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3 LESSONS CPGS SHOULD LEARN FROM AMAZON PRIME DAY

Posted By: Jeff Miller    |    Thu, 07/13/2017 - 02:16    |    0

Amazon Prime Day 2017 this week, which this year lasted 30 hours this year, generated an estimated $2.88 billion in sales which is 60% more than 2016 and $1B in revenue.  These massive numbers don’t even take into account how much Amazon made off advertising on the site during the day or the recurring revenue and increased LTV they will generate from the massive amount of new Prime members who joined Prime on their biggest acquisition day in Prime's history.

Many lists of lessons learned and recaps of top products sold and total dollars sold from Amazon’s biggest sales day ever are already circulating.  We thought we would jump into the mix with three lessons that CPGs should learn from Amazon Prime Day 2017.

AMAZON ALEXA IS GROWING AND CPGS SHOULD BE VERY SCARED

The biggest selling product this year was the Amazon Alexa Dot.  It was discounted and was a key deal offered for Alexa owners throughout the day.  According to Amazon, the Dot was not only the biggest Amazon branded product but also the best-selling product from any manufacturer in any category across Amazon globally.  Why should CPGs be worried about a voice-activated helper that plays music, turns on the lights and makes kids laugh with funny stories and answers?  The answer is simple- Alexa and similar devices from Google and others will start to dominate simple online shopping and as it stands now, Alexa does not care about your brand or product at all.  

“Nearly 70% of the Alexa-only Prime Day Deals were for CPG products, from candy to home consumables such as paper towels and toilet paper,” points out Ryne Misso, Director of Marketing for Market Track, on Retail Wire.  Voice is different than desktop and mobile shopping as choice is limited based on what Alexa thinks you want, how long you want to listen to her and what is best for Amazon.  What is best for Amazon now includes more private label brands (see lesson 2) or the product they make the best margin on based on who it is sold from and where it is shipped from.  

If you are not already thinking about voice, try to order batteries with Alexa.  Your only choice is Amazon Basics and long time market leaders Duracell and Energizer are nowhere to be found unless you explicitly state the exact brand name you want, which is becoming less and less common.  Younger shoppers are looking for what the product does for them, what the ingredients are, and what it is.  They are not searching for brands or asking Alexa for brands that we often associate with product categories as much as other generations.

So more voice activated devices + less choice + Amazon not caring about your brand of toilet paper, tooth paste or even chocolate = big trouble for CPGs who don't adapt.

AMAZON PRIVATE LABEL AND BRANDED PRODUCTS TAKING LARGER SHARE

According to marketing technology company Amobee in the same article in Retail Dive “In 2016, only three of the 10 products most associated with Prime Day in digital content engagement were proprietary.  But by midday of the 2017 event, five of the 10 products most associated with Prime Day were Amazon-branded items.”  We do not know which products yet but it safe to assume that known products like Alexa and Kindle made the list and possibly Amazon Basics like batteries.  It will be interesting to see if Amazon releases numbers on any of their new private label brands or categories like the dozen new apparel brands that seemed to be featured during much of the day for generic clothing searches.

Amazon is not shy about entering new categories to try private label.  We would not be shy either if we had unlimited access to cheap capital from Wall Street who only care about growth. Since Amazon knows the customer best and owns the customer relationship, the only long term play that other brands in the same space can use to compete for that customer on Amazon will be to spend marketing dollars on Amazon to compete with products created by Amazon.  Amazon is quickly becoming the 3rd largest digital advertising platform behind Google and Facebook and brands will have to start to put more media dollars and raise bids to stand out from competitors including upstart brands who know the game better and Amazon themselves.  This looks like a vicious circle and a race to the bottom for brands in the spaces where Amazon enters with quality private labels.

PRIME DAY 2017 IS ONLY THE START

Yes, July 11 2017 and the 6 hours before it made for a huge day for Amazon and that alone should mean something.  But as mentioned before, they now have millions more Prime members for the other 364 days of the year.  With the success this year and growth year over year, we can expect Prime Day 2018 to be even bigger.  Amazon is not the only game in town for these kind of massive promotions.  China’s Alibaba is the real creator of this promotion and they have not even scraped the surface of US or other regions with its Singles Day in November.  Last year, Alibaba’s Singles Day brought in $17.8 billion is sales, 6X what Amazon did and more than Brazil’s total 2016 e-commerce sales.  Will Wal-Mart, Jet.com, Target or any of the others follow Amazon who followed Alibaba for these one day sales events? 

So what can CPGs do with these three lessons and probably a dozen more they should consider?  We think the solution is simple to articulate but more difficult to execute.  They need to start to take some of the customer relationship back from giants like Amazon.  The ship may have sailed on competing with Amazon in e-commerce as they have such a huge lead unless you are another giant like Wal-Mart, Target or Alibaba.   However, the boat has not left the dock for brands to use customer centric subscriptions and well executed memberships programs to use the brand equity they have built over time, before it erodes, to give consumers a better experience than the value, convenience and selection of Amazon.  

Are you a CPG leader who wants to find a way to compete with Amazon? Check out the OceanX platform and schedule time to talk with a membership expert

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