Podcast transcript
Introduction
Hi, and welcome to another live episode of Marketplace Masters, sponsored by MerchantSpring, your go-to for marketplace analytics and vendor reporting. During these episodes, we dive deep into the world of e-commerce, addressing specifically the challenges that vendors and manufacturers face in improving the performance of their Amazon Vendor channel.
Paul Sonneveld
I am your host, Paul Sonneveld, and today we're talking about how to create strategic counterweights to Amazon and improve your negotiation leverage in the process. I have invited Miguel Alexander Strobel to join me and to share his valuable expertise and perspectives on how to achieve this.
Now, let me briefly introduce him. Miguel is the founder of Watersky Digital, a consulting and training company specialized on making the digital world usable for B2C clients. They deliver a unique hands-on approach learning system for digital managers in digital marketing basics, SEO, SEA, e-commerce, website, UX, and social media. Coming from a corporate background at Beiersdorf, Miguel is passionate about making digital analytics transparent and actionable for marketing managers. Outside of work, during weekends, you can find Miguel inline skating with his two boys or reading about sustainable living. Thank you so much for being on the show with us today, Miguel.
Miguel Strobel
Thanks, Paul.
Paul Sonneveld
Pleasure to be here. As I was saying, the inline skating, it brought back memories. Many years ago, I used to be into that. In fact, I've got a pair that's gathering dust in my wardrobe somewhere, but maybe I should try them on.
Miguel Strobel
It's just what COVID did to me.
Paul Sonneveld
So, today we're talking about strategic counterweights. It's like a really big word, right? Normally, as part of this, we're talking about chargebacks. So, we're talking about Amazon Logistics and full payload or full, you know, full truckload ordering and those sorts of things.
Today, we're taking actually a step up and we're talking about leverage and strategic counterweights. But What is a strategic counterweight? Right. Let's just get into some really basics here. Maybe you can help us understand for our audience here. What is a strategic counterweight? How would you define it?
Miguel Strobel
Sure. Yeah, sure. Pleasure. And I think learning the hard way how it feels if you don't have a strategic counterweight, right? So basically, I had the pleasure of building up the e-comm business for contributing to building it up for Biesdorf in Germany. And then we didn't have one. So we basically ended up in a situation where we were solely dependent on Amazon, had a very, very weak negotiation situation because our whole e-commerce revenue was sort of dependent on this one major client. And I think as many of the people who are on today will have noticed that it's not the most fortunate situation you want to be in.
So a strategic counterweight for me is someone who helps me basically, yeah, even out or basically equalize the importance that one large client has, reduce that a little bit and spread out the risks that have an e-commerce across different retailers. Obviously, in many countries we are in, it's also a bit tricky because Amazon is without a doubt the biggest platform. I mean, saying in many, there are a lot of countries where this is not the case, where there's obviously a more heterogeneous marketplace or general e-commerce landscape. But in general, also in those places, it's important not to put all eggs in one basket and be able to retain a solid negotiation foothold. That's basically what I understand as a strategic counterweight in e-commerce.
Paul Sonneveld
Yeah, no, that absolutely makes sense. I think you touched on this already, but I really want to make it clear for our audience. Why is this important? I mean, why do vendors or manufacturers, I mean, I'm using the terms interchangeably here. Why do they need to think about this?
Miguel Strobel
Yeah, totally makes sense. Yeah, so as I mentioned, so I myself made the mistake once of being too focused on this one big account that delivered fantastic growth rates. And we all know the story. We all know if we start one of the big platforms, right, say Amazon here, or it might be some other big platforms. You have this honeymoon phase at the beginning, where it's super exciting. You have huge three-digit growth rates. Net sales are exploding. It looks fantastic.
The problem is that every market, even the vast ocean of e-commerce, is limited at some point. And at some point, growth starts to flatten out, and negotiations start to get a little more tense. And sometimes there's a change of tech in the relationship that you have with the retailers. And that's exactly the point why it's so important.
The thing that basically happened to me and what I see with many of my clients that I work with is that this dynamic honeymoon phase, as I like to call it, this nascency phase where everything grows very quickly, is very, very exciting. It's so fun and fulfilling in itself that it's easy to forget that you need to start investing into those small and mid-sized clients left and right in order to avoid having this situation end up in a terrible situation where negotiations hit the wall. Because Amazon then, as we all know, after five, six years, starts getting really, really serious in negotiations. And it's not that much fun anymore. The old playbook doesn't work anymore that well.
Paul Sonneveld
I do this once or twice during every podcast, just to make sure you're still listening to me.
Miguel Strobel
Okay.
*(Both laugh)*
Paul Sonneveld
Just kidding. So I think, I mean, you painted a really nice picture here, because you're saying, look, at the early stages, you're growing, you're probably margin accretive to Amazon, everyone's happy, right? Then the growth stops, you know, and then it just becomes a margin play, right? And it's really hard to go there. I guess part of the, I'm answering my own question here, but part of the strategic counterweight is actually building alternative channels and outlets for your goods so that you can actually potentially decline on Amazon. Like you can actually decide to walk away and potentially shrink the business in the short term because you've got other avenues available and that creates leverage.
Miguel Strobel
Right.
Paul Sonneveld
Yeah, that makes a lot of sense. Now, I think that lays the foundation or at least the conceptual understanding quite well. Of course, the devils in the detail here, right, which is, practically speaking, how do I build counterweights? You know, how do I do this? You know, I'm sure there's a lot of vendors listening to this and go, right, he's right. 80% of my e-commerce business or 90% is all tied up an Amazon Vendor. Gee, if they if their purchase orders went down by 10%, next month, you know, the whole business won't hit their budget. We're in real trouble. But where do we start?
Miguel Strobel
Yeah, there's a lot of different components there. So the first thing, I think the mistake that I made back then, and I see many, many customers, is first of all, reducing e-commerce to this one beacon of hope. So this one fantastic client that is delivering the majority of e-commerce business. I mean, yeah, Amazon in many cases. Rightly so, but having that as a focus does not equate to having the right of ignoring everyone else.
Yes, the other retailers or marketplaces may not be as profitable. Thinking you're in a vendor setup in the honeymoon phase of Amazon is all fun, and then you maybe have this other marketplace where you have to look for a logistics provider to do it, or I don't know. You realize all sorts of different complexities in there, so it's not as much fun. But But gathering this type of experience is crucial.
So the first thing that you need to have is, I think, clarity and saying, OK, my goal is to have three or four major clients. It's fine if one of them is the by far biggest one. We can't change the nature of the market, at least not overnight. But I can make sure that I have a couple of other clients who contribute a significant amount of my e-commerce sales, 10%, 20%. And together, make up a third, 30% of my e-commerce revenue maybe. And that's a bit of a counterweight already.
The second thing that you need is also, internally in an organization, you need to have a debate. And yes, it's said more easily than done. I mean, I spent my first eight years in a corporate, too, and sometimes successfully, sometimes unsuccessfully also tried to sort of move the needle and say, OK, let's invest into these accounts. Let's try it. I know the return on investment doesn't look as attractive. I know that certain things are not working the way they should. But if we don't do it, the problem is, once we get into a problem and we hit the wall with a big account and we have done nothing on the others, then we're really our wits end.
So it's a bit of also basically proactively driving the conversation and also starting to invest maybe also a little bit above what a certain client may be really worth at current in order to build and test out how far can the client really go. Is the client really following through on his commitments to drive our category or is it just paying lip service to some general trend and there's actually nothing behind it? These types of insights can be invaluable later on when you realize, you know, okay, shit's hitting the fan with Amazon, we've got to pull back our retail media investments, where do I put it? In that moment, it's good to know where you want to, where you can put your bucks.
Paul Sonneveld
And can I just ask, sort of practically speaking, when you were back at Biesdorf, How did you, because I know there's a lot of Amazon vendor managers that will chew into this or people managing the Amazon vendor channel. Was there anything yet you did to orchestrate that conversation internally? Because that involves multiple stakeholders, right? It's probably been a while, but any learnings for our audience? It's been a while.
Miguel Strobel
Yeah, I mean, it's been a while. And to be honest, I didn't do it as well as I could now. So I definitely didn't do it that well. It was also maybe due to my stature in the organization. But in general, I think we were very much, I was very much focused on Amazon itself. We were looking left and right. I think what I'd rather do nowadays if I had known back then what I know now, I'd probably focus much more on quantifying the potential left and right, on actively searching for other outlets, actively searching for science, why a certain player is dynamic and is entering the markets.
Because many of the large manufacturers of the world are not, it's basically not ingrained in their nature to constantly be scouting out for new platforms. But there are markets, especially in e-commerce, right? There's some markets where platforms can very quickly gain importance.
So it's an interesting argument just to keep that debate going. And that really sort of helps now if I work with clients, it really helps to stimulate that debate. And I think I didn't do that well back then, to be honest. So, this was maybe too much in love with Amazon myself at that point.
Paul Sonneveld
So that absolutely makes sense. I guess it's a question around where do I create these counterweights? Which channels, which markets, which countries, and what is the role of even just benchmarking or trying to figure out where should I focus and maybe what should I steer clear of?
Miguel Strobel
Correct. Yeah. And you just mentioned an interesting point, right? So, it's not just only about, you know, one certain retailer in one given market. You're correct, right? But having other markets also helps to have this debate in the organization. I mean, think of, you know, I sit in Hamburg, Germany, right? So left and right of Germany, you've got Poland and Holland, two highly interesting e-commerce markets, which are not dominated by Amazon. Amazon is active in them, but plays a very, very small role in those markets, right?
So this can also really help drive that narrative. There are other players like Rossmann, a drugstore chain from Germany. In Germany, it's the second biggest drugstore chain. In Eastern Europe, it's one of the really, really big marketplaces. So I think this type of cross-country exchange is extremely useful. Or think of Japan and Brazil, two markets where Amazon holds roughly half of the income shares. It's big. But unlike most other markets, there's a very strong local competitor, Mercado Libre. Rakuten, et cetera, or one of my favorite markets to watch right now is India, right? A highly dynamic market. Yes, Amazon's big in it, but Amazon has far from won that game. It's really, really competitive. There's a lot of dynamics happening there. And things are changing very quickly. So yes, so this international perspective is indeed very interesting and driving this debate.
Paul Sonneveld
Yeah. Now, specifically with markets where you've got competitors, they're actually operate at scale as well. You know, I think it's the biggest pitfall that I see is coming more from an agency kind of point of view. There's always like the lure of, oh, let's only go into this marketplace or that marketplace. But it does bring complexity. And some of them, you know, the return just isn't there, right?
So when you talk about India, like, you know, some of Amazon's competitors like Flipkart and the like, they are at scale, right? I mean, it's a bit similar here in Australia. I mean, small market, but it wasn't until early this year that Amazon overtook eBay, right? In terms of GMV, you know, I know eBay is kind of dead everywhere else. Not completely, but up until last year, eBay was the largest marketplace, right? So it was always a consideration. And certainly also, we can think about audiences, you know, the slight differences in audience and not everyone shops everywhere else. So there's a play to be had there, for sure. Yeah.
Miguel Strobel
And Australia is a good example. I mean, I have a couple of clients in the haircare business, you know, where we look at the Australian markets and you see that there are a couple of mid-sized players who have really carved out a part of the cake that is really just there as a more premium, more specialized positioning in there. And that's good, right?
It's healthy for consumers. It's healthy for a market to have a level of competition. Obviously, they will not overtake Amazon, you know, for as a total GMV volume, no. But in their niche, they've carved out a place where they can live. And I think that's very healthy development. So actually, Australia is quite an interesting one, now that you say it, for that. And we're seeing that across the world in different markets as well.
Paul Sonneveld
So as you assess these channels, and I know this is part of what you do day in, day out. But for those people who haven't done any benchmarking at all, haven't really looked at other channels, how do you go about it? What do you look at?
Miguel Strobel
Cool. Yeah. So, so the different dimensions. So, so you just rightly mentioned, okay, we do training and consulting and something with data, right? So, and I think this, this data piece is at the absolute heart of everything you should, you should first of all do, because when you're in a traditional trade term negotiation situation, you have a massive data asymmetry to your, your retail partner, right? So I'm there speaking from my bios of experience, maybe, you know, what did I have, I had net sales, I maybe had the gross margin, if I'm lucky, and I have a more advanced organization, I may be able to know something like a customer contribution to some type of profit metric post advertising investment. But that's as far as I get.
And then I get bombarded the negotiation by, you know, Any rabbit the retailer can pull out of their hat, right? So the net PPM, the revenue, the time on shelf, out of stocks, et cetera. And you're basically at your wit's end. You have nothing to counter that. And that's why I think it's important to go out and look at a few other dimensions.
So first of all, say, wait a minute. How important is this platform really? And how advanced is it really for me? And maybe I won't take Amazon as an example. Maybe let's talk about some omnichannel platforms. Take Tesco, for example or Rewe Group or whatever, wherever you may be right now.
If you negotiate with Tesco, for example, Tesco is obviously a huge grocer, fantastic. But if you're coming from the perspective of Biesdorf, so basically a skincare company, well, what percentage of Tesco's platform is dedicated to our category? I don't know, 5%? My analysts will probably know the right number. So it's just a small fraction of it, which means the footprint of the player is actually much smaller in my industry relative to their true footprint that they have in the market.
Another mistake that I often see is that people assume a similar e-commerce importance on the back of a strong offline presence. There are examples. In Germany, there's one chain, so there's a drugstore chain called Müller, if anyone's signing in from Germany. Beautiful drugstores in southern Germany, etc. But they play no role in e-commerce. Now, they obviously don't tell you that in the negotiations. They've got quite steep asks for investments, etc., because you're playing with the third largest drugstore chain in Germany, la la la. In fact, they play no role.
So that is actually one thing to really get a feel for how big is the real footprint of this. So what we like looking at, for example, things like the traffic that a platform has, but not just the traffic, but also weighting it with how focused is it on a certain category and thus reducing the traffic and saying, look, take Amazon's example, right? Amazon's what? Like 3% of Amazon's traffic goes maybe to beauty care, but probably 30% goes to electronics. So in its own right, Amazon is very big in electronics. And in beauty, we have to take basically a bit of a discount here and just assume they're a little smaller than that.
We also look at other things like how robust the traffic the platform gets, right? Does it have a lot of non-paid traffic, as we like to say? So direct traffic, organic traffic, et cetera. Or is it heavily reliant on ad spend? Because that's sort of risky if you're a negotiator as a key account manager. If a platform is not healthy in their traffic acquisition strategy, they're going to come back at you with very aggressive needs for investment in order to sustain their business model. And the question is, do you really want to subsidize an unhealthy business or not?
So that's why I'm always a bit careful and basically just hold back a little if I see a pattern like that. Obviously, social media is a traffic acquisition channel. So not only how big is the fan base, but also look at the engagement rates, right? So is it a healthy channel or are they just selling, you know, they've got a 1.5 million fan base on Facebook, but no one's engaging, then I mean, don't waste your money.
Paul Sonneveld
Yeah, just vanity metrics. Yeah, that's right. Exactly.
Miguel Strobel
So that's the whole footprint part. So really like basically how large is the footprint of a player in the market. And the other thing we then use is the capabilities to feel like how advanced is the shopping experience of the platform, really. Starting with basic things, like basically, does the platform fulfill the basic UX needs required nowadays? Is it fully mobily optimized? How advanced is the auto-suggest function? How good is the SERP, the PDP? How good are brand shops? How good are advertising possibilities on it?
I mean, I think brand shops is a beautiful example. We all know the pain of basically negotiating for brand shops. Well, I'll tell you what, most of my clients don't make any revenue with brand shops. Because brand shops on most platforms in the Western hemisphere hardly have any visibility. Most shoppers don't even know that the functionality exists. Why? Because brand shops are not proactively pushed in the search results.
For example, look towards Asia. You see that they play a much more prominent role. You put in a brand's name, you get directly linked to the brand shop. Then you can make revenue with a brand shop. But if that's not given, why should I invest into it? So, these are things that we look at on a capability perspective. Yeah, if you like, I can show you basically how this can then look like. So basically, just readjust the picture a little bit.
Paul Sonneveld
Yeah, no, I think that'd be super interesting. I mean, I think I was just going to, you know, having spent many, I used to work for some of these platforms, by the way. And I think one of the, you know, the, I mean, on one hand, As a retailer, you want to give your brands what I call trading levers, right? So, you know, and as a brand, you want that as well, right? Can I, if I invest my time and energy, can I actually trade the platform and drive sales, right? I think that's sort of one fundamental question that you describe in a much lower level.
But on the flip side is, you know, being on the platform side, I always look at people like the big FMCGs, like Biesdorf, obviously Nivea and all those brands or Delorean. And you know, there's a marketing budget there just for things to look good, right? So things like Brandstore was always a wonderful thing, right? Because it makes certain people in the brand teams very happy, and they'd be willing to pay for it, even though it drove no sales, right? So there was always a little bit of like, how can we take some marketing budget off these guys, right? Because they can tick the box on, look at the eyeballs we're getting or whatever. But yeah, I do have a graphic here queued up. I'm just going to see if that works because I think this is sort of when it all comes together. Let me know if I've got the right one here.
Miguel Strobel
We can skip to the next one if you like. I'm going to spare you the nerdy stuff behind it. But basically, this is how mapping can look like. So you have now here on the y-axis, you have the footprint. So weighted by the importance that each individual platform has in a category. So this is an example case we did last year for the beauty industry, beauty meaning skin and hair care in Germany. And what goes into the footprint, all sorts of traffic metrics, like how much visits, time on site, bounce rates, traffic robustness, how much is coming from non-paid channels, SEO, social media, app store, success metrics, such as downloads, ratings, et cetera.
All this goes there and then gets weighted together with the focus that an individual retailer has given to a specific category. Unsurprisingly, Amazon comes out on top, right? Obviously, Amazon has a huge amount of traffic. But the interesting thing you'll see here, for those who are familiar with the German market, they will probably be surprised to see, wait a minute, how someone like Douglas, that's a perfumery, or DM, the biggest drugstore chain, Why are they basically at 60% of Amazon's footprint score?
Well, the reason is because they're dedicating much more of their real estate online to this beauty category and hence play a larger role while Amazon just dedicates 2% or 3% of its whole online real estate to the category and thus also the communicative focus, et cetera. So we use that as a proxy to approximate basically, okay, how much relevant traffic is likely on the platform.
So you see Amazon's still bigger, but now you get to the strategic counterweight point where you say, wait a minute, there are platforms out there that can be interesting as a counterweight, even also if I have to combine those three together to have some sort of leverage, but at least I have some type of leverage. And it's not as extreme as if you would look at the raw traffic. We did that when we founded our company, but the results are sort of silly because you basically You compare apples with pears. It just has nothing to do with it. Amazon has shitloads of traffic in the books and gaming category, which has very little to say for your own category. Yes, it's possible that shoppers will come over to your category. Let's face it, it's not really typical that people browse through each and every category Amazon has to offer when they visit the platform. So that's why we sort of looked at this.
And then you see the capabilities on the x-axis. And an interesting example, I'd maybe like to point out here, Sephora. I think Sephora, many will be familiar with, right? Sephora is a breathtaking platform. They're rolling out internationally. So, we're seeing a larger footprint there. If you look at them in France, et cetera, it's a beautiful website. And this is also what this metric also shows us. So, Sephora has, unlike many retailers we look at internationally, they have done a really good job at translating their cutting edge capabilities that they have in more advanced markets to Germany. So they entered Germany with a fantastic platform that beats Douglas DM also in terms of capabilities. And so it's fantastic.
Now, the problem is that that happens here, is that Sephora comes in. Macy asks, hey, do you want to be on my brand shop? Do you want to activate on my page? La, la, la. What will the standard situation be? The standard situation is that, as a key account manager, I will look at it and say, wow, this is fantastic. Just like you said, I go to my marketing colleagues. It's just what I did, right? Ask them, hey, we can be on this platform so far, right? Number one in, la, la, la, la. Really big player. They've just entered Germany. We've got to be there. All I need is 200 grand, and we can be there.
The problem is what you see in this diagram is that you're likely absolutely overpaying because they have basically no footprint, right? They're below average in terms of footprint in Germany. They're not small. They're doing a good job for someone who's only entered the market recently, right? Don't get me wrong.
But in terms of what, in terms of what you're getting, you should be paying significantly less than on Douglas or one of these other platforms, which are maybe not as capable, so not as pretty, if I may oversimplify in this case, so not as conversion optimized, but you will probably reach significantly more people with it.
So this basically then where this negotiation topic comes in and say, okay, let's as you know, retail platforms tend to love their information asymmetry and the intransparency of the client not being able to know how many impressions will you get, how many buyers did you really have, how many purchases incrementally were created through an ad.
And as this game is likely not going to change, I think this is probably one of the best information you can have to sort of just start having this conversation and say, okay, either you give me the data and show me it's otherwise, or we maybe agree on a different price or a different payment mode, you know, CPO or something, or at least be a CPC and not some CPM model or fixed time booking.
Paul Sonneveld
Yeah, no, this makes a lot of sense. My only kind of thing I would then kind of think about, too, is how do you overlay the growth, right? Because, for example, Otto might be stagnant or going back. I'm not saying they are, by the way. Someone like Sephora. Yeah, that might be small, but maybe they're projected to grow like 50% year on year, you know, because they're coming off that low base. And we're seeing this across a lot of markets where on one hand, it does take time. Sometimes usually we fall victim of like, oh, Amazon has launched. Well, guess what? Amazon also has to start at the beginning, just like everyone else.
Miguel Strobel
Surprise, surprise. Yeah.
Paul Sonneveld
But certainly, there's a growth dimension as well. And I think the other dimension I just wanted to throw in there because is the sort of open marketplace versus curated, right? So really speaks to the level of competition. So, you know, how do you think about, I mean, I know beauty, certain categories are gated anyway on Amazon, but let's ignore that for a second. Like obviously, Amazon's large, but so is the competition, right? Whereas a lot of these other platforms are more curated marketplaces or curated channels. And therefore, you know, you're probably, if you get on and you get approved, you are running your own race. So, you know, how do you think about those two things? So, you know, growth and curated versus
Miguel Strobel
I love your questions, Paul, because to be honest, three years ago, we hadn't thought about them either. And actually, one of our clients, or two different clients in different occasions, basically challenged us with this point. And the growth point is quite easy to answer. We have growth in there. So basically, traffic growth, etc. is modelled, is included into the model.
In highly dynamic markets like India, we give a higher weightage to it. So the analysis we do basically, it's still 200, it's soon going to be used over 300 metrics that analyze per e-retailer. And in highly dynamic markets, what you do is you basically significantly increase the weight of growth metrics just to reflect the rapid dynamics that you have in the market, right?
So India being a prime example, If in India, I would only look at the last 12 months' traffic, it would be quite a naive representation of the market, because it's likely that someone is going to kick someone else's ass in e-commerce six months down the road. But that platform only got launched eight months before. So it's not a correct representation.
In more established e-commerce markets, we have growth metrics in there, but not as weighted as heavily, because it's harder to break through that sonic barrier that the leading players have already established. When we do market projection, like market revenue modelling, then we turn this around. And for that case, actually, we really go into GMV, GMV forecasts, et cetera, to get a feel for what potential do we see. Because if we project our data into the future, then it's obviously something else. And then I'm fully with you.
So then looking into the past is not sufficient. Then I also have to look into the future. To be honest, I'm just a little cautious because all these platforms are more or less great at talking, you know, talking about how great they are and how great their growth plans are. But I mean, we've already seen many of those strategies, just, I mean, it's just strategies, right? Implementation is a completely different thing. So, I'm a little cautious on that. So, whatever they say in their investors calls is like, yeah, okay, good to know. let's look at the actual data. So, I'm a bit dry and German on that one.
Paul Sonneveld
Yeah, sometimes it's just ambition as opposed to strategy, right?
Miguel Strobel
Yeah, I mean, I have nothing against ambition, right? But yeah, exactly. Everyone's always going to be very ambitious, if you ask them, or the opposite, right? We Germans tend to be not very conservative in our ambitions. And then who knows, maybe the performance is good in the end.
On your other question, that's a very interesting one. So, the way our data usually gets used is actually that they get this type of data, to first of all, reprioritize clients, then start also like realigning trade terms in order to, so am I basically investing in line with what my client is able to deliver or maybe over-investing? Classical situation, omni-channel retail, your, the e-com counterpart has inherited the trade terms from the offline area which is not very healthy in the long run, right? And then there are incremental investments added on top of it. So that's basically an issue.
And so what often happens is that we then combine our external assessment with the internal assessment of our client. Because I do not know, as much as I love e-commerce, and I do my best to understand our clients, I don't know how their relationship with their clients is. I can roughly, they will probably have a very good feeling for how good the strategic fit between the two companies is. And I mean, bi-directionally, right? So how important is my category to you as a retailer? How important are you a retailer for my brand, for positioning my brand? How easy is it to work with the client? And then also, how profitable is the client, right?
So not just looking, so I often have a lot of debates with clients, please don't look at gross margin, look at margin to customer contribution to write a post advertising investment, to have a clear picture, because Amazon's a great case, right? Amazon, and many of my vendor clients has great, great, cross the nets, great cross margin. And, and then there's sort of silence what happens after it.
So, but if you add these internal metrics together, it gets very, very powerful because you can really create a customer tiering, which, and this is what I found very interesting, can be applied even for potential customers. Because you can then say, wait a minute, I know where in the market the platform roughly sits. So I can overlay roughly what willingness to invest I have in terms of profitability. How much margin am I willing to give for such a platform? And maybe not. Because I've experienced it myself on my own jobs and also when supporting clients where sometimes it's very, very easy to launch a new client using a very profit-focused paradigm because you say, I basically have my e-com business running. I don't want all this complexity, so I'll invest very little and let's see what goes.
Well, the problem is if you invest too little, you're basically just killing your growth engine. And what you have is a self-fulfilling prophecy that the customer was not successful because it didn't deliver any growth. Yeah, guess what? Because he didn't invest enough. So Yeah, it's more easily said than done. That's why I got quite interested in sort of aligning this and saying, okay, how can we roughly slot in where clients should theoretically go? And then obviously, trade term harmonization is a huge topic that just takes years.
Paul Sonneveld
Yeah, that's a podcast in itself.
Miguel Strobel
Yeah.
Paul Sonneveld
Yeah. So I just want to go back. Obviously, we're actually a little bit over time. But I want to go back to bringing it all together, particularly from the context of an Amazon vendor. So what I'm going to do is I'm just going to bring your slide back up, because I think we can talk a hypothetical here. So we're talking skin care. So let's say I'm a skin care vendor. I've got a pretty deep relationship with Amazon, the only relationship in the e-commerce space, perhaps.
But I've looked at this, and I've said, look, actually, there's some other. DM, Otto, Douglas, maybe Sephora, four others, actually, that makes sense to me. And to develop these as counterweights. Right. So, we've sort of aligned on the goals and the strategy at a very high level. I mean, practically, what's next? You know, where do I go from here? How do I how do I bring these counterweights to life?
Miguel Strobel
Correct.
Paul Sonneveld
Such can they can actually start to create leverage in my conversations with Amazon.
Miguel Strobel
Very good. So you just outlined the first point that's crucial, and that's one that unfortunately doesn't happen often enough, is really screening the market first of all, getting a feeling who's there, who's relevant for me, right? So, this is one first thing you just have to establish. And then exactly as an organization, you say, you know what, eBay wasn't there, but we don't want to be on eBay. It's just not our thing. So we agree for the four platforms that you just mentioned. I think that's the first thing.
The second thing is then internally also getting the alignment on the important that also in the top management is understood that building up these accounts will take several years, right? So, it's going to there's going to be a trial and error phase in the beginning. Maybe an organization is not capable of launching on all these platforms at the same time. We all know the first year when launching a client is a bit of a nightmare in terms of ops and the workload that comes. So there has to be basically a phase plan and saying, look, we'll have a one and a half year phase ramp up phase to try out to see what can we really deliver there, where we also quite aggressively invest. So it's a net sales case, not an EBIT case in the beginning.
Then we evaluate this and then we basically start readjusting our strategy, focusing then more on profitability or basically shifting our investments to the player who's most promising as strategic counterweight. And this multi-year dimension is very, very important because if that is being seen on a year-to-year basis, this is already doomed to fail because the problem is then that in a year, it's rather unlikely that you'll be able to create such steep growth that the management will be sufficiently convinced. So it really has to be a longer term approach.
What I used to see with a couple of clients is that actually it comes back to the old trade, to basically the JVP basics, right? Sales basics, really openly looking for a debate with those customers. I've had it myself with some platforms where it was just plainly visible. They're happy to take our investment, but they don't really care about our category. We're just wasting our time, right? That's why it's also important to have these conversations of early get a gauge for are they willing to commit on a multi-year horizon.
Obviously, this is said more easily if you're a champion in your category, if you're a major multinational or something like this, that is easier than if you're one of many providers. Yes, I agree with that. But you can already get a feel for how important is your category for the platform, really? What problems do they see? And do they also want to commit on this journey? And that, I think, are the core things then. Then you basically build this up.
And what's also important on this journey, and something I learned way too late, to be honest, is also then identifying goalposts where you say, OK, when has this growth phase to end? What are the things I want to achieve? So maybe I want to achieve that the platform grows to 20% of my net sales that I generate on Amazon or something like this. And from then on, I will start hitting the switch and focus more on profitability because in the end, your Amazon business will probably also be steered towards profitability already.
So it's only fair to apply the same standard at a certain time. So otherwise, what happens is that the aggressive investment strategy just overshoots way too long into the future. And in the end, the client then gets killed because it's totally unprofitable.
And so that's basically one thing which I would also agree upfront. So if we do business modeling, it's usually this type of approach. And then basically going in. And yes, you'll have to spend to grow that platform for securing visibility for your brand on the platform or potentially even driving.
So sometimes if you have a player who really wants to get into your category but doesn't have a big experience. So think of Zalando like 10 years back or something. It was a pure fashion player. They committed towards doing beauty. How long are you willing to basically go along with them? How much are they willing to invest in order to drive additional traffic to the category? What are they credibly doing to do that? And these are things that have to be taken into consideration.
Paul Sonneveld
Yeah, yeah. And sometimes it just might be too early, right?
Miguel Strobel
Yeah.
Paul Sonneveld
Sometimes the answer is, let's talk again in 12 months, see where you've got to. Maybe it's a more compelling proposition for us.
Miguel Strobel
And that's also okay, right? So, if you invest a bit of time in doing this type of analysis upfront and just come to the conclusion that, yeah, the platform sounds cool, but they've currently got their eyes set on a different category for the next 12, 24 months, then hey, you just saved a lot of money and work from going down the drains. Fully agree.
So it's not about being everywhere at the same time. And I think that's also one of the things I also see more and more that in e-commerce, there's often this notion that the top management assumes it is so easy to list a new customer. I think anyone on this podcast knows it's a lie, right? It's a completely wrong assumption. But also the notion of having to do the same thing everywhere. So basically, for example, I have a lot of clients that are still, and I thought so myself, thinking this dogma of needing a full listing on e-commerce, right? While we all know from Amazon, it can kill your net PPM if you just blindly follow this.
And so, a bit of having these types of conversations is extremely useful and basically having a strategy that also incorporates this and educates the upper management that this is the way to go. So, I see a big disconnect there, and that is not meaning to blame anybody. It's just natural, right? If you've been in business for 30, 40 years, it's natural that you haven't gotten your hands dirty in e-commerce because it's a too nascent channel.
So I think this is often underestimated how much education need is required there just to make sure that the e-commerce strategy is understood there. But I've seen pretty cool cases of even mid-sized companies, traditional Southern German companies, just doing manufacturers of B2B goods. And they sort of got this through and found their way in e-commerce and also agreed to maybe how big e-commerce should be and maybe not bigger. So, they found their way and that's actually pretty cool.
Paul Sonneveld
Yeah, no, that's fantastic. I mean, we need to sum up or finish up because of time here, but you've made some really good points and I just want to kind of reiterate it for the audience. One obviously is, as we started, this is not a technical, this is a strategic play, this is a multi-year effort, right? So, once you've done the kind of evaluation, you've worked out where to play, where to invest, all of that, internal alignment, build a multi-year plan, work out what the timings are, and then to your point as well around what's the growth phase in terms of where you're just going to go for sales versus, you know, at some point it's got to pay the bills, right, or it's got to, you know, financially make sense for the business as well.
We're not just doing it to spite Amazon and create some leverage, right? It's much more than that. Ideally, we drive some profitable sales too, and ideally you end up with a bunch of channels that deliver you growth, and incremental margin, and therefore, you know are a great alternative to Amazon that will give you Fantastic leverage as you negotiate. But of course, this is not if there's any vendors watching this and going right Miami AVN is coming up and I need some leverage. Unfortunately, this is probably not a 2004 24 thing but hey, maybe end of 2025 or 2026 you can really fundamentally shift the dynamic in how you negotiate with.
Miguel Strobel
The quick one is really just getting the clarity on your landscape mapping, adjusting your trade terms. That's the quick one. It's also painful. Adjusting your retail media spends. That's quick. But the other one, yeah, I agree. It's really a bit of a long shot, but it's worth it.
Paul Sonneveld
So, Miguel, unfortunately, we have to finish up. But if there's anyone who's watching this live or on demand afterwards, they want to get ahold of you, want to learn more about this benchmark or the market evaluation, what is the best way for them to get in touch with you?
Miguel Strobel
Yeah, I think you'll be sharing my contacts. So just shoot me an email, miguel.strobel@watersky.digital. Any questions that you have, or also anything where you totally disagree on, just let me know. It would be a pleasure to get more thoughts. No more nerds in this, so always open to hear other thoughts.
Paul Sonneveld
Fantastic. Well, Miguel, thank you so much for coming on today's live episode, sharing your expertise, bringing all the expertise from your days at Beiersdorf, as well as what you're doing now at WaterSky Digital. And, you know, I really enjoy, maybe I'm biased towards analytics like yourself, but frameworks and benchmarking is a great way to bring clarity to organization and you know, build a solid strategy. So, you really build a wonderful toolkit there. And thank you for sharing it with us so generously today.
Miguel Strobel
Thanks so much, Paul. It was a great pleasure to be here anytime.
Paul Sonneveld
Take care.
Miguel Strobel
All the best. Bye.
Paul Sonneveld
All right, I can't believe we're out of time already. I seem to be saying that every week, but I hope you enjoyed this particular episode of Marketplace Masters. We're really focused on some of that, creating that strategically leverage with Amazon and creating those counterweights. I really appreciate you tuning in, especially for our live audience.
If you are hungry for more Amazon vendor topics, we've recorded a whole lot of episodes already. We do about once a week. Go and check out merchantspring.io. Go to our resources section and you'll find our extensive library of all the episodes we've done already, as well as the upcoming ones we've got later for you this month.
Now, of course, we remiss of me to say, if you are looking to streamline your Amazon vendor analytics or your hybrid analytics or analytics for marketplaces like Otto, like Kauflin, like Zalando, come and talk to me and I'm very happy to share how MerchantSpring might be able to help you on that.
Lastly, I'm all ears about what you want us to cover next. I'm looking for great topics and speakers for Q3. So, if you want to suggest someone or a topic, feel free to DM me on LinkedIn, and I will make it happen. Thank you very much. Stay safe until next time. Take care. Bye.
