The Channel Shapes What Is Bought

Over the last decade Amazon has grown thanks to established brands moving online. Customers went from shopping in stores, to hearing about Amazon on the news, and trying to search for products they know on it. This has established Amazon as a channel. Later, sometime in the last 5 years, a fundamental shift happened. Customers were not only searching for products they’ve heard of elsewhere, but were also willing to try new things.

For a brand like Nike selling on Amazon is a headache they’d rather not have to deal with. But like many brands they don’t want to completely miss out on it, so - rather unenthusiastically - they give in. But when customers go looking for Nike products on Amazon.com, do they buy Nike products, or do they buy something else? That is, are brands attracting their customers to Amazon.com who then buy something else?

Is Nike, by giving in to sell on Amazon, and thus by allowing customers to find their products there, in the long-term slowly loosing market share to other brands who are also on Amazon. For a brand like Nike this will take decades to have any affect, but for smaller brands the effect will come sooner.

This is where private-label brands, and more deliberate Amazon-native brands slot in. By having better keywords, descriptions, pictures, and titles, and thus by playing “the game of Amazon” better they are chipping away at sales of existing brands. For someone coming from years of retail experience the concept of Amazon-native brands might sound ridiculous. And maybe it is. But it is the retail supply chain readjusted for Amazon-dominated market.

Procter & Gamble spends more than $2 billion every quarter on advertising and marketing. In 2017 they spent $7.1 billion in advertising alone to generate $65 billion in sales. That is, P&G spent 11% of revenue on advertising. Meanwhile Amazon is building one of the fastest growing online advertising channels, which has already attracted over a billion in spending every quarter. Given Amazon’s focus on low prices, how should P&G approach this? The implications of P&G bringing a billion-a-quarter to Amazon are hard to guess, but also maybe there are other ways.

In “TV, retail, advertising and cascading collapses” Benedict Evans writes:

“As buying goes online (regardless of how much the previous points happen at all), buying patterns change. Really, whenever you change the channel, buying patterns change - people do not buy the same in malls as in department stores, nor in department stores as in small shops, and so people do not buy exactly the same things online as they do in supermarkets or malls.”

Benedict Evans, Partner at Andreessen Horowitz (a16z)

This is why the concept that the channel shapes what is bought is so important. Naively one might assume that any brand can come to list their products on Amazon, and get their fair share of the market. Naive assumption being that Amazon is just a channel. But Amazon is not just channel. In the US they are approaching 50% of all online sales. In clothing for example they are already the largest online retailer. Thus in a decade they went from being a yet another website for customers to shop, to being the website for customers to shop. This changes things.

The medium is the message, Marshall McLuhan

“The medium is the message” is a phrase coined by Marshall McLuhan, a Canadian professor, philosopher, and public intellectual. His work is one of the cornerstones of the study of media theory. A similar theory applies to retail - the channel (medium) embeds itself in any product (message) it sells. Amazon is in a unique position to have built a channel changing how, and what brands get built. At least in the US their competition does not have the market share to have the same impact.

Coca-Cola’s executive vice president of North America Sandy Douglas said last year “Don’t think of e-commerce as a channel. It’s a way for consumers to research, to buy, to experience brands and then, ultimately, to have them have fulfilled.” She talked about the image problem of e-commerce. The simplistic view of different selling channels as all being the same is dangerous. On paper they all serve one purpose - sell products. But how they do it is not only different, but also the key aspect. The difference of selling on Amazon.com from selling in brick-and-mortar stores is not only about one of them being offline.

People do not shop the same on Amazon as on eBay, nor on eBay as in small websites, and neither in small websites as in retail shops. And so people do not buy exactly the same things on Amazon as they do elsewhere.

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Juozas "Joe" Kaziukėnas

Founder of Marketplace Pulse, Joe wears multiple hats in the management of Marketplace Pulse, including writing most of the articles. Based in New York City. Advisor to other startups and entrepreneurs. Occasional speaker at conferences.

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