How Amazon is Disrupting the Wholesale Model With Help from Amazon Brand Agencies
Publication: Tuesday, January 8, 2019.
DataHawk is a web-based Amazon Analytics Tool that combines a Keyword Ranking Tracker, a Product Tracker, a Market and Keyword Analysis tool, and a Product Research engine. This is a blog post where we share some insights on the number of Amazon sellers and their growth, including the largest ones.
The impact of eCommerce trading may be more disrupting than anybody imagined. When we look at the current state of things, there are very few brands out there that know exactly where their products are being sold. A distributor has become a go-to guy for many brands.
Distributors manage sales, supplies, relations with customers, and a lot more. This allows brands to run their operation under less pressure and focus on more important tasks at hand. Things began to change rapidly once online shopping became a huge thing. Let’s see how Amazon, one of the largest eCommerce platforms, is disrupting the wholesale model.
The Exponential Growth of Amazon
Amazon's retail e-commerce sales (as gross merchandise value, or GMV) in the U.S. are estimated to have reached $258 billion in 2018. There are more stats that clearly tell us that Amazon has become the most dominant player in the eCommerce industry. Amazon has more than 310 million active customers, and 55% of people who intend to buy a product online begin their product research by looking for a product on Amazon.
All of this has affected the good old wholesale model. There are more and more brands becoming aware that reaching customers through distributors is no longer enough. In fact, being present on Amazon has become more important than ever, especially after the very distributors started using Amazon to boost sales and retain brands as customers.
Amazon Becoming a Semi-Distributor
This new retail channel is different than the well-established wholesale channel. Why? Because Amazon is now the one who dictates the rules of conduct. Supplying products as a vendor and selling them on Amazon still reflects the wholesale model. The problem is that Amazon has limited assets and resources.
What does this mean? Amazon will connect you with all customers using the platform. But it will not invest a dime in building relationships with them, optimizing your listings, nor promoting your products. In other words, brands have to do it all alone. This is why we refer to Amazon as a semi-distributor.
See, brands want to get the best deal with a distributor. And now, they have to rely on Amazon to connect them with customers, while Amazon is not willing to invest as much time and cash into forming relationships. This is why brands were not interested that much in establishing direct relationships with Amazon.
Amazon renders brands as simple sellers on their platform. As a brand, you could register on Amazon and sell products as any other seller out there. If anything, Amazon has succeeded in making a perfect self-service marketplace anyone can use. On top of that, the Amazon Brand Registry service works like a charm. Feel free to check our guide on how to use it.
The problem hides in the wholesale model. By relying on distributors to handle selling, brands have distanced themselves from this process. They do not possess the required skills, knowledge, and experience to compete in an open marketplace.
Say Hello to Amazon Brand Agencies
While brands hold their reservations towards using Amazon, the wholesale model still had a chance. But the specific needs and requirements of brands didn’t go unnoticed. A new industry has emerged - Amazon brand agencies. This industry was brought to life thanks to dozens of marketing agencies, strategy consultants, and Amazon digital marketing consultants.
Amazon brand agencies were the missing piece of the puzzle. If we had to compare this online sales channel to the wholesale one, we could say that Amazon brand agencies and Amazon do everything distributors and first-party vendors do. Amazon brand agencies are responsible for the following processes:
- Creation of listings
- Listings optimization
- Competition analysis
- Development of pricing strategy
- Creation of brand content
- Keywords research and implementation
- Management of advertising campaigns on Amazon
- Customer relationship management
Amazon brand agencies give brands control and allow them to benefit from selling on Amazon in the most optimal way. You could compare Amazon brand agencies to distributors in the wholesale model, but there is one significant difference. Unlike distributors in the wholesale model, who had to distribute to many retail shops, Amazon brand agencies distribute only to Amazon.
Additionally, Amazon brand agencies help brands bring products directly to customers, boost sales, and generate more profits. With this benefit on the plate, brands cannot resist the opportunity to sell on Amazon, thus definitely disrupting the wholesale model.
How? We have to thank Amazon’s ranking algorithm, A9. This algorithm assesses all the sellers on Amazon. The main factors are price and availability. With the help of Amazon brand agencies, brands can now bring products directly to customers by taking complete control of all their products sold on the platform.
By looking at the current state of things, it is safe to assume that the Amazon platform is not going to change that much, at least not in regards to how Amazon brand agencies and brands utilize it today. As more and more brands decide to shift to online sales, we can only assume that the Amazon brand agency industry will grow and generate more profits.