the more opportunity there is for price, competition and more price competition means lower prices for Amazon. That's all part of their flywheel. That's exactly what Amazon wants to do is create duplicate inventory competition on the listing lower prices. This is all good for the Amazon flywheel. It's terrible for brands, but it's great for Amazon. And by the way, it's great for Amazon customers. So, uh, you know, one of the, one of the things that continues to confound me is how many Amazon customers don't really understand who they're buying from when they buy a product from a third party seller on Amazon, no one is saying it's a authorized sellers product. No one's saying it's covered by manufacturer warranty. But at the end of the day, Amazon's return policies are generous enough that if you've got a problem with the product, return it, an Amazon will take care of you, Mr. Customer,

Peter:

But they'll leave a review for the original brand because of that.

James:

This is part of the reason why brands have to have an active Amazon channel strategy. Even if, even if they're not going to sell themselves, they've got to control their branding. And part of controlling your branding is making sure that if consumers are complaining about some random seller dumping, you know, stale inventory, expired inventory, dusty inventory, someone's gotta be actively looking at that because that's hurting your Amazon brand, but it's also hurting your brand on Google because the Amazon product listings get index so highly on Google, that if I don't start my product search on Amazon, instead I go to Google and I start looking for something. I'm going to see an Amazon product listing very quickly. And if there's a bunch of content, that's not consistent with the types of messages that I'm trying to create as a brand owner, you know, this, this whole thing is, is, is one where you can't afford to ignore Amazon.

Peter:

So, James, uh, take us into the, the teachings in your book, the, the, what are sort of the key weapons that you, uh, give to brand leaders to take this problem on

James:

The moment I hand you a weapon, you have to understand you have to use the weapon. So as I go through some of these things, when I'm not saying is, they're all optional. You can, you, you can't come to the kind of conclusion you ultimately want without using some of these weapons. So when we talk about the types of tools that you're going to need, the most important tool you're going to need is to learn how to say no, no to some retailer you've done business with for a long time, no, to your head of sales, who may be trying to push as many short term units out the door as possible. When in fact that's not the right idea for the brand, long-term saying no is really important. And the more you learn how to say no, the more you're going to end up with consistent pricing, consistent inventory availability, that's all going to flow.

James:

Now you're probably wanting some more tangible tools other than learning how to say no, we get into things like for example, uh, you know, many brands have a minimum advertised policy. They have a map policy and a map policy is really useful if you enforce it and you only have authorized resellers, but online marketplaces are not there to exist primarily for, for authorized resellers through there to encourage unauthorized sellers, to also participate and to create that competition, that price erosion. So quite frankly, a map policy alone is pretty much a useless tool. I don't, I don't see it as particularly useful at all for addressing any of this erosion that is so commonly the outcome of uncontrolled distribution. So I like to see an online reseller policy put in place and an online reseller policy is a legal document that not only States what you, the brand or unilaterally telling all of your authorized resellers, what they can and can't do with, uh, selling products and certain channels.

James:

But part of the online reseller policy development is also rethinking. What kind of quality controls are you going to put in place that you require your authorized resellers to actually go through from the time that they take your products to the time that they put in front of the consumer, there are about 65, 70 different ways in which you can put requirements on the reseller to handle the products in certain ways. So that by the time it gets to the consumer, you, the brand know that a consistent experience, consistent quality product is being put in front of that, that, that particular customer I've been talking about. Things like maybe you need to have, uh, you know, a six sided review of the product at multiple stages before it goes on the physical shelf, or goes out to an Amazon warehouse. Maybe you've got certain types of data that you require your resellers to share with you.

James:

You need to share your Amazon seller data with us, or you need to share your, the feedback data that comes back. You know, there are a number of these different steps, which in and of themselves, you say, well, what's the big deal there. I'm not a lawyer. Whitney's a lawyer. My coauthor is a lawyer. And as we work through, by putting some of these requirements in place, the fact that you put them in place and that you can't validate that these steps have been taken by unauthorized sellers, there is a whole bunch of case law that lays out that in fact, the fact that you can't validate it with unauthorized sellers makes the unauthorized selling of your products under these trademark protection systems. It actually makes it illegal that these unauthorized sellers are selling your product. That's fascinating because now you have a situation where in most situations brands have unauthorized sellers selling their products.

James:

Those unauthorized sellers are protected by what's called first sale doctrine, which is federal case law that allows anybody to sell anything without permission from the brand. The only way around that, as far as we can tell from a legal perspective is to change the way you enforce your trademark and an online reseller policy is one effective way. Now those are the legal mechanisms, but there's a whole series of business mechanisms also in play. And that's where I, I'm better equipped to talk about some of the changes to make. If you suffocate the supply of inventory to unauthorized sellers, they have nothing to sell, even if they want to sell it. So putting in place programs around making sure that your salespeople are selling only to approve lists of resellers, making sure you're doing spot checks around, who's actually selling how much volume in the channels they say they're selling.

James:

If you're working with distributors, requiring your distributors to share with you, lists of who's buying what, in what volumes, so that you can match up what's happening. Potentially you're putting a RFID codes or serial numbers or other types of mechanisms where you can evaluate how products are going all the way through the supply chain. That's all important stuff for helping you figure out how did this product end up on the shelf being sold by an authorized seller. It had to get there somehow it didn't magically show up there. Somebody who was supposed to sell it through certain channels, diverted it somewhere else. And then ultimately ended up being sold in one of these channels. That's creating problems for you. And so putting this business and these legal approaches together, this is the best longterm approach because it says we, as a company need to change, it's not just, Hey, general counsel, can you go fix this problem for us? It's actually, we need to change our business practices and we need to change the way we think about things from a legal perspective.

Rob:

So there's, there's a, there's a, there's a lot in there. Um, I imagine there's the business process changes in the legal, the legal changes that you have to make, uh, and the agreements that you've got to get, all your, uh, all your, just all your distribution channels to agree to, uh, someone then has to make sure that th that they're actually following through. So I'd imagine that there's potentially new roles within a company that didn't really exist before. At least it didn't exist in the same way around channel compliance and distribution compliance. Um, and there's the need for, uh, companies that are used to just grow, grow, grow, sign distributors, sign distributors, sign distributors, to instead as part of the channel compliance, be able to just shut down and walk away. Distributor walk away from distributors, right?

James:

Well there's enforcement, but, but, but around enforcement is also changing the incentives internally. If people are incented to do what it is you want them to do around enforcement, then it happens. If, if you start with the belief, which will be shown over and over again, to be true, if you do this properly, even though you have to cut off certain limbs, certain distributors, certain retailers, the demand is still there. Someone else is going to fill the demand. And so if, if you're working with companies that are representing your brand properly, they're going to end up increasing the amount of product they buy from you. And they're going to do it in a way that's consistent with what you're trying to do as a brand.

Rob:

And I imagine that's a really good message that you can bring to your distribution partners, where you basically say, look, I'm cutting people off that are, that are violating. And that means that there's going to be more business left for the ones that are compliant. You know, which one are you going to be? Um, one of the, one of the things that, uh, we've heard and certainly had customers experience though, is there are certain types of channel partners that have become pretty good at hiding some of their, some of their three-piece selling from you so that even if you get them to sign one of these agreements and all that type of stuff, they still, they still want to do volumes. So they're still, they're still acting as a bad actor and they're hiding it, um, with a third-party seller identity on Amazon, in a way that's harder to track, at least, at least it's harder to track automatically. Um, how did, how do folks deal with those types of cases? Cause they're, they're on the rise right now.

James:

So Whitney would tell you that, uh, when you put these trademark processes in place, how you, how you require your retailers and distributors to manage your product before it goes to market, by creating additional legal protections for yourself as a brand owner, you're now in a position that if you need to get the actual identities of some of these disguise sellers, you can actually file John DOE complaints against Amazon. And Amazon will actually provide you with the identity of these sellers. Furthermore, because you now have the legal grounds to Sue these unauthorized sellers, because what they're doing is now illegal. It's no longer protected by first sale doctrine. You're in a position that even if I don't really know who you ultimately are, and Amazon says, Oh, it's Joe blow in orange County. Okay. You're like, I've got this person's name and address. I can now send them legal documents where I can provide them with materials that indicate that what they're doing is actually illegal. And if they have any kind of lawyer representing them, the lawyer is going to say, Oh, shoot, you're not protected by first sale doctrine anymore. It would probably be best for you to exit this situation right now. And let's go bastardize. Some other brands let's, let's get out of this particular brand.

Rob:

Yeah. And how much of how much, I mean, I find this subject really, really fascinating. Um, if how much of this is a whack-a-mole game, you know, in particular, the, the, the worst violators in terms of volume are, uh, Chinese sellers operating in North America, um, who, you know, you, you shut down one seller account, 20 others pop up in their place. To what extent it is a brand that's looking to control their distribution channels, um, and, and can, and control their brand on the age of Amazon. To what extent is this a set of processes and systems and personnel that are put in place that are just working on this in perpetuity versus, you know, just whacking every single one of these on every one of these issues as they pop up month after month, week after week, year after year, uh, or once you get this stuff under control, can you dial back the investment, the enforcement, the, um, compliance monitoring? Well, where's, where's the, where's the balance there.

James:

So this is a new type of cost that brands need to incur as long as e-commerce channels exist. So you're going to end up spending a bunch of money up front to start the cleanup, but there has to be ongoing enforcement because the first step, when you made as a brand owner was you made your brand popular, which means there's a bunch of people that know they can make a few bucks if they can get their hands on inventory and sell it. So unless you plan to make your brand no longer popular, someone's going to go and try to find inventory. And as long as someone's going to try to find inventory, you better be there with a big stick for the bad guys and a big carrot for the good guys. So to your, to your question, yes, there is a cost of ongoing enforcement, the amount of enforcement you're going to have to do after you start to get things well under control.

James:

And you've reduced the number of unauthorized sellers to a manageable number. You'll never get it to zero a hundred percent of the time, but you can get it to a point where quite frankly, the moment someone's identified and they've got any meaningful level of inventory, they're going to get a notice notice from you very quickly, or you already know who they are because you've seen them elsewhere under other names, uh, your distributors who are likely the ones or your, your retailers are likely the ones that are supplying these products to these, to these bad actors. They're going to see that, gosh, they're getting a lot of complaints from these guys coming back saying, I've been shut off. I got all this inventory. What am I supposed to do with it? And so the distributors are going to realize they too need to start to play along with the brand because it's, it's creating a problem for the distributors and the retailers.

Rob:

You know, what's so interesting about that is as an ongoing cost of doing business online. There's, there's a lot of those now that are not, that were not ongoing costs of doing business in the brick world, right? So you've got the, the M you got the advertising costs that you've got to spend. Increasingly the percentage of those search spots that Amazon has in the, in the, in the first page of results are, are paid. So it's becoming a lot more of a paid game category by category. You've got this cost of controlling your brand, which is, you know, legal and compliance and possible physical supply chain changes like you were saying with RFID tracking and other things all the way through the channels and so on and so forth. It companies have to redesign packaging to be compliant with like shipping your own container policies and e-commerce, uh, compatible shipping. Uh, a lot of the, the margins for shipping eaches are lower than margins of ship of shipping, pallets to begin with any way you cut it. Uh, so th this is a little bit of a left field question here, but one, one thought that's been going through my mind for the last few years is our margins just smaller for, for brands in an e-commerce world

James:

Or our margins up.

Rob:

I mean, it'd be the same. It's just that a lot of this cost is going to move from somewhere else. Like it's going to move from TV media into instead channel compliance, monitoring. You know, it's like, it's going to be those types of dollar shifts, but ultimately the bottom line is going to look the same. What's, what's your, what's your thought on that?

James:

There are definitely some brands that look at e-commerce sales and you add up these costs and yes, sure enough, they are taking home fewer dollars because of these additional costs. There are also brands that have leveraged e-commerce and said, wait a minute, we can sell direct to consumer, make retail margins. That's pretty exciting. We just increased our merchants by 40 50%. And Oh, by the way, I'll have all this consumer data that we can leverage to make better products that that's exciting. There are brands that are still selling first-party they're wholesaling products, but they're finding other ways where they're now having to learn how to engage with consumers in order to learn more about consumer needs and find ways that they can engage with the consumer after the sale. These are things that brands, many brands have historically not done. So while there may be some additional costs that come by way of online marketplaces now, existing, there's also additional data that makes brands more efficient if they know what to do with this opportunity.

James:

So, uh, I don't know how to balance this all out and, and give you a final answer and say, yep. You know, brands are 5% lower on margin, but they have this other stuff. I will say that we've worked with a lot of brands that have never been direct to consumer before that are now saying, Oh my goodness, I forced myself to do business one way, because I never explored the options of these other distribution models. And it wasn't just about dollars and cents. It was access to consumers. It was the opportunity to do experimenting with new types of bundles and products. And some of those types of options were not available for them. Historically also e-commerce is a world where you can test things out and get enough data quickly enough that on a small batch test, you can very quickly evaluate is this thing actually going to work?

James:

Do I want to fill up a container of this from China before I actually go be big into this? You know, those are things you can now do with e-commerce that brands couldn't historically do. We've worked for some of these billion dollar brands where they launch a new brand. It takes three years and umpteen focus groups and surveys and blah, blah, blah, blah, blah, before, you know, here's your new and improved, whatever. Okay. I'm also working with private label sellers on Amazon, who in a matter of 60 days that they've piloted some new product, different package, colors, different package, sizes, different flavors. And they've been very quickly evaluate what's working. What's not working. So the ability to be nimble through e-commerce provides an opportunity for brands of all sizes. If they're willing to embrace it. Unfortunately, a lot of brands are fairly fixed in the way that they go to market.

James:

They're fairly fixed in the way they evolve the product mix. They already have. It doesn't have to be that way. Some companies go and create new co a new co is the business that goes and works on the e-commerce customer demand. And the products that e-commerce would like to like to see, um, you know, that that's one model that can work. I've also seen models where big traditional CPG firms will go out and buy a brand that was born and grew strictly through e-commerce. Uh, how do we gain that expertise? How do we get ourselves to a point where as a big slow moving brand, we can be somewhat nimble somewhere. These are exciting times for brands. If they're willing to evolve. The problem is a lot of brands don't want to evolve that the worst thing possible. And I don't mean to insult anybody when I say this, but the worst thing possible is to have a brand leadership team.

James:

That's traditionally 60, 65 years old. They don't want to rock the boat. They're right around the corner from being ready to retire along comes e-commerce changes things up, kind of a noise, everybody in the C level. But the problem is it's, it's gotta, it's gotta be addressed because when the new management team comes in, after everybody retires, the problem is only five years worse or 10 years worse. And the last thing I want as a brand owner is for a bunch of random third-party sellers to ultimately control what happens to my brand. I don't want that to happen. I have to own my brand. That's what a brand owner does. A brand owner owns his or her brand.

Peter:

The pandemic has really accelerated that willingness of the 65 year olds to either retire or to do something about it.

James:

Um, what has happened is brands that have historically said, I, I don't even want to think about being on Amazon. I don't want to worry about the unauthorized seller activity. I don't want to think about how do I use Amazon as a growth channel or an experimentation channel. They're now saying as much as I hate it, I realized I need to have an Amazon channel strategy. It needs to be active. It needs to be a channel that

Peter:

I actively manage in some way, whether that's

James:

Using authorized resellers, whether that's wholesaling, I need to have a presence there because everything we've talked about here is the relationship with the brand with itself. The much more troubling long-term issue for brands is this world of Amazon only brands that are eating the lunch of big brands, these small private label brands that are now, you know, investors are jumping in and buying these companies, those companies, these, these private label brands, they are nimble. They're getting in, they're learning, they're collecting data. They're figuring out how to upsell, cross, sell, and do things in a really clever way with consumers. They're figuring out how to move faster than the big brand that takes three years to launch a new product. It's exciting to see all this nimbleness, but it's also very scary. If you're a big brand, that's, that's not realizing that you're not getting anywhere near fair share of traffic and customers on Amazon, because these smaller brands that you've never heard of, you've never encountered anywhere other than Amazon.

James:

They're actually doing very, very well. So, um, you know, when brands realize when, when I, when I say to an executive team who are your five biggest competitors, well, it's ABCD and D and I say, okay, great. Let's look at which companies are getting the most share in your product category right now on Amazon. Uh, it's like, uh, J K L, M and N, who are the heck? Are those brands I've never heard of them? Yeah. Some of them might be Chinese brands. Some of them might be private label seller brands from the U S some of them might be brands that quite frankly, we don't know where they come from, but they're not ABCD that you see on the retail stores on the shelves next to you. They're not the same companies. And that's when you realize, wait a minute, I've got small seemingly no-name companies that are eating my lunch.

James:

I'm the one that's spending tens of millions, hundreds of millions of dollars on advertising, and to add injury to insult last year, Amazon started rolling out this Amazon DSP advertising platform, which is a retargeting system that Amazon has, where basically you can retarget customers that didn't buy your products on Amazon curiously, though. You can also retarget your competitor's traffic. And what ends up happening is big brands spend millions of dollars on a national TV campaign. A bunch of those customers then go to Amazon to check out the product. They don't end up buying, but all this new traffic has come to the Amazon listings on Amazon. Now, some little upstart brand that doesn't have budget to do a national ad campaign. They come along and say, let's retarget all of the large competitors, traffic, and convert them into ours. That's totally doable now through DSP. And so, again, the example of a massive brand with massive budgets, not thinking about what's happening on Amazon, whether it's being sold by an authorized or unauthorized seller, whether a small player is eating their lunch, that's all happening. Unbeknownst often to the C level team that runs the big,

Rob:

Yeah, that's my, my I've long had this idea that if you were going to build a house of brands and the 21st century, it wouldn't look like Proctor and gamble. It wouldn't look like a few dozen billion dollar brands that you know, that, that are better managed centrally with good governance. It would look a lot more like an emergent brand, uh, thousands of brands that are following some type of best practice. And you've got the biggest example right now is, uh, I mean, you, you referenced this type of model. It's, it's, [inaudible] where they're investing in tons of these, like literally tiny little companies, million dollar revenue brands and giving them a 500 checklist, Amazon strategy and moving them from 1 million in revenue on Amazon to million in revenue, on Amazon, it's like a 16 X improvement in a few months. And they're doing that. They can do that thousands of times in any one of those, like if you're P and G it doesn't matter that there's a company taking $16 million of the detergent market or the soap market or the shampoo market, but it matters if there's a thousand companies eat taking $16 million of the detergent market.

Rob:

Right. And, and that's, that's exactly what you're saying. It's, it's like if you're, if you're P and G and you look at your market share on Amazon for any, any of your major brands, and you look down your 30 competitors list, there's a ton of these folks. And they're waking up every single day doing, you know, taking advantage of basically any little wedge. They can get scrappily to, uh, to win, um, game on every day, every day. And that's the thing, James, when I look at the, you know, the final leg of your stool, you know, you had, uh, sort of the three legged stool, you had the channel governance, you've got brand and control, making sure that your content, that you are the leader in your own content and you're settled for brand, right? And then finally, you talk about making sure that you are driving traffic to that channel, that you're getting kind of the fair share of voice. And when you mentioned the Amazon DSP, that's part of what made me think of that.

James:

If you build it, they will come is a model that is irrelevant online. There are so many options online. So many brands that quite frankly, the question you need to be asking yourself as a brand is what do I do to make myself relevant on page one of the most important product spirits terms? That's the game you're playing for. People talked 10 years ago about, Oh, there's infinite shelf space online. There's not infinite relevant shelf space online. There's still only one page first page results. There's still only the first row above the fold of first page results. That's where you want to be. And it's a sandbox with the different set of rules, uh, typically rules that most brands don't understand. And certainly the sales team of most brands don't understand. And so when some guy comes along and says, I want to be your e-commerce seller, the sales guy's like, okay, that's fine.

James:

That's great. You know, it's just another channel. Well, it's not just another channel to channel with a whole different set of rules. And by the way, you might end up with 10 people Hocking the same product in the same shelf, digital shelf, that that model doesn't work very well. So you've got to find a way that once you do create a controlled distribution model and you invest in high quality content to make sure you're indexing for the right terms, you've got a clean catalog on Amazon. For example, then you want to say, how am I going to deliver more than my fair share of traffic to my listings? Where am I going to invest in advertising? Where am I going to invest in open box experiences that are strong enough that consumers want to come back? They want to refer other customers to my product, especially, you know, smaller brands that people have never heard of except for Amazon.

James:

How do I, how do I get, how do I get my customers excited to come back? So I don't have to spend money on advertising the second time. Well, you know, there are ways to do that in very, very clever ways to do that. And you have to go back to the absolute fundamentals of how do I deliver a good enough product, but make sure it's in front of consumers more often than my competitors. And how do I make sure that when they get the product, I help them get the full value out of that product by explaining what it is they're going to get, and then showing them what they're going to get, and then showing them again, what they're going to get as they open the box, they start to experience it. They watch the YouTube channel, that there's opportunity for them to reach out and ask questions.

James:

If something's confusing, I make it such a great experience, which is completely different than the brand that says, Hey, listen, I've got retailers that take care of everything after it leaves the warehouse, I am exaggerating and I'm minimizing an awful lot of everything in between, but this concept of you need to put the best experience in front of consumers and then advertise like, heck to make sure that you get more than your fair share of customers to pay attention to your brand, these small startup brands, many of them make next to no margin for nine, nine to 12 months after they launch, because they are doubling down on growing traffic, converting traffic, growing more traffic, figuring out how they can get to a point where they start to get their own flywheel going and consumers start to say, Oh yeah, this product's pretty good. I'll come back and buy another one. I'll refer a customer or a friend who, to, to this, that, that process, just like the big brand who said, I spent a hundred million dollars for each of the last 30 years. You know, that's a nurture that these small brands are having to create themselves, but it's pretty easy to build a nurture for small budgets online. If you know what you're doing and you're investing in the right, right, right. Parts of the business.

Peter:

Well, James, the, the, the book is, is controlling your brand in the age of Amazon. And, uh, and it's a, it's a must read for a brand leader. That's figuring these issues out. And, and I also, I'd be remiss if I didn't mention that the DSI is going to sort of suck more blood out of you. Um, cause we're going to have you back in a live webinar on February 2nd at 1:00 PM Eastern, uh, to focus particular specifically on that Amazon DSP opportunity for brands. So really looking forward to that, thank you for being so generous with your knowledge and you know, all these different formats and it's been a real pleasure. We'll put a link. Um, should we send them to Amazon for your book? Should we put an Amazon link?

James:

That's where that's where brand owners go to buy books and that's where we're present.

Peter:

Yeah, I understand. So we'll make sure we have the link in the show notes too. Hey, John Amazon. And, um, and thank you again for joining us, um, on unpacking the digital shelf. Okay.

James:

Thanks for having me, Peter. Thanks for having me, Rob!

Peter:

Thanks to James for bringing some marketplace trues to us, just to remind her that he will be appearing on an upcoming webinar with the DSI to lay out what the opportunity is on Amazon DSP and how you and your brand can gain competitive advantage from it in 2021 links in the show notes, happy new year. And thanks for being part of our community.