It is undeniable that Amazon, for all its weight, still has ample space to stretch itself far beyond what is possible. It is also no secret that agencies are seeing the Seattle-based behemoth as a genuine threat to its business — so much so that recently-departed WPP chief executive Sir Martin Sorrell name-checked the brand consistently in the past few years.
Speaking at 2017’s Mobile World Congress, the recently-departed chief executive officer, said that the e-commerce giant’s “tentacles are spreading rapidly into all areas.” Indeed, Amazon’s purchase of Whole Foods, the opening of its own retail and the prospect of entering financial services and healthcare is a massive sea-change and a few of the many ways the brand is imposing its prodigious will.
In May 2017, WPP’s Possible acquired specialty agency Marketplace Ignition with the intention of enhancing their presence on marketplace platforms, notably Amazon. Much has been said about Amazon’s nascent advertising business, but its bread-and-butter remains its ability to convert business — with brands and agencies seeing the advantages of making the platform more of a priority.
There appears to be momentum for Amazon-centric strategies. To that end, platform-specific agencies are emerging, and existing agencies continue to build marketplace practices with Amazon at the core.
The continued shift to Amazon
Kevin Packler, vice president of Amazon Services at the Tombras Group in Knoxville, Tennessee, the second agency to launch an Amazon-specific offering, shed some light on the state of e-commerce affairs. Speaking at the Worldwide Partners Inc. (WPI) annual conference in Miami last week, he noted that, back in 2012, Amazon accounted for 25% of all US online retails sales. In 2016, that number rose to 43% and, though numbers have yet to be released, GBH Insights said that holiday sales were around 50%.
“Amazon is basically controlling the marketplace now — or they are getting really close to it,” he said. “I would say maybe they will cap out at 75%. I am not saying they will take over the world, but they’re going to be everywhere.”
A significant part of the shift lies in a complete change and expectation in consumer behavior that Amazon has rapidly and smartly executed over time. Online shoppers, at this point, have deep expectations — free shipping, easy check-out and hassle-free returns. Additionally, Amazon’s Prime membership program, which recently topped the 100 million subscriber mark, further ensconces the brand in a consumer’s mind, generally putting it at the top of the list, due to the value it brings.
The Amazon flywheel
Supremely focused on and fanatical about customer service, adding consumer value appears to be a constant mission for Amazon. In fact, Amazon Prime was a result of a (precinct) submission in their employee suggestion box.
“That tells you something about Amazon as a company,” noted Packler.
However, another development, in 2001 among executives, galvanized its future success: the Amazon flywheel referred to as “The Virtuous Cycle" internally.
According to Brad Stone, author of The Everything Store: “[Amazon chief executive Jeff] Bezos and his lieutenants sketched their own virtuous cycle, which they believe powered their business. It went something like this: Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third-party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers they needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel… and it should accelerate the loop. Amazon executives were elated… after five years, they finally understood their business.”
Over time, the concept has shown relevance in all aspects of its business. In its simplest form, the question becomes whether or not an idea can help keep driving the flywheel forward.
“They keep adding and trying new things,” said Packler, who was previously at Marketplace Ignition and now leads Tombras’ Amazon practice. “You keep adding more value and services for consumers, and there’s a real, overall benefit from all of these individual contributions.”
The new Wild West out West?
From a more practical perspective for agencies, the opportunities that Amazon and its platform present is something that has been seen before — and leveraged.
“If you were around for Google AdWords in the mid-2000s or Facebook in the late 2000s then you know what I am talking about,” Packler told the WPI crowd at Miami Ad School. “There’s not a lot of competition and plenty of great ways that you can actually use Amazon to drive business for clients.”
The vast green field that exists is particularly fertile for agencies and brands that see the early potential. To wit, Packler shared a case study about a brand that self-managed their Amazon presence and saw a two-to-one return. Eventually, the program was shut down (which Packler calls “the kiss of death” due to momentum being hard to re-achieve). Packler and Tombras re-launched the campaign, and the brand saw “well over a ten-to-one return.”
In relative terms, paid search and ad units on Amazon are in their infancy, having been around for about three years. To that end, the servicing of brands and agencies is still catching up, though the progress, according to Packler, is promising.
“Amazon has made a heavy effort this year to expand their agency services,” he said. “They now have a dedicated group that works with agencies across North America, and that is something that didn’t exist four months ago. It is still developing, but from my point of view, they have done more tool releases in the last four months than they have done in the last two years,” he noted.
Continued signals from Seattle show that Amazon is serious about its ambitions and, in turn, presents newly-found fodder for agencies that see where the future might be headed in the near and long-term future, as more value is added for consumers.
“Amazon is as good as any company looking five years down the road,” said Packler. “Will they still be in the dominant position? Will they grow their share? Will they enter new industries? Yes, yes and yes. That is their nature, and it goes back to the flywheel.”
The Drum's April print magazine, The Amazon Issue, explores how the brand continues to impact the present and future of marketing. Join The Drum+ to see unique industry insight including Amazon's profound effect on retail and e-commerce, its burgeoning advertising business and more in our award-winning publication.