Podcast transcript
Introduction
Hi, and welcome to another live episode of Marketplace. Marketplace Masters and this series in particular is focused on going deeper into the challenges that Amazon and marketplace agencies face to lift performance via very practical actions and insights.
Paul Sonneveld
I am your host, Paul Sonneveld, and today we're going to discuss how you can grow your client's profits outside the Amazon e-commerce ecosystem.
Now, to help us do that, I have invited Leszek Lekstan to join us and share his expertise. Let me quickly introduce him to you. Leszek is the co-founder of PointStory, an Amazon advertising partner agency that helps increase ROI through content optimization, advertising, execution, prospecting, and discovering hidden audiences.
Leszek has held a variety of roles in Fortune 500 companies from usability research and design web operations, project and program management, marketing and product management. He has spent valuable time at Amazon scaling self-service ad products, including product ads, text ads, and sponsored products. He brings expertise in both strategic planning and execution, helping brands scale on Amazon, so he brings a broad range of experience to the conversation today. Great to have you on today's episode Leszek.
Leszek Lekstan
Thank you so much, Paul. Excited to be here.
Paul Sonneveld
So what struck me as I was introducing you, you know, there are so much Amazon expertise in your CV and background, yet here we are talking about life outside the Amazon ecosystem, right? And, we're actually probably not going to talk much about Amazon, at all. So for those of you that are tuning in today, and thinking that you're going to pick up a lot of practical tips on how you optimize your ads on the Amazon platform, openly, probably Leszek is probably your guy, but we're not going to be talking about them, today. So, hit him up separately.
What we are talking about is the world outside Amazon and all the other options and digital marketplaces that are out there. Now, for most of us that are so Amazon-focused. I thought maybe where we can start Leszek is with the landscape. What does the outside Amazon, what does a landscape look like? You know, and it's super diverse, but, how do you look at the landscape outside the world of Amazon?
Leszek Lekstan
Sure, sure. You know, it's hard to talk about e-commerce with not talking about Amazon. So Amazon is still a dominant force in e-commerce, but we are seeing the dynamics changing a little bit. But obviously, Amazon is still the main player. We have some data that we pulled from eMarketer, but you know, still about 40% of e-commerce in the US happens on Amazon.
That number dipped a little bit, in 2022, about 36%, but it's still at dominant force. At the same time, we are seeing other marketplaces and other retailers picking up momentum with Walmart and Home Depot and Best Buy and Target while they're increasing their percentage of the overall market share, those are still very small relative to Amazon, but we are seeing a shift.
We are seeing our clients looking to diversify for multiple different reasons. I think we'll dive into that in a second. But we are seeing interest and we are seeing perform. in terms of the top line, and then a performance from the perspective of profitability from other retailers and marketers and retailers.
Paul Sonneveld
So, You know, obviously pretty big landscape and, you know, sometimes the headline numbers don't always do to talking. But you know, what I'm really interested in is, so I actually, you know, so confession time here, last year I'd run a straw poll and I asked agencies, Hey, if you have another couple of hours of hypothetically speaking if we all had a couple of free hours every week, which we don't, how would you use that to drive your client's sales and profits?
And certainly, in the North American context, the feedback, they came back, it says, look, we are just, there are so many opportunities on Amazon. We're going to go harder, and faster, there are always more things to be done. And there was a real shying away from considering other marketplaces. I don't get that vibe at all. I mean, I've just been coming back from a couple of different conferences and talking to different agencies. You know, diversification to other channels is a really big topic. It's on everyone's mind. I'd love to get your thoughts on Why do you think the wind's starting to shift or has shifted already? What is the driving force behind agencies and even brand owners, starting to look outward to other options?
Leszek Lekstan
Yeah, definitely. That's been our experience as well, and from my experience, from my agency's experience, talking to clients, talking to brands, there's several different things that are happening. One, I think if you look at Amazon and specifically the fees associated with selling on Amazon. We've seen an increase in those fees. And that's, yeah, thank you for showing the graph. That is, you can see from 2017 to 2022, those fees as a percent of the revenue generated on Amazon on an average increase from 40-50% in five years.
And while some of these fees are associated with services that became a little bit more expensive, like FBA, there are others that maybe used to be optional but are no longer optional. So obviously advertising comes to play in this regard. Not only it's non-optional, it's also becoming a bigger part of the puzzle. And it's still, don't get me wrong, right, we're still can see tremendous profits from Amazon. Especially as the platform evolves from the advertising perspective, from the data perspective, and from the different insights we can draw. But the number is quite telling over time.
So, I think this is a big piece where we are seeing profitability being impacted by these additional fees on Amazon. And I think the other big piece is that we are seeing quite a bit of investment from other platforms into their capabilities. I think Amazon is still light years ahead in terms of capabilities, especially when it comes to advertising, but others are catching up slowly, but they are catching up and we do see improvement in targeting capabilities. We are also seeing more eyeballs. And so I think it just makes sense to look at these other marketplaces, these other retailers where there are audiences that we can target and put in front of our brands.
Paul Sonneveld
Leszek, I'm just wondering at this point, you know, can you paint a bit of a picture, maybe a client example, and make it real for us. What would this look like in terms of growing your business and growing profits?
Leszek Lekstan
Yeah. So, I think a good example to share is one of a brand we worked with, that was a pizza oven company. And when we first start talking to them, they were selling on just one channel. They're just selling on eBay. And we were able to integrate them across initially around 20 different, retailers and etailers. And then ultimately over 40 different integrations that we would put in place. And there are multiple things that I think are worth noting.
This is also an interesting case because we were actually in the first stage, we didn't even run any ads. It's the growth that we've seen is all through sheer presence. So just from that perspective, of listing these guys on these places. Within a year, the revenue increased 12x again, without any media spend behind it. We've seen a tremendous impact on their SEO, and on their online presence. Specifically, would you go to Google and search and they would show up across all these different retailers and etailers, and that also helped Brent build the credibility of the brand. This is a kind of a fun story too, because of that, they actually got picked up by the Ellen Show and they had a whole giveaway on Ellen.
And after that the business really took off. And so, you know, this is a really good story of again, not spending any media dollars, just, you know, enabling integration and enabling these products being listed on other retailers. So, you know and it is a process. Typically when we start talking to a brand, we want to make sure that we are looking at retailers and etailers that make sense. We are seeing that you know, while the, maybe the, the eyeballs are not obviously as big as on Amazon, but we are seeing a high purchase intent, especially if we can list products specific to a category where the audience is going for specific categories.
So you can think of, you know, maybe Home Depot, Home Decor, Wayfair, Overstock House, et cetera, where they're, you know, individually they're much smaller, but customers go there to find home decor products. So I think there's just a tremendous opportunity just by listing on these other locations.
Paul Sonneveld
Yeah, I think you raised, raised some really good points here. Obviously, size is not the only thing. It's easy to look at Amazon and go. It's so massive and that these guys are so small. But a lot of these obviously are curated marketplaces, which means, not everyone can get on there, but also the competition is significantly less. So, I actually remember doing some of analysis on marketplace here in Australia. Just looking at sort of a very quick and dirty ratio, what's the number of page visits or eyeballs divided by the number of sellers for a particular category. And actually, if you do the ratio analysis, it actually is it looks very, very favourable. You know, and obviously, it's much better to get a good ranking and the like.
I think the second point you make around, audience fit is absolutely crucial. Right. So high intent, but usually very unique audience. Either much more female, certain age, or male or you know, depending on the category, you can really come up with a winning proposition here.
So, you know, just going back to the pizza ovens case study. That's a great study and feels like, you know, definitely about being in the right place at the right time, which is great. Really fortunate, there's no need to spend any advertising, but we do know that advertising is actually a big game. Certainly, it's hard to survive without advertising on Amazon. And so, I wanted to ask you, you know, what is the role of advertising for these marketplaces? You know, can you even advertise and what does that look like?
Leszek Lekstan
Yeah, no, that's a great question. So, you kind of alluded to it earlier when we were talking about Amazon and some of the things that are happening, right? Amazon's expanded their advertising capabilities pretty, pretty substantially. And it's absolutely critical now in order to achieve results to advertise not just through PPC, but also DSP and even driving external traffic to Amazon and to help and there's, competition and all that.
And just the advertising industry is really interesting. I do have a little stat there to show. This is basically historical and projected growth in terms of search ad spending from 2020-2026. A quick caveat on that data. This data includes advertising that that's come from websites and apps that are engaged in retail and e-commerce. But it doesn't include social networks and search engines.
This is just looking at the actual point-of-sales locations. So you can see the tremendous growth. And if you look at this growth, and then you also look at how or where Amazon is right now. As a proportion of that, Amazon is around 70, 78% as of 2021. And then 2022, about 76% of all the serve spend happens on Amazon. So if you recall from the previous stat, we're talking about 40% of e-commerce in terms of revenue and about almost 80% of ad spend. So we see this proportions are quite interesting and so that opens up an opportunity to run advertising on other location.
We are seeing that for the most part there are some of these marketplaces have their native advertising solutions use other solution like Citrix ads or promote IQ. But what we are seeing is that while the level of sophistication of these ads is nowhere yet close to Amazon, it's also, they can be very, very effective. Just because of the level of competition is much smaller than on Amazon. So, we have worked with several clients, and we are seeing really strong results both from the advertising perspective, but also the impact from advertising on the total business performance on the platform.
Paul Sonneveld
So give me a sense of, I mean, very practical, right? Let's take Home Depot. What are the sort of ads can you run and what's the typical, I'm assuming it's the cost-per-click model. Like what is the typical cost per click that you pay for a popular product on Home Depot? And I know we're not comparing apples at apples and it's really the unfair, but it is an interesting stat nonetheless.
Leszek Lekstan
Yeah, no, it is. So, you know, with Home Depot, we run ads through promote IQ to run, the advertising there. And, I can go back to Home Décor category, but I believe it's consistent across categories. There is a $1 minimum. And from all the media that we run, we never got over that $1 minimum. So, there's quiet, you know, that tells you a little bit about competition. We didn't even get over the minimum. So, our CPC was $1 and continues to be $1. In home decor, for example, where our average order value is around $160. So, when you look at CPC versus price of the goods sold on average is pretty attractive.
Obviously, there's the conversion rate aspect of it. But you know, overall, it's pretty, pretty attractive. In fact, you know, the example that comes to mind is a home décor client that we worked with that when we engaged working with them, they, they, they were just selling, selling organically. They weren't really running any ads. And we start running ads about, 4% or 5% of total sales. We dedicated and slowly start scaling. But what was quite incredible is that within 30 days we were able to see an increase in total sales by almost 200%. And, you know, that was pretty, pretty stunning. On average, we saw average daily sales increase by 170%. So, the impact of ads on overall business was pretty amazing.
And if we just were to isolate the advertising performance from the total number or the total revenue, we still saw a healthy return on ad spend. It was just over 4 in terms of return on Ad spend based on a very small, and again, based on the first 30 days, which as we know, the first 30 days, things can get better substantially after that. And that's what we're seeing, already. We are seeing a better return on Ad spend already, you know, a few months in. So, you know, while you can get good traction organically, running ads on these platforms really helps accelerate, and I think the momentum right now is really good because we're still seeing very limited competition and by applying some best practices from the world of advertising can really make a difference with, relatively low ad spend.
Paul Sonneveld
Yeah. Wow. That's fantastic. I'm sure at this stage, we've got a lot of listeners who are starting to think about, okay. This all sounds very interesting. In fact, some of this may sound a little bit too good to be true. Certainly those, although, you know, it does feel like a CPC of $1 is almost still too high because it's not being pushed up at all.
You know, I'm wondering, obviously, there's a floor there. Take us through some of the success factors here. I'm sure it's not a good fit for every single product across every single category, How would you summarize or distilL it down in terms of things to think about or things that will put you in a better position to take advantage of this opportunity?
Leszek Lekstan
Yeah, I think there's a few things that tend to work really, really well. I think first, obviously, being prepared to fulfill that, the demand. So, you know, having ample inventory to fulfill the demand. And, you know, that I don't really have a hard number, but typically what we do when we talk to brands, we look at their existing business and we look at the channels that are already on and then we create forecasts based on what we've seen historically.
So, having inventory is one. But then also being able to add more inventory as we see success. So, you know, we watch the inventory pretty quickly once we start seeing certain sell-through rate. Once we start seeing the inventory levels dropping below 50% of where we started. We want to be able to immediately replenish the inventory. We don't want to lose any momentum with that because that has pretty bad consequences as we know. So I think number one is being ready to fulfill the demand that there will be.
The other one I would say is the price point. We typically want to see products with wholesale prices above $20-$25. Just because the economics, and I think, you know, as we even look at Amazon, of course, Amazon has different programs for small and light and things like that. But in that regard, we do see products with that price point above $20 being an important factor. And then, you know, when we first start, we rely mostly on organic. We do want to have a plan for the media, and we typically want to have a media plan for at least six months, just to continue the growth and make sure that we can support the growth and can support winning market share. So, I would say high level, those three things, inventory, price point, and then media commitment for about six months.
Paul Sonneveld
Yeah, very, very practical. I mean the price point's also critical here as well. It's easy to sell, much harder to make money and price point continues to be a big factor in this. So that's great. Great. Well, look, we're almost out of time, but I thought maybe just to draw things to a close, You know, I want to just ask you, what's the elevator pitch here? If you sort of take it up a level, we sort of get into like a summary mode, and maybe there are other agencies there that are just Amazon-focused right now and it's a pretty big industry. There's enough fish to go around, so to speak. How would you prep others to say, this is the business case, these are the key points to make to your client as to why this is at least an interesting conversation and opportunity to explore.
Leszek Lekstan
Yeah, I think there are multiple and some of these we've already touched on. But I think overall, growing market share, putting your product or your client's product in front of the audience, that is looking for that product, you know, what kind of what we talked about very specific to the category. We've also seen a tremendous increase in SEO by listing and having a presence across these retailers. That really helps with SEO. Obviously, the big one is managing risk and diversifying that risk of Amazon not having all your eggs in one basket.
And then, you know, also lower, competition on some of these marketplaces. There's definitely, although they are growing, they're still relatively, relatively less competitive. And I think the last one is just, they are getting better. The levers that we can pull on some of these places are getting better, they're getting more sophisticated. So the timing is really favourable. From what we've seen, we've seen success and you know, I think that's the right thing to do right now.
Paul Sonneveld
Very, very good. Thank you for that great practical summary. You know, lots of good arguments there at least in 2023 to start exploring these other channels outside the Amazon environment. We are out of time, so we need to wrap it up here. Leszek, thank you so much for coming on the show today.
I really appreciate you sharing your expertise and sharing your experiences with your clients. Sharing, some really interesting metrics as well along the way. You certainly helped us demystify this topic and provided lots of practical tips and insights. Now for those, if there was any viewers that are interested in working with you, having a conversation with you, or partnering with you, what is the best way to get in touch with you and PoinStory?
Leszek Lekstan
Probably the best is to email me directly. It's leszek@pointstory.io, so it's L-E-S-Z-E-K@pointstory.io You can also contact our business development team, growth@pointstory.io But probably the best is just to contact me directly. I'll definitely would love to have a conversation with you guys and get on a call and see what we can do.
Paul Sonneveld
Fantastic. Well thank you so much for being on the show Leszek and we look forward to having you next time.
Leszek Lekstan
Absolutely. Thank you so much, Paul. It's been a pleasure chatting and hopefully, that was a good conversation and I'm really looking forward to connecting soon again.
Paul Sonneveld
Thank you so much. All right everyone. That is it for today's episode of Marketplace Masters. Thank you so much for watching live, watching on-demand or tuning in via our podcasts after. Don't forget, head to merchantspring.io to book your personalized tour of our multi-marketplace omnichannel analytics platform. We obviously support Amazon, but also many of the marketplaces that Leszek spoke about today. Until next time, take care.
