Editor's note: This blog was originally published on September 24, 2015. It has since been updated to reflect more complete and up-to-date data.
The Bezos Virtuous Cycle
In 2001, Amazon founder and CEO Jeff Bezos sketched one of the most iconic business models on the back of a paper napkin.
Dubbed the "Virtuous Cycle," Bezos' drawing illustrated the idea that success starts with a fantastic customer experience. A great customer experience will attract more customers. Customers will attract more third-party sellers. Third-party sellers will drive more product selection. And more selection will ultimately lower the cost of products and innovation, creating a positive flywheel effect.
While Amazon's "obsession" over the customer experience has proven fruitful, marketplace sellers are feeling the pressure. It's 2019 and the Amazon flywheel is in full motion. Sellers must conform to the retailer's ever-changing rules and keep up with the competition—or risk losing a valuable sales channel altogether. Continue reading to learn more about today's marketplace challenges and how you can master them by adopting one of Amazon's core principles: leverage and invest in infrastructure.
Amazon Marketplace Challenges
- It's evermore important to maintain a good seller score but...Amazon's marketplace fulfillment standards are strict and unforgiving. Your customers also expect a high-level of service. To meet all of those standards, you need tighten the reins on your inventory and fulfillment process.
- More brands are selling direct-to-consumer (DTC) on marketplaces, making it hard for resellers to access fast-moving lines. If you're a reseller, you need a more defensible retail strategy, if not branded products of your own.
- Competition is fierce. With 20 or more sellers often competing on a given listing, the buy box is increasingly difficult to secure. Whether you're a seller or reseller, you're likely facing tremendous pressure when it comes to pricing and making your brand visible.
- Concentration risk is serious. More and more sellers are starting realize the consequences of putting all their eggs in Amazon's basket. Businesses big and small have been impacted overnight by sudden Amazon changes or suspensions. (Cue the One Vendor rumors.)
Taking a Page from Amazon's Playbook
Fortunately, Amazon's approach to its own business offers insight into how you can succeed in today's cutthroat ecommerce environment. While there's no one-size-fits-all strategy, there are two important overarching goals to keep in mind.
1. Lower Cost Structure
- Via continuous reinvestment—In a way, Amazon's strategy for lowering costs is paradoxical. Amazon continually invests in infrastructure. In fact, Amazon has put over $15 billion into its distribution centers, software and hardware (Kiva Systems robots) since 2010. But all this is buoyed by the end goal of increasing supply chain efficiency in the long run.
- Via economies of scale (products, shipping)
- Via automation (physical and digital infrastructure)
2. Offer Top-Notch Customer Experience
- Via fast, accurate delivery
- Via low prices on a growing selection
- Via continuous innovations make it easier to
- Via fast customer service
- Via having a long-term focus (or in Amazon's case, being willing to lose money on orders to keep customers happy and win long-term business)
Leverage the Amazon Virtuous Cycle to Automate and Grow
When put into practice, those principles can take on various forms:
- Use Fulfillment by Amazon (FBA) for automation on Amazon: While we don't advise leaning on FBA entirely, you can leverage Amazon's wide fulfillment infrastructure to fulfill orders at Prime speed. Fulfilling through FBA will also make your listings prime eligible so you can offer free shipping and gain priority in search results. Keep in mind that while Amazon offers multi-channel fulfillment, other marketplaces like Walmart forbid using FBA for fulfillment. There are also other ways to make your listings Prime eligible—Seller-Fulfilled Prime (SFP) and FBA Onsite to name a few.
- Tap a third-party logistics partner (3PL): 3PLs can free up time and money so that you can invest more into merchandising, supplier development, sourcing or brand development. Eighteen percent of retailers are already planning to outsource fulfillment entirely while 48% are pursuing a hybrid approach in the next three to five years, according to a DHL study. Not only do 3PLs already have the infrastructure in place, but many have technology to improve order accuracy and speed.
- Harness custom software: If you control your own warehouse or any part of the fulfillment process, software can automate many manual processes, like handling inventory, pricing, listings and returns. In fact, the right ecommerce software lets you work at the speed of the internet and keep up with competitors even when you're not looking. While sometimes written off as unnecessary cost, a WMS and/or COM system is essential for scaling your multichannel operations.
Investing in the right infrastructure and/or software early on can transform your business. Not only does it keep your head above water, but it helps you stay flexible and meet the standards set by your marketplaces and customers. If you're still on the fence about where to invest your resources, consider this:
- Think of all of the things you're currently doing manually that a computer could reasonably automate. How many man hours can you re-purpose towards growing your business?
- Is your team perpetually burnt out? How much more productive would your team be if they could stay ahead of issues and offer proactive customer service? How much happier would your customers be?
- Imagine building your own online retail brand (leveraging Google Shopping) with minimal additional effort.
- Imagine being a first-mover to sell on new marketplaces including Jet.com.
- Imagine the economies of scale you will achieve as you continue to grow.
- How much more efficient and competitive would you be?
Execute according to the Bezos Virtuous Cycle and you will be well positioned to grow market share over the long term.
Multichannel Ecommerce Software with Zentail
Curious on how you can manage products across multiple marketplaces? Zentail is a multichannel ecommerce solution that lets you centrally manage your operations to work as efficiently as possible. From managing product information, inventory, orders and business analytics, Zentail can handle it all.