One of the most common topics brought up by physical product brands is developing strategy between Amazon vs retail (online or offline). While retailers and Amazon will be battling for years to come, what matters to your brand is how to navigate the battlefield.
Amazon and retailers operate in a very different way. It’s not simply a matter of putting your products either online or on a shelf for the consumer. Amazon has their rules and systems while retailers have their own (i.e. longer payment terms, lead times, logistic expectations, more oversight required, etc).
The biggest differences between the two are seen in pricing strategies, branding, and inventory control – as well as how a product is pushed to the end-consumer.
This article on Vendor vs Seller Central (1P vs 3P) is a great place to start to get a high-level overview on Amazon’s systems before continuing reading this article.
Is Amazon or Retail Better?
Let’s address the elephant in the room. Either could be better than the other, maybe both are equally useful for you. It depends on many factors: your team, finances, product, personal preference, competition, etc. The best thing you can do is understand both arenas thoroughly before you assume too much.
- Understand the role of distributors vs retailers. Retailers have net payment terms such as 30-60-90 days.
- Retailers expect you to work collaboratively on promoting end-consumer sales. How much budget is the retailer asking? Is that going to achieve the ROI you need? What else could you do outside of the retailer’s marketing vehicles?
- Packaging, logistic strategies, product margins, insurance, communication processes, and similar topics need to be address prior to talking seriously to a retailer.
Most often brands will begin on Amazon and work their way outward to other sales channels. This creates a big emphasis to execute Amazon correctly with retail in mind because retail buyers will almost always look on Amazon for reviews prior to accepting meetings with newer vendors / brands.
Because my job involves growing physical product startups in retail, I hear a lot of hesitation and fear surrounding the retail space.
“Retail is dying.” , “My friend’s business got killed in retail.” , “We’re happy enough with Amazon.” , “We tried retail for a few months, but it didn’t work out.”
The word “retail” doesn’t just mean big box stores in my world. It means everything from catalog buyers to TV retailers like QVC. Going from Amazon to 3,000 Walmart stores is not typically immediately feasible, nor financially sound, for brands who have never been in the retail space before. A measured approach is always required when first getting into the retail scene – especially due to the added consequence and cost of making mistakes with retail partners vs Amazon.
If retail was easy, everyone would be doing it. There are plenty (if not more) failed brand attempts via e-commerce / Amazon.
Controlling Your Product’s Price
Controlling your MAP (minimum advertised price) is a tricky and time consuming task – yet must be done – whether you’re in Amazon or on retail shelves. The difference is fighting Amazon’s algorithm vs managing retail partners. It’s extremely common for 3rd parties to sell your products on eBay, Amazon or elsewhere for less than your MAP. Even if you’re not selling on these eCommerce sites yourself! This causes Amazon to “match” the lowest price and can become a race to the bottom. And even worse, this can cause bad reviews for your products despite your brand not being responsible.
On the retail side, not controlling your MAP (Amazon or elsewhere) can quickly deteriorate relationships with your retail distribution partners. If an unknown 3rd party is selling your products for $20 less on eBay or Amazon, that’s taking away from potential retail sales. If the price of your product is not correct with a retailer, at the very least you can call and address the issue by offering other ways to drive sales rather than cutting the price. How do you negotiate with Amazon’s algorithm?
For brands moving from Amazon to retail, having the lowest price possible on Amazon will not allow you to enter retail easily. We’ve seen this many times with Chinese-based manufacturers who want to enter the North American retail market. Retailers want a piece of the pie just as Amazon does, except there’s little chance when you’re already operating at lower margins or providing Amazon and key retailer partners the same discount.
At the End of the Day, It’s the Consumer
As talked about in a previous post of mine, e-commerce and retail sales channels should be seen as opportunities rather than opposing forces. It’s a matter of generating end-consumer sales in the most cost-effective manner (easy right?). It’s a matter of being where your consumers are and doing what your competitors aren’t for additional brand awareness and market share.
Not all of your customers will purchase your product without seeing it in-person. Not all of your customers are willing to wait a couple days to get it shipped to their door. If you’re a lesser-known brand, most people aren’t even searching for your product online. There’s no be-all-end-all sales channel strategy for startups or established brands.
Amazon and retailers have a variety of marketing vehicles for you to utilize. Measuring your ROI on these marketing vehicles can be difficult, more so for physical sales channels, but it’s not a simple task for online sales either. This measurement of ROI might be one of the biggest fear factors of young brands going into retail (which is completely logical). When faced with uncertainty, many brands maintain status quo.
This hesitation from competitors can be an opportunity for you, if you have the resources to execute. The more data you can gather supporting a risk, the easier it will be to justify to the team, investors, and yourself.
In many cases, a successful product on Amazon will do well in retail provided the numbers make sense and you have someone on the team who can navigate doing business in retail. Using reviews, sales figures, and proven brand marketing tactics can help justify moving into new sales channel / retail territory.
- Amazon is a really good platform, but still just a platform (still need positive reviews, still need to commit effort to maximizing and standing out)
- Understand that retail is very different than Amazon (terms, lead times, logistics, insurance, packaging, customer support). Your expectations and preparations need to be adjusted accordingly.
- No need to go directly after big box stores. Small / regional retailers, catalogers, etc and find traction before you can more comfortable take more risks.