Amazon’s Power: Strategy and Brand Challenges w/ Mike Begg of AMZ Advisers | builders podcast

0:0070 % of all online product searches start on Amazon. So if you are a CPG brand, what are you doing by not being there?

0:12Today is a really interesting discussion on advertising and brand presence on Amazon. For retail goods, I talk with CEO and co-founder of AMZ Advisors, Mike Begg, about this. We also talk about the Latin American market and what brands can do to increase profitability on retail marketplaces.

0:37Hey, Mike, how are you doing today? Good to see you. I'm doing well, John. Thank you for having me here. I'm excited to talk about Amazon and retail and e-commerce today. From a consumer's perspective, Amazon is extremely important to me. I might be over-indexed on that because I live in Seattle. I used to work at Amazon, so I use it probably more than most. But it's obviously really important to me as a consumer. for the owner of a business that sells a product on Amazon, like a typical physical product, like consumer packaged goods. Can you put into perspective the importance of Amazon as a sales channel for that business?

1:12Of course. I mean, there's a very simple metric I can point to that that'll show the importance of it. But 70 % of all online product searches start on Amazon. So if you are a CPG brand, what are you doing by not being there, essentially? No, I mean, it's a huge discoverability issue for brands that aren't on Amazon. Once you're on the platform itself, there's a whole bunch of different intricacies that you need to master to be able to get the visibility. But just by showing up and being there is the most important thing. No one's going to find you if you're not on Amazon anymore. I knew that Amazon search was important, but I didn't realize it was that important.

1:4770%, that's wild. And so why do you think consumers are starting there as opposed to, let's say, Google or somewhere else? Well, I think when we look at Google and SEO on Google, generally over the past, I don't know, 10, 15 years, a lot of people have just gamed it, gamed the SEO to get their best product articles ranking up there where really the information provided isn't actually valuable. And I think consumers have kind of made the shift to Amazon because you get to see the reviews from people that have actually purchased the product. So you're increasing consumer confidence and you're using the reviews that you're getting as social proof for other shoppers that are coming to the product detail page.

2:24So I think that's mainly the reason why a lot of people have shifted is that you get a lot more, I guess, honest reviews than you would get from some half-baked SEO blog posts that you might find. I hear that. Or maybe influencers is another way to get that. Although, again, you might question the validity of something like that. if 70 % start on Amazon, it's obviously very easy to buy with one click. Do you have any data that says how many people find something on Amazon and then go off of Amazon to look for the best price? Is there a dynamic of that? There is a little bit, but it's not as common, I would say.

3:03I think there's two metrics that point to this. The first metric, well, it's not really a metric, it's just the fact is that Amazon price matches other websites. So if your product is priced lower on other websites, essentially, Amazon will suppress your visibility on Amazon. So other customers won't be able to find it. So customers won't be able to buy your products. So at a minimum, Amazon's typically the lowest or at least equal to the other channels. Otherwise, consumers won't find it. And the other metric that kind of points to Amazon driving much more revenue than some other platforms per se would be that the conversion rates on Amazon are about two to three times higher than what you would see on a Shopify or an e-commerce website.

3:41So typically, Shopify website might convert one to 3%. The average conversion rate on Amazon is about 8%. So it's a pretty significant difference there when it comes to where consumers are actually purchasing the product versus where they're going to look for it. How about Walmart? I mean, if 70 % of them happen on Amazon, Walmart's got to be a lot smaller. But they seem to be devoting a lot into Walmart Plus. I think that's the name of their Prime-like product. Do they also have a much lower conversion rate than Amazon? I don't have the data to give you exactly what the conversion rates on Walmart would be like.

4:17But what I have noticed is that a lot of the purchasing that tends to happen on Walmart versus Amazon actually tends to be more directed towards grocery and food products. A lot of consumers seem to be buying more food products from Walmart than they seem to be buying from Amazon. So I think that's where a significant difference between the two platforms are. I mean, when you go into Amazon, you can buy whatever cheap Chinese plastic electronic that you need. And when you're going to Walmart, you're really looking there to buy food or buy things that your family needs or CPG goods. So I think that's really where we see a lot of the breakdown.

4:53I was also going to ask about Target, Best Buy, some of the other bigger online marketplaces in the U.S. is the same sort of difference in dynamic there. Obviously, people aren't buying groceries at Best Buy, but sort of the same differences. Yeah, I mean, they're similar. I mean, I would say Best Buy is obviously very niche when it comes to that. I would say Target is pretty much lagging behind Amazon and Walmart at that point when it comes to the online shopping. I think the in-store experience is really great, but for most brands that are selling products online, the online platform or the third-party marketplace is not as great as it is on Walmart and Amazon, where you have a little bit more control over advertising, over visibility, and how you're actually marketing to the end consumer.

5:37Okay. I'm interested in digging into that and the different options for brands. But I was thinking before we started taping today, what's a product that I recently bought on Amazon? And I bought these electrolytes that you put in water. And it's just basically like salt. I mean, I can't believe I pay the amount of money I do for this. But like, let's say that I'm starting a business around electrolytes or something, a supplement, and I want to make it live, or it's been around for a couple of years, and I want to expand it on Amazon. What are the typical challenges a brand has in kind of like DIYing that and saying, I'm going to figure out how to do Amazon on my own?

6:18The biggest challenges that most brands run into is really understanding their data and the metrics on the platform. I mean, the two most important metrics, in our opinion, is click-through rates and conversion rates. And this is one of the areas where most brands really struggle, especially like in the example where you give like a supplement or an electrolyte. That is the type of product where consumers are going to hopefully purchase again. It's a repeat purchase product or we call it a consumable good versus like a one time product where it's like, you know, you're going to buy a Nalgene water bottle and you're going to buy it once.

6:55You're not going to buy one every month. Hopefully not unless you're really uncareful with where you put your water bottle. But once you kind of understand the model, it's where you kind of need to focus on how you're going to be acquiring customers and how you're going to be converting customers. So it's kind of understanding where most brands struggle, at least to start with, is understanding where their product fits within the e-commerce space and the e-commerce ecosystem, essentially. And then from there, it's how do I optimize my marketing? How do I optimize my listing pages to improve click-through rates, improve conversion rates, and just maximize the number of sales that are coming from people visiting my product detail page on Amazon?

7:30So tell me why a brand would have a hard time understanding where it should be in Amazon's shelf. You would be surprised how many brands actually struggle with this. Sometimes they just get bad advice. Sometimes they have investors that are very focused on top line revenue and not very focused on sustainability, let's say. We recently came across a brand that we've been working with and they do great online. And we've been scaling them on Amazon pretty well. They did about the past 12 months, they've done about 14 million in online sales. And then we found out what their net profit was. And it was about$60 ,000 in those 12 months.

8:08So it's really because they've been overly aggressive on customer acquisition versus trying to maximize the profitability of the sales that they're actually driving. It's not a consumable product. It's an electronic product. Someone's going to buy it once and they're not going to come back and buy it again. So when you get overaggressive, sometimes it's where you really start to struggle. I mean, yes, you can capture more market share, but it's going to come at an expense at some point because that growth is never going to be sustainable unless you have that recurring revenue. And it's just very difficult for certain products.

8:40And then there's also the discoverability of it, I think. So I'm more familiar with the Google ecosystem where, you know, your content and your advertising is specifically targeted towards keywords or keyword searches. Do the same things apply to Amazon? What's similar and what's different when it comes to discoverability on Amazon? So the advertising is very similar in some instances. Other instances, it's a little bit different. But generally, I would say it's comparable. A lot of the sponsored brand and sponsored display is very similar to product display ads on Google. Search engine marketing on Google, like keyword-based bidding, is very similar to keyword-based bidding on Amazon.

9:24The differences there, obviously, can be the cost of bids. Costs are a lot higher on Amazon because people have much higher buying intent than they have on Google. That's one big difference. But the main difference between the two platforms actually has to do with SEO and the rankings. Obviously, Google is a search engine. It's more focused. I mean, they're both search engines, but Google is an information search engine. It's more focused on providing the most relevant results for what the customers or what the browser is searching for. So it takes into account things like backlinks. It takes into account like keyword density, how it's indexed within the platform, all these different factors that go into Google SEO.

10:04Amazon SEO is a little bit different in a way. It really focuses on a couple of main things. One is your conversion rate and your sales history. So how long have you been selling on Amazon? What's that sales velocity? Have you been selling a lot? And how well are you converting? So again, to go back to the Nalgene water bottle example, if I search water bottle, and a consumer, and I go to the product page, I go to Nalgene and I buy a water bottle, that's a relevancy signal for Amazon saying that this product is relevant for this keyword. So the more conversions I get on this keyword for the longer period of time and the more frequently they happen, the more relevant I'm going to be for the keyword and the higher I'm going to show up in search results.

10:41So the SEO piece is really where it's extremely different. The paid ads piece is pretty similar between Google and Amazon. So Amazon's incentivized to show the top result to be the combination of the revenue they get if someone buys it and how often someone's going to buy it when they see it at the top of the page is essentially. So, okay, that is very similar to Google. And then what other options do I have as an advertiser beyond those kind of like sponsored listings? So sometimes when I go to Amazon, it appears that that whether it's like co-op dollars or whether someone's just just saying, like, I just want to announce my brand to the world.

11:24I'm not necessarily, you know, expecting expecting a purchase right now because you're not searching for it. Yeah. So when we're talking more like brand awareness, more more top of funnel, there are a lot of capabilities there as well. It's more on the display side. So with Amazon sponsored display, we have a lot of options when it comes to, for example, We can do targeting on third-party websites. We can do video ads. We can do streaming ads. We can do TV ads. There's a variety of different things that can happen there. And then that's just one piece. And the other big piece is the programmatic side, or it's the Amazon DSP platform.

11:58And the DSP platform, we have a very, very strong targeting capabilities. I mean, we're essentially taking all of the consumer buying history from Amazon and then focusing that on targeting on the programmatic side and saying, well, these types of consumers... bought these products. It's a good opportunity to target them. And once we get into that, it opens up even more third-party ad networks. It opens up other types of streaming, Twitch ads. There's just so many different types of ad platforms that we can run. But once we get to that programmatic side and the sponsored display side, that's really where we're going top of search.

12:31And that's more brand awareness and top of funnel, going more brand awareness and letting people know that we exist, like you said. You were talking about Nalgene before. Or let's say that I'm a brand manager for Nalgene and I have this feeling or data that says that hikers like using Nalgene. So do I have the capability of finding products that hikers would buy or have bought and then have an ad about Nalgene with a picture of a hiker? Is that kind of the level of sophistication you can do? Exactly. And we can create all types of different affinity groups, especially once we get on to the programmatic side.

13:14So a good example of this that we saw recently, I forgot what the product was. It was some type of food product. I think it was like protein bars or something. We saw that people that had an affinity for surfing and an affinity for coffee had a high affinity for buying these. And that's like a type of very targeted advertising you can make. So it is really, really powerful. And the buying history of all the consumers shopping on Amazon makes that targeting more and more powerful over time. So in a way, it's also creating network effects within the advertising platform. The more traffic I drive to buy Amazon, the stronger my retargeting gets or my targeting gets.

13:50And the more people I'm going to be able to reach, that could be potential customers. That makes sense. You know, I was going to ask a question about margins on Amazon. And I actually, I'm wondering if the premise of the question was wrong. I was making the assumption perhaps that a brand would take a smaller margin on Amazon in the hope to build brand loyalty and maybe have a higher margin purchase on their direct channel. Do I have the premise of the question wrong? Should I assume that on Amazon, I can get as high margins or almost as high as I get in any other channel? No, I mean, Amazon, your margins are pretty much going to be lower than any other channel.

14:27I mean, the fees that Amazon charges are significantly high and the advertising costs are going to be much higher because of all that buying history and because of the number of people that are actually going there to shop. So this is where it gets really where the answer I gave you earlier about understanding what your business model is or where your product fits within the ecosystem. This is where it gets really important because the margins are so low. Now, when we work with a lot of brands that are consumable goods or consumers come back and purchase the product over time, it gives us a lot more leeway on the customer acquisition side because we know we can pay a little bit more up front.

15:00And we know that through the subscribe and save program, through retargeting, they're going to spend this much over their lifetime. So that's one of the really powerful things that we can do. Uh, now the ability to push people from Amazon to like subscribe and save or repeat purchase programs outside of Amazon is extremely difficult. There are ways to do it. It's kind of a gray area. It's, it's technically against Amazon's terms of service, but as you get consumers and you want to incentivize them to, I don't know, to redeem something through your own website, it's a way for you to potentially capture that customer data and then try to upsell them on the subscription service through your website.

15:36That is possible. Again, it's a gray area. But when you're looking at Amazon, again, we're focused on customer acquisition. We're focused on creating brand awareness. We're focused on trying to get our product in front of people that are searching for it or that are in market. And that's really what the benefit is of Amazon and the tradeoff is that's going to cost you a little bit more to do that. If I bought a supplement, let's say, and it came to my house and I opened it up and in there was some sort of coupon about buying directly from the website, that's the kind of thing that Amazon either frowns on or explicitly says you can't do?

16:13Yeah, it's definitely frowned upon. There's a variety of things you're not supposed to do. One being incentivizing reviews, like, hey, here's a coupon, leave us a positive review or leave us a five star. That's 100 % a no go. Things that are a little bit less direct with a promotional offer like that are possible. So a good example of this is if you're selling an electronic product, register on our website to get your lifetime warranty. That's a great way to capture the customer data without actually infringing on Amazon's terms of service, because it's a benefit you're providing to the buyer.

16:53But to redeem this benefit, it's not possible to do it through Amazon. So they have to do it through your website. Or another good example of this is purchase this product. And we've seen this before. It's a little bit outdated now, but download this e-book from our website. Same idea, you're trying to capture customer data and just a different call to action or a different lead magnet in that sense. But that type of thing is gray area, but it's generally allowed on the platform versus like, hey, come buy from our website and save 20%. Okay, I get it. So you're calling in today from Guadalajara, Mexico.

17:28When we were talking, I learned that was the second biggest city in Mexico. and a lot of your business comes from the Latin American market. What are some of the ways that it's different? And what are some of the ways that it's same from the perspective of brand marketing if you sell in both markets? Well, the interesting thing is that when we look at Latin America in general, it's growing incredibly fast. E-commerce shopping is some of the, I think, Brazil and Mexico are top five for the past three years in fastest growing e-commerce marketplaces or fastest growing e-commerce countries. So it's evolving rapidly.

18:02The interesting thing is that there are so many barriers to entry for most brands getting into Latin America that most foreign brands don't pay attention to it. So when we look comparatively, to kind of give you an idea of how Mexico and Brazil compare to other marketplaces, the best comparison for e-commerce size is Mexico is about the size of Italy when it comes to e-commerce. And Brazil is about the size of Germany, which are both very big consumer markets. And there's big opportunities there. But when we look at our costs, especially in Mexico, since it's something we frequently deal with, our cost of advertising in Mexico is about one tenth of what we're spending in the U.S.

18:39So when it comes to being able to advertise, reach new customers and acquire new customers, we're able to do it for significantly cheaper in Latin America than we would be doing in the U.S. You know, you mentioned barriers for a brand getting into the market. Can you maybe categorize some of those barriers? Well, the first one's obviously language. Language barriers are a very big one. Business formation is typically another big area that most brands struggle. Obviously, if you're capitalized, you can figure it out. But for smaller businesses, it's a little bit more tricky. Essentially, to give you a quick rundown, you need a business partner that's from that country, that lives in that country, that's going to be the legal representative.

19:16So you don't know anyone from there. It's difficult. The time to actually form a business is also different. It took us about six months to form a business in Mexico. In Brazil, it can take anywhere from 12 to 18 months to form a business. That's another massive one. Fiscal challenges is another category that is a big challenge for most brands. Dealing with the SAT in Mexico, and I'm blanking on the name of the tax authority in Brazil, but they both take a lot of time. In Mexico, especially, it took us about two months to get a tax ID. So we couldn't actually start doing business until we had that tax ID.

19:50So business formation, fiscal challenges, those are both big ones. And then product compliance is the other one. Product compliance is very different between the U.S. and Mexico and Brazil. Good example of this. We've talked about supplements a few times. In the U.S., the level, especially in vitamins and those types of supplements, the level of ingredient you can have is pretty much unlimited. Whereas in Mexico, it's very restrained. A good example of this is vitamin D. D. Vitamin D in the US is sold somewhere between, I think, 4 ,000 and 5 ,000 micrograms per bottle or per dose or whatever it is.

20:27In Mexico, the limit is 400 micrograms. So if your product says 4 ,000 or 5 ,000, it's going to be a problem when you try to get onto the e-commerce platform. So the ingredients, the composition of all the supplements that you're bringing in is another big challenge. And this exists across categories. So anything that's consumable. You're going to have to go through a variety of regulators. It's going to take time. It's going to take money. And those are the biggest challenges that most brands face and why they stay away from it. But once you kind of crack those, the market's like wide open. That's what it seems like.

20:57It seems like there's a big opportunity if you're willing to be in it for the long term. And that's probably what Brazil and Mexico want. Also, that'd be my guess. I want to talk about your business. How did AMZ Advisors, how did it start? What's the origin story there? Yeah, so it's an interesting story. As I didn't mention, actually, I'm originally from Connecticut. I live down in Guadalajara, Mexico now. But when I was back in Connecticut, I had two business partners and we were all working corporate jobs. At the time, I was working at Sears in real estate development. So I was coming from the retail space and my partners were working in other companies.

21:35We all kind of wanted to leave our jobs, figure something out. We figured out that we, in a variety of different ways, I figured out from working with Sears that Amazon was kind of moving into distribution, opening up distribution centers, trying to buy some of our old distribution centers. That kind of opened my eyes a little bit to what's Amazon doing with this stuff. I figured out you could sell products on Amazon. So from there, we started publishing eBooks. That was the first step. And then we started doing retail arbitrage, which is just like going to your local Walmart or Target, buying everything on clearance, turning around and selling it on Amazon.

22:08And then from there, it became private label. We started importing products from China with our own brand on it and selling it on Amazon. And the products we were importing were in the art category. And obviously the big art supplier in the US is Crayola. We were beating Crayola in a lot of categories. And that's where it kind of switched. It was like, hey, these brands don't know what they're doing online. And that's where AMZ Advisors came from. We started the company then, This is 2015. We've been growing it ever since. We're kind of playing to our strengths, which is sales and marketing. And we're just helping a lot of brands really succeed in that way.

22:42So that's kind of the origin story. It's been a while. 2017 is when I moved down here to Mexico. And I met my wife, who is now the main reason that I still live here. But yeah, I mean, it's been a fun journey, fun ride getting here. That's amazing. And I always like to ask businesses that help others with marketing, how you market yourself. So I'm kind of interested in how AMZ Advisors goes about getting new business. We do a big focus on content marketing. So from day one, we put a big focus on content marketing and SEO for Google. That led to the point where we generate about 60 ,000 unique visitors per month to our website.

23:22So that's obviously a massive lead source for us. Partnerships is another big way that we generate a lot of leads. We do webinars, we do podcasts, we do all different types of content to try to capture email leads. Email marketing has been another one, both internally to our own list, but also cold email marketing. It's gotten more difficult over time, but it still continues to perform. And at this point, we're also doing paid ads. Paid ads was probably the last ad channel that we added or the last lead acquisition channel that we added. But that's kind of helping us juice everything up. So it's been interesting.