The recent Amazon buyout of Whole Foods started new client discussions on how to address a world that is increasingly focused on food purchased online. For most food manufacturers the issue of selling their products through a partnership with the online giant has been shuffled to the back of the stack of decisions awaiting approval. That has now changed. Here is how we are advising our clients on the issue—with or without Amazon.
There are three issues that must be addressed. First, your products are likely being sold on Amazon already. If you are not currently working with Amazon, go to their website now and search for your products. You might be surprised to learn your products are there. That is because there are thousands of resellers who will go to the supermarket, buy your products off the shelf and then mark them up by up to 500% to cover shipping and their time.
Case in point is a 4.5-ounce box of gluten-free chicken breading. On the shelf, you can pick up a box for about $2, but a reseller is selling it on Amazon for $9.93 plus shipping if you are not an Amazon Prime member. Drill down to find who is selling the product—Shenene Storefront. Drill a little deeper, and you’ll find that this reseller is pitching everything from Hatchimals to DVDs of “Talladega Nights.”
In another instance, a client’s product can be purchased off the shelf for a $1.89 and it is being sold on Amazon for $9.41 for a pack of two bottles plus shipping. Go to check out and you’ll see that the reseller is also pitching you on coupling your purchase with a funky competitor’s product. This is not how you want to have your brand represented online.
Now that you know resellers are raking in the profits on your brand, develop your own online capabilities and be smart about it. Overcoming the free shipping challenge is the big nut to crack in selling anything online. Have your logistics team spend time reviewing new options for reducing shipping costs to the bare minimum, then add in the shipping costs into your online product pricing to compensate for the expense. Most tests of offering customers free shipping show there is a 50-90% increase in sales when you offer free shipping, even when the shipping costs are added to the purchase price.
Another hurdle is to develop bundled pricing that makes sense for online customers. For example, two- or four-pack bundles can increase profitability, add value to the customer, and blur the line of a direct mental comparison by the consumer of the expected shelf price if they went to the stores. My favorite is selling “variety packages” that give the freedom of selecting various flavors to the customer.
Remember, consumers love to try new flavors, but they want a smaller package size to cut their losses in case they don’t like the flavor. Smaller packages typically fetch a higher per ounce price than larger packages, so for you it’s a definite win-win.
If you opt to go into e-commerce on your own, then develop customer lists with opportunities for engagement through your social media channels that add value to consumers. Quick and easy recipes, recipe videos, and boosted posts to the right demographic are great ways to develop an opt-in list for regular e-newsletters that drive them to your online store. Leverage your e-commerce software to learn who are the best online customers and offer seasonal, thematic e-blasts featuring special bundles or discount pricing.
Doing it alone also means that you will need a Google targeted SEO/SEM strategy involving keyword ad buys. Partnering with Amazon does some of the work of SEO/SEM since the online shoppers are already on Amazon.
That Amazon partnership will involve a startup fee and a percentage of each sale made through Amazon. Once established as an Amazon Merchant, you will have a lot of options for targeting the customers who are most likely to be interested in your products.
The real magic in online pricing is to go to market with pricing that is more than what a consumer can find on the shelf, but at a price that undercuts resellers. Undercutting reseller pricing is the quick way to put them out of business with your products. With them out of the way, you can control your brand and put their money in your bank.
Ultimately, there is more work in creating a smart approach to e-commerce than just shuffling the decision to the bottom of the stack for another year. However, by offering a direct-to-consumer option for your sales unlocks considerable profitability. Leveraging a direct option means you don’t have to share margin with traditional retailers. You also have the world as your marketing canvas, not just the finite locations of your retailer network. That’s why now is a good time to get going with a better strategy for your e-commerce.