Why Does Amazon Really Even Matter?

It's no secret that Amazon is becoming increasingly relevant in the retail/e-tail space, particularly in the US. But why should you start with, and prioritize, Amazon instead of treating it as just another channel? We will explore some of the major reasons why it makes sense to embrace Amazon as a channel and platform, rather than viewing it as a nuisance or just another outlet to sell product.

 

Amazon as a Sales Channel:

You may be hard-pressed to find more than a handful of friends or family members that do not currently shop at Amazon, but the user base seemingly continues to grow rapidly. There are now more than 100M unique monthly users in the U.S. (168M for all Amazon sites, or >50% of the population in the U.S.), and the base continues to expand. What may be more surprising is that engagement also continues to increase, with an average of >6 visits per month per user (which actually may be closer to my personal daily usage). 

In many categories, including electronics, health & beauty, groceries, home, sports, and more, Amazon remains the only growing sales channel for CPG companies as retailers stagnate. While I was managing a category in PCs at Amazon, several of my product lines were actually declining in market size and most retailers were experiencing sales declines, while Amazon experienced high double digit growth. As a result, many vendors across categories have been forced to pay more attention, resources, and marketing funds to the Amazon sales channel to continue their growth while investing in new products and geographies to fuel long-term growth. 

 

Amazon as a Marketing Platform:

Let's face it, we have all been there: While at Best Buy (or insert retailer name) and looking for a product to buy, we pulled out our phone to search for the reviews or product details on Amazon - even if we end up buying it at the store. According to Forrester's report "Why Amazon Matters Now More Than Ever", over 2X the number of online users research a product on Amazon over Google before purchasing. In the event that those customers use Google, Amazon is often a top search result displayed well above the fold. Over 90% of customers claim their buying decisions are influenced by online reviews, and 84% of customers completely or somewhat trust the reviews on Amazon. As a result, reviews and details on Amazon pages have a significant influence over a customer's decision regardless of the sales channel they ultimately choose. 

Forrester Research estimates that for every $1 that is spent by consumers online, customers are influenced to spend $6 offline. Furthermore, web influenced offline sales totaled more than $1.3 Trillion in 2014, more than 4X the size of online sales, and at a larger growth rate. While 'showrooming' gets much of the media attention, the reverse phenomenon, deemed 'webrooming' or 'reverse showrooming', is much more prevalent. According to a Harris poll, 69% of customers in the U.S. have webroomed while 46% have showroomed. The study goes on to state that Amazon remains the #1 place where showroomers end up making their purchases, but it's even more popular for reverse showroomers who ultimately buy elsewhere. What do all of these numbers mean in a nutshell: the impact online research has on a customer's offline purchase is profound, and Amazon is usually the place they go to read reviews and product information.

 

Amazon Continues to Grow Prime Membership and Value Proposition:

The Amazon Prime membership continues to be a focal point for Amazon, and with good reason. A CIRP study estimates that Prime Members spend a whopping $1500 per year on average, compared to $625 for non-members. Additionally, Prime Members cross-shop other sites significantly less than non-members. A Millward Brown study estimates that non-Prime members are 12X more likely than Prime members to shop on both Amazon.com and Walmart.com during the same shopping session (fewer than 1% of Prime members cross-shop on both Amazon and Walmart sites). In summary, Prime members are very loyal to Amazon and are much more likely to focus solely on Amazon while shopping, which is a major concern for other Retailers.

To grow the Prime membership base, Amazon has been pulling out all the stops. Prime Video and exclusive video content, unlimited photo storage, music streaming, early access to deals, free two-day shipping, and much more, Amazon is packing in enormous value in its membership program. At the same time, Amazon has been working on partnerships with companies such as JetBlue to provide unique access and benefits to Prime members. These efforts seems to be working: Prime membership grew an enormous 53% worldwide last year and crossed 53M users according to B.I. Intelligence estimates, with 75% of those users coming from the U.S. (Prime is only available in 8 countries currently). It is becomingly increasingly difficult to not jump on the Amazon Prime bandwagon if you have managed to do it this long.

 

Conclusion:

While Amazon can be complicated, confusing, and potentially frustrating to work with, the value of starting on Amazon first is clear. Even if Amazon is not a top sales channel for a brand (which has often been the case up to this point), the impact that Amazon has on your entire business is significant, even if you are based in categories such as Health & Personal Care or Groceries where e-commerce has traditionally had very low penetration. Incredibly, I have encountered countless cases while at Amazon and during my Consulting where clients have claimed their growth on Amazon has fueled growth in other channels, and wished they started earlier. Who said you can't have your cake and eat it too?