Here’s what I learned this week

300% growth 3 years in a row is possible, but to maintain growth it’s going to require a complete rethinking of the customer journey moving forward.

The results are in, the little underwear Krakatoa Underwear has now grown at 300% for 3 years in a row with no outside funding and only one full time employee and no outside agency help.

It’s been a wild ride up to this point, lots of relearning for myself in this new environment of just what it takes today post iOS14 to grow from $0 to $2m inside of 3 years.

The goal is to get it to $6 million next year with a stretch goal of $8 million.

I have a few aces up my sleeve to work towards ensuring we can get there. We haven’t done any real organic or organized partnerships yet, stay tuned, I’ll drop some of this stuff in these newsletters moving forward.

Times are changing and competition is increasing at a rate that is going to only get harder to compete with as most goods become commodities and prices become a race to the bottom.

I personally don’t think a brand moat is good enough anymore.

Here’s why…

The Amazon Effect

The Amazon effect is real and it’s forever changed customers expectations of what’s possible from a business and customer support perspective.

The problem is the only one that can pull it off is Amazon.

The other problem is when you even fulfill with Amazon you pay a pretty hefty “Amazon Tax” for the privilege.

They can squeeze you because they know you don’t have any other options that can deliver the same level service.

They can also do it because they make a ton of money on things like Cloud Services and now Advertising to subsidize these customer support advantages.

Amazon is really just a logistics, hosting, and advertising company.

For context Facebook who’s whole business is Advertising did $116.6 billion in 2022. The problem is Amazon has 3x’d it’s revenue in 4 years. While Facebook is actually down from the year prior, in 2019 Facebook did $70.6 billion a gain of $40 billion over 4 years.

Amazon on the other hand has gone from ~$10 Billion in 2019 to the $37 billion above.

It would be silly to ignore what’s going on and how the advertising landscape specifically for ecommerce is changing.

Whether or not you sell on Amazon, you’re competing with Amazon.

Let me explain this a bit more.

Scenario 1: You don’t sell on Amazon

So you don’t sell on Amazon so your driving all your traffic to your website, people come to your website and they add something to the cart, hell they might even make it to checkout, then they see the shipping costs if they didn’t hit a threshold.

I love Patagonia as a brand, they don’t sell on Amazon, but two pairs of Boxer Briefs will cost me $88.54 with tax and shipping. This is standard 5-Day shipping.

If I want that sweet sweet Amazon Prime experience of 2-Day shipping the price jumps to $104.95. For 2 Pairs of Boxer Briefs.

Now I love Patagonia as much as the next person, but $104.95 for two pairs of underwear seems a bit extreme.

So the reality of this situation is that most “normal” people will stop and look up the product on Amazon. Just based on the shipping costs alone even if they know it’s not sold there.

Rationale: This is really expensive, I have Amazon Prime, that’s a shipping discount already, and if I need it for a trip in a few days, Amazon is my guy/gal/pal.

So I typed in exactly what I was looking for in Amazon (Amazon’s search sucks, but part of me thinks it’s on purpose).

Now Patagonia doesn’t sell it’s products on Amazon, that’s not going to make me stop from checking, because it’s likely that a normal customer doesn’t know this and a lot of people have Prime accounts.

So what do we see, lots of other brands with prices at a fraction of the cost for multi-packs.

So now the person wonders why the prices are so different.

The next step is to look at the materials the Patagonia Boxer Briefs are made of I mean they need to be made of gold for something fancy right?

Well that’s sort of disappointing.

A short search later…

I’ve just landed on a product that has the same materials:

For roughly half the cost of my comparable order of two pairs with 2-Day Shipping. This one comes with free returns though in case I don’t like them.

Patagonia doesn’t.

A practical person that’s looking to search for a product on Amazon that isn’t 100% in on a brand will have no other choice than to give consideration of an offer to essentially double up their purchase power.

Hell anyone looking for products generally has to do some comparison shopping, it’s only natural.

So the next question is “What do we do about this?”

Amazon thinks the answer is Buy with Prime.

Maybe it is, but it’s more consolidation, now this opens up their ad network to outside stores taking away market share from Facebook.

So now even if you don’t sell on Amazon, they are making sure that you pay the “Amazon Tax”.

Scenario 2: You do sell on Amazon

So you do sell on Amazon, you’re going to get the sale, but the average consumer is going to Amazon for the convenience unless you have a sale going on or an offer to keep them on the website.

This is just the truth of the matter.

Now a lot of people have tried a variety of ways of preventing people from going to Amazon and purchasing. If you’re a larger company, there’s multiple 3rd party sellers that are selling your stuff, so you’re essentially competing on price from that one time you ran a really big sale and multiple people looked like they were stocking up for themselves only to turn a bit of a profit on your goods.

(Yes, I’m 100% speaking from experience, this usually happens a month or so after the Holidays when prices go back up and no sales are going on.)

So what do you do?

Scenario 3: You sell to Amazon

This isn’t going to be the most common thing for most ecommerce stores, but it’s worth mentioning if this does happen to include you.

This means that Amazon is buying product from you to resell.

There’s going to be MAP pricing involved.

What is MAP pricing? Minimum Advertised Price or MAP is the lowest price at which a retailer can advertise a particular product. Set by the manufacturer, MAP pricing helps protect the brand's value and profits by ensuring that the products cannot be priced below a pre-decided amount.

I’m going to translate this for you in real speak, when you sell to Amazon directly you’re provided a buyer that’s responsible for your account, they make a commission off the amount of products you sell through.

These guys/gals/pals subscribe to your email list, monitor your website, and protect their paycheck.

If you get aggressive with a sale and don’t tell them, they will match it, scold you and hold back your payments and renegotiate a compromise to fund the discount they match you with.

You can try to get around this via a popup subscribe to list, they tend to let that one go, you are running a business, email only sales, you’re mostly OK until it’s deep, then you’re not OK.

If you sell in other retailers like Best Buy, they are already scraping that website and their algos will auto match then send you the bill after sending you an email and a phone call within hours.

Amazon is brutal, I’ve lived it first hand.

How is all this knowledge changing my approach?

So it’s a rigged game with Amazon.

So it’s more about striking a balance.

If you sell on Amazon or Amazon buys from you and resells, then treat a sale as a sale and stop worrying about it.

If you don’t sell on Amazon, make it clear that you are only available on your website and do everything you can to provide offers that someone would only be able to get on your website. Far too few brands lean into this and it’s causing customer journey leakage.

Discounts aren’t bad, we just reviewed the Auto Amazon Discount above.

If you can’t afford to be competitively priced then you need to re-evaluate your business model.

Sidenote: Patagonia overcharges for shipping, it includes an extra $5 which they charge for flat rate return shipping, they hedge by forward loading this so that people go over the threshold of $99. It’s a well orchestrated move by them.

The Takeaway

This was a long one and not one I had planned to write about this week, but I saw a lot of posts about how discounting was bad and pulls away from your brand, Amazon is a bigger threat for nearly every brand, and not understanding customer behavior just compounds this.

The only brands that have this happen are those that are 100% vertically integrated with real estate leases in the most prestigious cities in the world where people literally just spend money to shop.

So in a grand old summary, start to focus on your add to cart and checkout rate.

A conversion rate without it doesn’t really matter all that much, not everyone has products that people just buy.

In fact, this is a stat we’re going to add into Formtoro in the near future as a proxy for quality audience, just another data point to help us better understand our customers.

Have a great week!

-Jon

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P.S.S. I’m considering starting a YouTube Channel with some of these topics and thoughts, just need to figure out a bit more of a proper angle other than Jon has a hot take on something because he has some weird level of experience with doing it.