Expert opinion | Amazon of the future – how the marketplace will evolve
Amazon is now indispensable in today’s world. A large portion of consumers shop on the online platform and even use it as a search engine to get an overview of offers and prices.
The corporation has evolved further in recent years and has redefined the playing field for online retailers. Just recently, many advertising opportunities were only available to vendors; now they are accessible to all sellers – no wonder given the revenue they bring to the online giant.
But how will all this continue to develop? Where is the journey heading? Will there be other and new tools, and will the development progress at the same pace?
We consulted Amazon experts and tried to take a look together into the future of Amazon, FBA, and trends.
FBA Trends
How do you see the development of Fulfilment by Amazon (FBA) in the coming years?
Igor Branopolski: FBA is one of the many services offered by Amazon and a part of Amazon Prime for buyers. Certainly, some processes will be improved thanks to technological advancements and the further growth of Amazon Logistics, allowing the online giant to operate even more effectively. Effectiveness and speed will therefore, as in previous years, be prioritized. Additionally, there is Amazon’s promise to achieve CO2 neutrality by the year 2040. We will likely see new innovative solutions as well as pitfalls, such as the recent AmaZen boxes for warehouse employees. However, traditional transport service providers like DHL, DPD, Hermes, etc., will need to catch up in terms of logistics today in order to keep pace with Amazon.
Last year, at the beginning of the pandemic, there were shortages and delivery restrictions with FBA. Suppliers of goods that are not essential for daily needs were no longer allowed to send items to the fulfillment centers. Will FBA change, and how can sellers protect themselves from similar scenarios in the future?
Igor Branopolski: At this point, Amazon will continue to prioritize its own items or urgent goods in the event of a pandemic or similar disasters, which is absolutely logical. At the beginning of the pandemic, many sellers switched to their own delivery of goods. Others fully utilized the capacities of Amazon’s warehouses as long as the inventory maximum allowed it. That would just be a tip on the side.
In general, many sellers already have their own warehouses or use other fulfillment options. If one relies solely on Amazon, there is a fundamental problem. Let’s take the Christmas season as an example: even self-shipping can be better for the Buy Box because the enormous order volumes in the few weeks before Christmas overload the Amazon fulfillment centers and slow down delivery.
Ronny Marx: FBA will change to some extent. But Amazon will continue to be an extremely important channel. It is important for sellers to remain deliverable.
A very important aspect is the topic of one-stop shop. For example, if I, as a German seller, sell to other European countries, and there is a significantly lower delivery threshold, I become liable for taxes in those respective countries upon exceeding it. For such a scenario, I also need my own organization or tax advisor to advise my company accordingly.
Events like COVID or major incidents like a stuck tanker in the Suez Canal cannot be predicted. However, this demonstrates the necessity for flexibility in the flow of goods. I need to align my business in such a way that unforeseen events do not completely paralyze the flow of goods.
Amazon Advertising
How will Amazon Advertising develop? What is your forecast?
Otto Kelm: Amazon is introducing innovations at a pace that no one can keep up with. Even tools and agencies are hardly able to operate comprehensively. The focus is on a few simple approaches that work best. Special uses are possible, but they are more time-consuming and significantly more complex to use. Amazon needs to recognize this and simplify it.
Thinking about having your own Amazon DSP access today without mastering the basics is difficult and not advisable. The forecast is therefore – Amazon needs to slow down the development. Sellers and users need to continue their education – otherwise, there could be separate developments that are not effective.
Ronny Marx: Amazon Advertising has always been a very dynamic area. This dynamism has accelerated in the last year and especially in recent months. A major driver of this development is the Sponsored Display Ads. These are similar to the former Private Display Ads, but significantly more diverse in terms of options.
Costs in the area of Search Display will also rise due to increased competition. This means, conversely, that sellers need to define their goals more clearly so that the invested budget is worthwhile: “What do I want to achieve, with what long-term perspective.”
How will the DSP, that is, the demand-side platform, continue to develop? Will it also make sense for smaller companies?
Ronny Marx: Amazon DSP – in the area of programmatic advertising – is a relatively new discipline in the self-service sector. While it has existed for quite some time in the managed service area, Amazon is largely discontinuing this sector.
There will no longer be significant campaigns managed by Amazon; instead, everything will run through service partners. I know this for certain because we are one of four premium service partners in Germany for Amazon regarding the DSP. This means we exchange information with Amazon at a very high level.
One of the PPC options is the Sponsored Display Ads. This is a Lite version of Amazon DSP because the seller can run their ads based on clicks, that is, CPC. Behind this is a programmatic approach, meaning that as a seller, I target users either based on their characteristics they bring to Amazon, their browsing and purchasing behavior, or because they fall into certain segments.
The size of the company is less decisive with Amazon DSP; it operates on a CPM basis, that is, cost-per-thousand – I am charged whenever my ad is displayed 1,000 times, regardless of whether it was purchased or clicked. This naturally requires a larger budget. The reason for this is simple: the algorithm needs a lot of data at the beginning to see how users respond in various ways. Therefore, one should be prepared to spend around 5,000-6,000 euros per month for a campaign. However, it is more likely to be 10,000-20,000 euros per month. Only then does it make sense to slowly enter this area.
What can you do with it? You can run video ads, ads on Twitch, on Fire TV sticks or Fire TV, or even lock screens on Kindle. There is a lot that can be done, but you need a substantial budget to manage it all. However, in general, a lot will still develop in this area.
Especially due to COVID, Amazon has grown significantly. The number of sellers has also increased. With what new trends and opportunities can one stand out from the crowd?
Otto Kelm: As always, offer good products targeted at a specific audience at fair prices with real added value. Additionally, it is important not to stand out on Amazon, but to take a step back to where needs are awakened, where customers browse and search for ideas and solutions – that is not Amazon!
The relevance of keywords and Amazon SEO has been strongly emphasized in recent years. How will this develop further? What relevance will keywords and Amazon SEO have in the future?
Otto Kelm: There has been neither too much emphasis nor has anything changed or will change. Only certain areas have received less or different weighting. For example, advertised items are no longer pushed as high in the search terms of organic listings as they were years ago.
Otherwise, I recommend analyzing customer language with the respective tools or Amazon Brand Analytics. This will mean significantly more output.
Advertising outside of Amazon
What trends are already emerging today in the field of advertising?
Otto Kelm: Amazon DSP and the newly introduced Amazon audiences for Sponsored Display Ads show what is possible. Amazon provides its own data on customers in a structured and anonymized way for advertising and also displays it outside of Amazon. This is a trend that has been gaining momentum for about three years and will continue to grow.
The trend of advertising outside of Amazon, for example, on social media and Google Ads, is becoming increasingly popular. Which channels are the most important here? Will this last in the long term? What new opportunities will develop?
Otto Kelm: On one hand, it is important to utilize Amazon’s capabilities; on the other hand, there is a reason why we talk about the Pinterest or TikTok readiness of brands. One must be where the target audience gathers information or exchanges ideas in order to attract or retain customers. Whether through advertising or other content formats that the potential target audience readily accepts. The big brands have been doing this through radio, TV, print, etc., for years. It is becoming increasingly interesting for smaller brands as they can now address customers in a much more granular way.
Ronny Marx: Social platforms are very popular. Pinterest has developed extremely well. Classic channels like Facebook or Instagram are still very good. TikTok is one of the shining stars and will increasingly come into focus regarding professional campaigns, just as we know from Facebook and Instagram.
However, it is always about reaching the right target audience. TikTok has a very young audience and is not a shopping channel; it is more about product awareness rather than direct sales in the sense of investing 3,000 euros and turning it into 20,000 euros by the end of the month. That does not work.
The primary focus, before concentrating on anything else, should still remain on Amazon, keyword retail readiness. Set up proper campaigns and ensure that this channel is fully utilized. If that works and I have enough resources, I will then approach the next channel in a target audience-appropriate manner. Until I have that, the groundwork is not done, and one should not focus on social media but rather on sales on Amazon.
Will live selling succeed/increase on Amazon?
Otto Kelm: It is hard to say. In the Asian markets, live selling is much more deeply integrated into the shopping experience, while in Europe and the USA, the concept of “going shopping” has been shaped over decades. Amazon has been using this feature in the USA for years – whether and when it will really provide added value remains to be seen.
Ronny Marx: I think it is a nice gimmick because it is something different, but it will remain a niche phenomenon. I want to buy my products when it suits me. LiveSelling means again, I have a pre-made channel at a pre-made time and I have to have time then. Then it is called live. But I could also say on-demand video selling, then I can watch the “live video” when I am available. But Amazon and eCommerce have taught us that products are sold when users are ready to buy them. And not when a pre-made time window dictates that to you.
What is Amazon Attribution and who should use it?
Ronny Marx: Amazon Attribution is about advertising, advertising activities, and marketing measures outside of Amazon. There, sellers can see how these activities have affected sales and impressions, that is, the presence of their products on Amazon. For example, it can be traced back to which external Amazon action caused customers to add your products to their cart.
The prerequisite for this is that one has their own brand, meaning they have registered for the Amazon Brand Registry. I can only recommend this to everyone, as one is really limited in their options without it, especially regarding advertising opportunities.
As a rule of thumb, one can say: more data is always a sensible thing, and one should use these opportunities as much as possible.
Amazon strategy
In recent years, more and more opportunities have been made available to sellers that were originally only usable for vendors. Will this continue at this pace? What other opportunities could there be?
Ronny Marx: The alignment of the Amazon partnership models Seller and Vendor will definitely continue. To what extent and in what form is still hard to say. For example, it is speculated that Vendor Central will no longer exist as a separate model, but will be integrated as an add-on to Seller Central.
In general, I think that the vendor model will only be worthwhile for the very large ones, while the seller model will continue to grow. But at this point, it remains a look into the crystal ball. But yes, I can well imagine that sellers will continue to gain priority at Amazon. Exciting thing!
The trend is increasingly moving towards multichannel selling. How do you see that? Can one still be successful if they only sell on Amazon?
Igor Branopolski: One can also sell ONLY on Amazon and be very successful with it, but that can also become very dangerous and is especially not up to date. Nowadays, sellers have many opportunities to automate the largest areas of their business. With inventory management systems, one can sell on all marketplaces with just a few clicks, so why should one forgo that and risk that something might not go well on Amazon? Furthermore – if one does not engage in multichannel selling – they miss out on a large target audience that, out of spite, does not shop on Amazon.
Otto Kelm: Unfortunately, this was completely implemented incorrectly; instead of multichannel, everything was simply listed everywhere, and they just watched what happened. Very few set goals for each platform and adapted product areas to the respective target groups. The topic has then been simplified by interface tools to the point that one no longer thinks, but rather “outsmarts” the respective markets blindly – mostly without relevant successes – as long as everything is everywhere.
Of course, one can be successful only with Amazon – but, as mentioned before, one must reach customers “before” Amazon.
Ronny Marx: Sure, one can do that. There is often talk of the second pillar and how important it is. It sounds nice in theory, but often does not work in practice. What is currently skyrocketing – at least in terms of user numbers – is Shopify and other cloud shopping solutions. I can imagine that the topics of shopping and customization for certain products that need to be explained better can definitely work. But the main part will still run through Amazon. One will just have to invest more money and pay close attention to which area they enter.
In recent years, customers are increasingly moving away from brand awareness. Does this speak for private labels or is trade goods still attractive?
Igor Branopolski: Trade goods will never die out and will always remain attractive to many. Brands, whether small or large, have their unique features and will continue to play a significant role: they set trends and create demand through influencers or sophisticated marketing campaigns, meet certain quality standards, or reach target groups that have been overlooked, even outside of Amazon & Co.
I wouldn’t even pose the question like that: Private label or trade goods? Every seller makes their own decision – both have advantages and disadvantages and have their target groups. Customers also no longer see things in black and white. Often, they search for brands and not for items, as they don’t just buy a game console but a PlayStation 5. At the same time, when searching for a showerhead, they opt for a cheap product made in China and not for hansgrohe at double the price.
Otto Kelm: I cannot understand that at all. Brands are searched for on Amazon. Brands are bought. We do not see a decline in brands. We only see that smaller target groups are simply unprofitable for large brands. This allows small providers to achieve revenues and profits in their area that are acceptable for them – but in the end, are not scalable. Overall, this is good – every pot finds its lid and vice versa.
Ronny Marx: The topic of reselling is not dead, but it is dying out. It works in a few cases, for example, when one has exclusive sales rights in certain countries, or when talking about huge margins, with over 1,000 sales a day, where there is still enough left at the end to make a business out of it.
Private label can work if one puts a lot of thought into it. Getting something from China, slapping your logo on it, and hoping for big sales because the niche is not so saturated can work, but it is very temporary. The manufacturing Chinese also think: “Why should I even let him sell my stuff, I’ll just put my logo on it, send out my review armies, and then the product will shoot up.” So, one has to think and specialize in products that are “unique.” It sounds buzzword-like, but it is actually true.
Amazon businesses are being bought up more and more often. How will this develop further and what impact will it have on sellers, prices, etc.?
Igor Branopolski: The acquisition of entire seller accounts is partly due to the fact that there is too much free money in the market and money is currently very cheap – low interest rates and a lot of capital that is practically crying out to be invested. This trend is also known in the real estate industry. However, the proportion of accounts available for acquisition on Amazon is not that high. This has always existed and will continue for the time being. Until the prices are so high that buying in is no longer profitable, while competition on Amazon continues to grow.
Otto Kelm: You will see this quickly in 2022. One can then live track whether these mysterious super good buyers can do everything as well as they claim or whether the investment bubble bursts. The impact will be positive for the skilled labor shortage in the Amazon world. More workers could switch from seller A to seller B, etc. I see only a few promising approaches. Just buying up will not lead to growth – one needs data and expertise, not just 5 large, well-performing brands.
Through tools, increasingly larger areas of e-commerce can be automated. Which tools are really needed to sell successfully on Amazon in the long term?
Igor Branopolski: Tools are always a good investment; manual adjustments are long gone. The minimum requirements are an inventory management system, an Repricer, and a PPC campaign optimizer. If the solutions are intelligent and used sensibly, they take away more and more work. Sensibly means – the user engages with the tools and optimizes them for their own business.
Let’s take the SELLERLOGIC Repricer as an example. The most commonly used strategy is the Buy Box. If the seller sets the min and max price incorrectly when setting up the repricer, then the margin cannot be fully utilized. The seller either sells too little because they do not get a Buy Box with their price, or too cheaply because they are in the Buy Box with the wrong price. As mentioned, the seller must engage with their tools to harness their full potential. That is exactly why we offer our customers extensive onboarding, and our Customer Success Management team is available for questions at any time.
Otto Kelm: Every area can be purchased through tools, agencies, or services. Every area has its justification. In the end, it lies in the respective capabilities of the individual sellers what they can do and what they need. The market is very well penetrated, but it is far from over. Currently, too few tools, agencies, or service providers are being acquired or merged. Logistics, inventory management, price control, or tools for misappropriations or managing marketplace data are absolute basics that one should have.
What do you think the Amazon business of the future will look like?
Igor Branopolski: Selling on Amazon is generally becoming increasingly difficult because more hurdles are arising: qualitatively poor products are being removed, as consumer satisfaction becomes even more important. The EAN connection has long been a component for the sale of products. It will be exciting when the CE safety directive is implemented. CE has been around for a long time, but now even more will need to be checked and queried by Amazon. It is not excluded that Amazon will collaborate with other providers like TÜV Süd and similar organizations in the future.
It is very likely that many Chinese sellers will have to leave the marketplace, as the CE compliance of many items is not present. This creates significantly more potential for online sellers at the European level, who have always been legally required to obtain CE certification. Now, platforms are also being made responsible for controlling this. In any case, the customer is even more in focus, and this will not only affect quality but also lead to more service, faster, and more customer-friendly.
Otto Kelm: I cannot answer that. There are too many uncertainties regarding laws and economic factors to consider. A ship is sideways and the world is shaking! However, I see the direct path of manufacturers as brands to customers as the future, and thus the elimination of many intermediaries or resellers.
Ronny Marx: Private label, yes, but designed differently. We will probably see a small dip in online retail as people are now looking forward to offline shopping again. This will normalize by the end of the year. Fundamentally, however, eCommerce will remain extremely boosted by Corona. Many people have come to know and appreciate the advantages of Amazon through Corona. The question one must ask is: “How do I react to such a trend?”
The working life is also changing sustainably towards home office. This opens up many use cases for private label sellers, whether through hand supports, specific lights, cable management items, or microphones. One must remain creative and always be prepared that products that are not “unique” and sell successfully will sooner or later be overrun by Chinese sellers. This means there is always only a time window in which I can place a product, get the best possible out of it, but then must move on. Or I get lucky and am acquired by one of the large M&A groups, make a quick euro, and can look further with that money. Otherwise, keep an eye out for products that are used a lot at home. I believe travel items will continue to decline. But home office and, of course, items that are used at home are the future trend that will continue.
Marketplace Pulse reports higher requirements for “Prime by Sellers” for the US market. Only shipping methods that also allow for processing on Saturdays are to be used. Is something similar planned for Germany? What impact will the change in the USA have on other marketplaces?
Igor Branopolski: In Seller Central, there is a setting that allows for delivery on Saturdays and Sundays, but it is not mandatory. The difficulty in Germany is that the option simply does not exist – no service provider delivers 7 days a week. There have always been discussions about this, but it is being upheld, and it is very likely that nothing will change in the near future. Therefore, I do not see any impact of the US circumstances on the German market.
Products
During the Corona pandemic, the demand for business suits has significantly decreased, while the demand for homewear has greatly increased. What product trends do you see for the coming years?
Igor Branopolski: During the Corona pandemic, trends like masks and disinfectants dissipated very quickly. It is very difficult to predict something like that over a longer period. One must continuously observe the trends and possibly adjust their product range. However, what we will feel very clearly in the coming months is the resource scarcity due to the container ship incident in the Suez Canal. This will likely lead to a global increase in raw material and thus also product prices.
Otto Kelm: It can be like the hula hoop in the last 6 months or any other item that TikTokers or influencers promote or a new trend color. That’s the beauty of such things – no one knows them in advance, and those who jump on quickly will be successful in the short term – then they need to have the next ace up their sleeve or constantly shop at DHDL.
Ronny Marx: You never know what will happen in the next five years. For consumers, I see good years ahead, as prices will go down in many areas. Many businesses that are now going bankrupt still have goods in stock, in warehouses or containers. As soon as the current situation normalizes, some markets will be flooded with products from insolvency sellers who say: There are thousands of microphones, headphones, etc. from sellers who no longer sold them. And then they will throw all their products onto the market. When that happens, prices in certain areas will drop dramatically, and then the second wave of problems will begin. For example, for sellers who are doing well now but then cannot make a good margin because the market is flooded with items from bankrupt competitors. This may also become an interesting – in quotation marks – “trend.”
Can you give a final assessment: What is your prediction for the next few years? Which trends will establish themselves in the long term, or do you perhaps even see trends on the horizon that we haven’t thought of yet?
Igor Branopolski: The market will continue to change just like in previous years. It is about being highly flexible and not putting all your eggs in one basket. Anything that is rigid and not automated simply will not succeed. Therefore, only businesses that are highly automated, extremely customer-friendly, and always have their finger on the pulse will achieve long-term success and continue to grow.
Otto Kelm: Amazon and the sellers need to seek and find a partnership! Seller revenues have increased from 35% to over 65%. Amazon needs to move away from customer thinking and do more for cooperation with sellers!
Sellers must let go of the idea that they are only selling items. Too many basics are left unattended, whether it’s content, SEO, or advertising – there are potentials lying everywhere.
The trend of Amazon DSP will certainly see more and more usage. Additionally, Amazon B2B is still absolutely underestimated. There is still more growth to be achieved with the right products.
Otherwise, Amazon, as already shown in the new app, will move more away from being a search engine and more towards browsing and inspiring. Additionally, Amazon needs to build a social network, ideally as a social media commerce network.
Ronny Marx: I must remain flexible and keep my eyes open. For example, Alibaba has established a new foothold in Liège. Every year, 350 million packages are delivered there and distributed across Europe. That’s nearly a million packages per day. But also other multi-brand platforms, like ASOS from the UK or Cdiscount in France. Galaxus in Switzerland generates over a billion in revenue – just in Switzerland. These are all consolidated platforms, and this is a trend that will continue to establish itself. One should think three times about whether to build an online shop and then perhaps create a marketplace, or rather the other way around. If something doesn’t work on the marketplace, why should it work with the online shop? Unless you are so specialized and have such a specific target group that you can promote and address online. Then the next question is: How do I get traffic there? On Amazon, you can do it with direct advertising; in your own shop, the right payment method must be offered, and so on. So, the principle is: First, do your homework on the marketplaces; marketplaces will remain, they are not going away. And if all of that works, then it might be worth considering going through the shop and doing multi-channel.
Conclusion
Amazon will continue to evolve and keep its sellers on their toes. It is important for sellers to keep pace with these developments and build a business that is resilient yet flexible. They should not blindly chase every trend but rather question whether it is worth jumping on that bandwagon for them and their business.
It is especially important to engage with customers and not lose sight of them amidst all the automation. However, this does not mean that you should not rely on automation. On the contrary: to build a long-term successful business, you should focus on automations that support you. However, these tools must work dynamically and intelligently rather than rigidly and rule-based.
Image credits in the order of the images: © ra2 studio – stock.adobe.com
