James Dihardjo
Thank you so much for making time all the way from England to speak with me. I wanted to hand it over to you, first off, just to tell us about what you do in the e-commerce space or your Amazon space in particular.
Martin Heubel
Yeah, it's my pleasure James. Thanks so much for having me on the show. My name is Martin Heubel. I am the founder of Consulterce, and this is an e-commerce strategy consulting practice where I help multinational brands and national brands, that work on a 1P vendor relationship with Amazon to actually make sense of all of this Amazon puzzle that is out there.
So, particularly when it comes to channel selection accounts. When it comes to price volatility in the buy box, but also when it comes to really a derailed portfolio management. How can you actually bring that all together again and also make sense of it from a profitability point of view. So how do you actually manage and create a portfolio on, but also offsite Amazon that makes sense in the long term, and to also increase your profitability on a sustainable and long-term basis. And, my clients come typically with an issue, to me when they have like either profit margin challenge or they want to, take a look at how they can actually facilitate their Amazon vendor relationship by pulling the levers that are often hidden and not a plain site available to them.
James Dihardjo
Yep. That all makes sense and I certainly think a lot of people would make use of someone like yourself. So that, I just want to get straight into the question. So in Australia, Amazon itself is fairly new and lot you actually see a lot of kind of smaller brands kind of come up as a seller then they get this invitation to Vendor Central. So I wanted to ask you, why do brands get invited to Vendor Central? Cause it seems, you know, on the face value, it seems random. And, why should they use it?
Martin Heubel
Yeah, a hundred percent. I mean, look, Amazon is a great marketplace in order to sell your products, right? They have loads of traffic. The conversion rates are much higher than on many other platforms or even any other platform really out there. And, the definition of a 1P seller is a little bit different compared to a 3P one. Simply because you get to ship your product towards Amazon at a wholesale or list price
and Amazon takes care of the inventory management, but also the price management for you.
And I think this is for a lot of brands already, something which can be quite attractive simply because they just ship the product, and they don't have to manually price a product. They don't need to see whether it's super competitive or not. Amazon's taking care of that for them. And plus, from an Amazon perspective, it is quite an opportunity for them to own selection and the inventory, which then also translates into the availability of products and the competitive pricing, which customers are all about, right? I mean, they really want to go to a marketplace and browse the products and then find them at a convenient and also a good price point.
And when you look actually at the latest statistics also from the second quarter of this year when you see that the share between sellers and first party brands on Amazon, is quite disproportionate. So we have 56% of sellers that sell globally on Amazon and go through the third party route with them. But I would say overall, I mean, this doesn't necessarily give you an overview of the direction that Amazon wants to go. Because of course, from an Amazon point of view, having first party selection available gives them a greater ownership over the inventory. So the availability of products, but also about the pricing. And this is really what is important for Amazon when it comes down to attracting new customers, but also to maintain the customer trust that they have built over the past couple of years, and even if they're entering new categories. So they need to have this mix between third party share sellers and also the first party brands that help them to actually build the categories and to develop the assortment and range that is available to end customers.
James Dihardjo
Yep. I mean that all makes sense. And I guess from a brand's perspective, obviously if you get, as you said, you get approached by Amazon and they basically buy from you. What do you think the role of Vendor Central will be going forward? Like, do you think this will be very important to brands or do you think brands will actually take up more of a hybrid approach? What does that look like to you Martin?
Martin Heubel
Yeah, it's one of those questions I get all of the times these days. And I think working with Vendor Central is and brands who actually enter into this space, it really aligns with Amazon's ambition for the next couple of years and the recent past. Because it is really Amazon store to innovate, with the biggest consumer brands in each category, far beyond of what we've seen anywhere else over the past decade. I mean, just look at the store openings in the US but also here in the UK with Amazon Fresh and even their remote department stores that may open in in the next years or so.
So they need the selection for that and they need to be available at competitive price points. So this literally, comes down to their overall flywheel model which also constitutes and is part of their overall business. They need to have a selection available. They need to pair it with an excellent, customer experience that even attracts more customers and sellers, and vendors. And thereby it becomes more available and products become more available at affordable costs simply because obviously the economies of scale are being driven by that.
So the role of Vendor Central will be paramount and despite many people are saying that Vendor Central is certainly something that they shouldn't prioritize anymore, and Amazon's probably going away from and moving away from. I wouldn't necessarily see it that way simply because it is Amazon's direct ticket towards range assortment and availability, which then also pays into the flywheel model that they're driving all over again every day.
James Dihardjo
Yeah, it's a very interesting perspective and I like how you brought up that in the community a lot of people are kind of debating saying, Vendor Central's going to end. But you're right, it is actually a way that Amazon can have full control of as you say, the selection, availability, and so on, without having to rely on the seller. So, final question, Martin. What is your top prediction for Amazon in 2022? And that could be anything. You know what, are you thinking? What do you think we'll see Kind of play out?
Martin Heubel
I think there will be two big trends. I think you will see a lot of the focus on profitability but also a large push to availability. Because if you think about it right now, I mean there are loads of capacity constraints in Amazon's warehouses, but also pressure on literally every global supply chain of any global brand out there, and it really affects both of their businesses, Vendor Central, but also Seller Central. So for them it's paramount to support brands to a certain extent as best as they can because they need to have products available because otherwise they're a marketplace with a lot of out of stock items and customers will then search for alternative ways to purchase products. And this can't obviously be in their best interest.
So personally, I think brands will see a large push to general availability. And there will be a focus on that from Amazon. Whether it is on Seller Central, but particularly on Vendor Central as well. And Amazon might even entice as a result of that, more sellers to offer branded products that otherwise would only be carried by first party brands in order to have a backup offer in the buy box.
So let's say a brand that, serves via first party model to Amazon is running out of stock with more sellers having the same product available in the buy box. And of course, customers have more choice over the product itself. And even though their main partner, retail partner is running out of stock. They still have a backup offer on their marketplace in order to give customers what they want at the end. But at the same time, I would say the push towards profitability will be paramount for them as well, because, with out of stock levels, shooting up their product mixes also changing. So they have an altered product mix that, can often become quite detrimental to their margin position themselves, not only for vendors, but also for Amazon itself.
So I think there will be a larger push towards caustic greasing initiatives where there's literally a mutual cost benefit to the brand, but also to Amazon itself. And this could be via, for example, a drop shipment or also a vendor flex model. So where a brand is literally shipping out products, what towards end customers, from their own warehouses, instead of shipping it first to an Amazon Fulfillment Center.
And it also removes literally the friction that comes with it and accelerates the speed of which a brand can fulfill customer orders. Because they don't have, I mean, they take out certain steps out of the supply chain, and logistics that come usually with working with Amazon, either on the first party or third party model. And I think those things will really be necessary in order to focus on. So it's not necessarily that you see a disruptive innovation in that space, and rather, an incremental focus on improvements that really guarantee that they're flywheel models. So having wide selection and ranges available, will, will be really supported in that sense.
My top prediction for brands if they want to really focus on two aspects is to first focus on getting their products in place. So, inventory management will be very important and then to pair that also with a profitability focus, because with greater availability in a category, you can really position yourself as a brand. And you can become the first party vendor or the third party seller. That is really outperforming your peers in a category. Simply because you are competitive and you are available while a lot of other brands may not be.
James Dihardjo
Yeah. Interesting. I did want to kind of build on that just a little bit as with the side question. In terms of prediction, because you mentioned earlier you said, vendor Central has a lot of levers. Some of those are not exactly normally know, visible. Do you have a prediction on the lever side of things as well?
Martin Heubel
What do you mean by levers in particular?
James Dihardjo
So an example would be, let's say the advertising module within Amazon Vendor Central or in Australia for example, they're already be trying to enroll some vendors in the ability to actually fulfill both from their own warehouse and actually send stock in as a vendor. So there's kind of like some things where feeling might come, but I kind of want to hear what you are thinking is around those two things.
Martin Heubel
I think Amazon will want to take out as much friction as possible from all of those processes. So it is just natural that they try to import a lot of the features and the functions that are already are out there. I mean the hybrid approach of sending your products towards an Amazon fulfillment center and to send it out of your own warehouse is nothing new. But I think it has been less accessible to many brands because there was always the need to come up with a commercial agreement also with your vendor manager. And the more you can automate that, and the more you can make this available on a wider scale to vendors that also sometimes don't have a direct relationship with a vendor manager, the better it will be.
So the focus will certainly be on giving vendors a more visibility around analytics that improve availability. So out of stock rates and also improvement areas that they can tackle in order to become more available at the end. And then this will integrate into also the supply chain part. So, I could see that Amazon may offer on a wider scale, for example, that Vendor can sign up to certain fulfillment models where they can supply and ship products out of their own warehouses by simply ticking a box and having it already set up on a more automated basis as compared to how it works as of right now.
And then lastly, of course, I mean the selection that is available. You want to also move through and, ship towards end customers. So, I think the UX and also the general experience that vendors will have and their account managers will have with the integration of Amazon advertising should at least be a huge focus from an Amazon perspective because it will help them. But also help brands to really unify this approach of having products available, being able to fulfill them to the end customer, but also to target and retarget customers when they need it.
And I think particularly with the upcoming fourth quarter where there will be so many capacity constraints and so many categories pushing products that are available with the right marketing tactics, will be a really key survival tactic of many brands. So those are definitely the levers. Having the right marketing in place, being on top of your inventory management and then finding ways to profitably and efficiently send and ship products to your end customer. Those are the three levers that I think are the success levers for this fourth quarter.
James Dihardjo
Fantastic, Martin. I really appreciate that kind of detailed prediction and explanation and behind your thinking. So look I just want to leave it there, but thank you again and we'd love to have you back, next year to kind of see if those predictions actually come true. So, thank you.
Martin Heubel
Yes, absolutely. My pleasure. Thanks for having me, James.