Question #4: How does a Premium Beauty brand get started on Amazon? How does it maximize revenue potential? What are the differences between 1P and 3P?

September 4, 2020 Kelly: You have a sweet spot at Market Defense and a profile of brands that you work with. First, you are beauty-focused, and I think anyone in the beauty industry knows there’s lots of nuances to beauty. But beyond that, your sweet spot is premium beauty.  Let’s talk about that a little bit because you’ve had tremendous success with who have probably been the last to adopt Amazon because of all their concerns with the retailers. You’ve worked with three out of the top 10 Sephora brands. I think many brands – and you alluded to this – they take the path of least resistance and join Amazon Premium (1P) or Indie Beauty. Either they’ve got a mess to clean up and it’s the easiest way, or they don’t really know what they’re doing and it seems like it’s just “set it up and let it run”, which we also know is not a reality. In your experience, how does a brand get started? What should they be considering as a premium beauty brand to maximize revenue potential? Chad: We definitely have some pointers we can give brands before you even get on Amazon – before you even sign up and register. There’s certain things you have to keep in mind. First, you have to have a developed story. You have to have a point of view. A point of difference may be your hero product. I think the days of throwing up something on Amazon and seeing if it works are long gone.  It’s too big.  It’s too clunky, and customers are two savvy. They know what they want. They go into the search bar. They’re looking for a particular category and particular brand.  Amazon is not a place where customer demand is created.  It’s a place where customer demand is fulfilled – so you’ve got to be strong on social.  You’ve got to have some buzz in the marketplace, some business going on before you really start to tackle Amazon. Okay so now, you have a great brand and you have put a lot of heart and effort into it.  The second thing is to think about your distribution agreements, because you want to make sure that you’re locking down your distribution agreements so that other retailers don’t have the ability to resell on Amazon. That’s a big problem. Brands think they can trust a reseller to sell their products on Amazon. If you know how the Buy Box works (if you don’t, read our blog on the Buy Box here), you know that there is only one seller allowed in the Buy Box at a time. If you’ve got a bunch of authorized resellers, you’re increasing the likelihood for them to discount in order to get sales. If you want to hold on to MSRP, be sure to already have that tough conversation with an authorized reseller and say, “Hey, look, I don’t want you selling on Amazon anymore because I want to take control of my Amazon business. I don’t want you to do it for me – I’m going to do it from now on.” So, you’ve got your distribution agreements covered.  You are the only one who’s going to be selling your products on Amazon.  Now, you really have to be thoughtful when you go into Amazon.  If you aren’t careful, you are going to fall victim to unauthorized resellers and diverters.  It may seem like I’m bashing Amazon luxury and beauty and the premium side, but the largest Amazon segment right now is brands coming off of luxury and premium beauty and coming over to companies like ours to run their Amazon business. Why? On the premium beauty side, you sign a Vendor Central Contract.  On the seller side, you sign a Seller Central Contract. Basically on Vendor Central (1P), you give all of your control over to Amazon – pricing advertising, marketing dollars, and they don’t really share with you how they spend it.  You give Amazon a royalty free license, international, in perpetuity, for your brand. That’s really scary.  They can do what they want, when they want with it. On the seller side (3P), the brand is in 100% control. We set up a store on behalf of the brand. The brand owns the store. The brand owns the inventory. The brand owns everything – and we do what the brand says. Now, we have our advice. We tell them this won’t work, that won’t work, but it’s ultimately up to the brand. On Seller Central, the brand is in 100% control. The problem with it, is that most brands don’t know what to do. So, that’s where we step in and we say, “Okay, we’ve been down this path, we’ve got the scars, we’ve got the war wounds, follow us. We’ll take you there.”  And we’ve had a lot of success especially in the last six or eight months, growing brands at a very, very high rate.
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