August 4, 2020 *This Q&A Series came from a webinar with BeautyMatter in June 2020, entitled “How Prestige Beauty Brands Win on Amazon”. Kelly Kovack, CEO, BeautyMatter – Chad Annis, CEO, Market Defense – Vanessa Kuykendall, Vice President, Market Defense Chad: Our philosophy is this – you should not discount on Amazon to win the Buy Box. That’s our Number One. Take it from a guy who was doing $8-9 million a year, and pricing using algorithm software to the tune of $5,000- $6000 a month to compete in the Buy Box, only to watch it just spiral out of control and become a race to the bottom. That was not an economically viable model. So, we knew going in we didn’t want to discount. How do you win on Amazon without that? You do everything else really, really well. All of our brands, our prestige, luxury-leaning, some mass-tige don’t discount on Amazon. And we win 90 plus percent of the Buy Box on nearly all of them all the time. That is our basic philosophy. Kelly: Okay, so we’re really living now through a brutal reminder that when it comes to distribution, diversification matters. The current crisis upended retail. It accelerated ecommerce. No doubt about it. Amazon was sort of the undisputed winner of the past two months, and it really was a safety net for a lot of premium beauty when much of traditional brick and mortar was shuddered. The concerns related to Amazon for premium brands are usually two-fold. One is maintaining the integrity of their brands, and two is upsetting current retailers. So, can you speak a little bit about these two concerns and how you can alleviate them with the strategy and philosophy that you employ? Vanessa: If you don’t want to upset your retailers, the one thing they are going to be bothered about is an unlevel playing field. There are all these gentlemen’s agreements between everyone in Beauty that we’re all going to hold MAP (minimum advertised pricing). We’re all going to be at MSRP (manufacturer’s suggested retail price). So, if you have one channel that is clearly driving a discount model, well, then everyone is going be upset. The best thing you can do is take hold of that channel, control it, take back control from all these unauthorized resellers, set your price. Then, your other retailers will be happy because they now are able to engage their customer with their own specialty loyalty programs, with their own brick and mortar experience, with their own ecommerce experience. And every retailer can now stand out for the nuances that they bring – their points of difference. Right now, if you’ve got a messed-up Amazon channel, no one’s happy. Chad: I’ll tag onto that. When we first started Market Defense, the number one goal for all of our brands was NOT to grow their sales on Amazon. Never. Their goal was to get rid of unauthorized resellers and fix their pricing. Their retail partners – Sephora, Ulta, Nordstrom’s, you name it, Neiman Marcus – were all screaming at them: “Why are these products so much cheaper on Amazon? You need to fix this. We’re going to kick you out.” We figured out a way to do that without the discounting. Brand equity is a big deal to us. It’s a big deal to our brands, and every one of them has had a story with a major retailer. So, we are really sensitive to make sure we don’t upset these guys. How do we do that and still do Amazon well? It’s pretty simple when you start with – “Don’t break pricing” and “Make it look and feel the same as if you are on the brand’s website”. You get those two things right, and everything else kind of falls into place. At the end of the day, Amazon is a marketplace, so you have the constraints of the marketplace because there’s almost this attempt at everyone having sort of a level playing field, even though we not know it’s not a level playing field. I’m sort of going tease it out a little bit against these concerns. First, you must have a strategy to maintain your pricing. Second, you must have a content strategy to replicate your brand on Amazon the same way that you would with any other touch point. Because you know, if you look at the numbers, more people search on Amazon than on Google. So even if it’s just a search, educational content about your brand and products is important. Did a tease that out right, Vanessa? Vanessa: Yes, that’s exactly right. The bottom line, when you’re focused on being sensitive to your retailers, make sure your pricing is right. The look and feel is right. And as long as they’ve got a level playing field, they’re fine.