Amazon Isn't Destroying Your Brand's Value. You Are.

By Edward Kummer, Former Chief Marketing and Digital Officer for Oakley at Luxottica Group

Amazon continues to dominate e-commerce, and e-commerce continues to dominate change in the world of retail.  In addition, within the last 4 to 6 months, there appears to be a tipping point representing e-commerce’s dramatic and everlasting impact on retail. Without a strong brand, e-commerce business, and strategy, many retailers, like Sports Chalet, are driven out of the market.  Numerous retailers are closing stores, including established brands such as Macy’s and Office Depot. The United States retail footprint, as measured by square footage per person, is ten times that of Europe, foreshadowing even more upheaval ahead.  Many business leaders are blaming Amazon for damaging their brand by discounting the price of their products and therefore the value of their brand.  This article is focused on Amazon’s impact on brands.  We will leave the overall retail environment for another day.

First off, the sole ownership and responsibility for one’s brand and its value lies within those running their brand.  The ability to focus on product and customer remains in the hands of those stewarding brands and no one else.  Anyone looking outside is distracting themselves from focusing on what is important — their own brand — and how to grow and improve it.

Let’s Talk About Amazon

Amazon is focused on converting customers by giving them great prices and fast delivery.  Jeff Bezos has said, “There are two kinds of companies, those that work to try to charge more and those that work to charge less. We will be the second.”  Core to Amazon’s business is their focus on converting customers above all else.   Conversion is key to them and even more important than growing the size of a given sale.  The byproduct of this is that they are willing to live with low or no margin on a given sale.  Wall Street has let them operate without regard to margin or profit for more than 20 years.  In fact, they have been rewarded handsomely for the impressive, and almost staggering growth they have been able to achieve.   This scale and long-term focus on growth have also allowed them to experiment and expand into other businesses, such as content and cloud.  Jeff Bezos is one of the few and true long-term thinkers in American business, and Wall Street continues to give him and his company a license to innovate with little regard for short-term profits. Make no mistake, Amazon is a brutal competitor. Low margin competitive advantage, combined with the impressive technology they have built in the last two decades make them and their impact on retail extremely powerful.  Amazon is here to stay, and this omni-threat will continue into the foreseeable future.

What does all this mean?  Due to their size and influence, Amazon is effectively taking margin rate out of the retail ecosystem.  The retailers that have been around for a long time focus on their products, customers, brand, margin, and profit. The latter two make competing with Amazon even more difficult. Over the years, many retailers have sold their products on Amazon as a wholesaler, or their products show up on Amazon via its Marketplace.  When brands look at Amazon, they often end up seeing their products priced at significant discount to its MSPR.  Many brands accuse Amazon of damaging their brand when they sell it on Amazon because of these low prices.

While it’s true that Amazon is focused on other things than getting the MSRP price of your product, they would be happy to sell it for a higher price, and would benefit from selling it for more profit, as long as it doesn’t impact their core focus on conversion.  However, the price of your product on Amazon is a representation of what your product is selling for in the market.   Amazon is a conveyer of clarity with a mirror reflection of the market price. Whether this pricing comes from Amazon, via Amazon as a retailer, the Amazon Marketplace, or via sellers on the web, Amazon attempts to reflect the best price on the market, or close to it.  Ultimately, the price of your product on Amazon is a reflection of how well you are managing your brand, channels of distribution, and in effect, the market place of your brand.  For the sake of simplicity, we are not discussing stolen, fakes, or other forces that bring cheap products to market.  The general selling price issues is complex enough within legitimate products.

Amazon’s dominance and commitment to converting customers via highly competitive prices have accelerated price transparency for consumers.  However, the transparency of the web is the true enabler and this fate was inevitable.

These are very dramatic changes impacting retailers; consumers driven by the empowerment of computing power and having comparative information in their hands at all times.  They will dramatically affect the nature of retail, challenge malls, department stores, and many aspects of how consumers shop. Your leadership and control over your brand’s relationship with consumers, quality of products, and ultimately what your brand stands for, will be key to its success. The value of your brand and its products will be increasingly transparent to your customers. Focus on what you do control, and don’t waste time blaming Amazon for damaging the value of your brand.  The need for maniacal management of your brand has always existed. The new wrinkle is that all slips and mistakes are now almost instantly reflected in the marketplace and in the minds of your customers.