In recent times, a lively debate has emerged in the world of e-commerce, revolving around the question of whether selling on Amazon is a profitable strategy for direct-to-consumer (DTC) brands. The likes of Nike and Ikea have made headlines by opting to leave the platform, focusing solely on selling through their own websites. However, for many other DTC brands, Amazon remains a vital sales channel and a key element of their success.
So, what types of companies or DTC brands can thrive on Amazon? To unravel this conundrum, we’ve tapped into the insights of DTC companies that have found success on Amazon, such as food brands Justin’s and Country Archer. In this article, we’ll explore the limitations of DTC, the advantages of having a presence on Amazon, and what brands need to know to stay competitive in this dynamic landscape.
What is Direct to Consumer (DTC)?
As the name suggests, direct-to-consumer brands sell their products directly to their customers. They achieve this through their own websites, physical storefronts, or a combination of both. You won’t find DTC brands in traditional retail stores like Walmart or Target, and you won’t see them on e-commerce retail sites like Amazon, eBay, or Zappos.
For example, brands like Beltology and David Kind sell exclusively online through their own websites, while Brilliant Earth and Warby Parker have both e-commerce and brick-and-mortar stores.
Are There Limitations When Selling Strictly DTC?
According to Jonathan Will banks and Chris Moe, co-founders of Cartograph, an agency specializing in supporting food brands on Amazon, the answer is a resounding yes. The most significant limitation with direct-to-consumer marketing is rooted in its method of distribution.
A DTC brand puts its products directly into the hands of customers, bypassing third-party intermediaries. This approach means that a DTC brand must manage every aspect of a sale and ensure a positive shopping experience for customers. This can be especially challenging when customers have no prior relationship with the brand and have high expectations.
Many customers are wary of sharing financial information or their mailing address on unfamiliar websites. They may be uncomfortable with the uncertainty of shipping times and return policies. In contrast, Amazon acts as a trusted intermediary between its customers and the brands on its platform. Customers trust Amazon and are familiar with its operations. Many customers have previously used the platform, have their shipping and payment details stored, and can make purchases with a single click.
As a result, Amazon offers a smoother and more familiar shopping experience for many consumers compared to DTC brands. For a substantial number of shoppers, Amazon is their primary experience with e-commerce platforms. Brands that exclusively sell through their websites may risk losing sales to those consumers who prefer the convenience and trustworthiness of Amazon.
5 Benefits of Selling DTC Brands on Amazon
Is the ease and familiarity of shopping on Amazon the sole reason why direct-to-consumer brands should consider joining the platform? Absolutely not! While Amazon offers a convenient distribution method, it also brings several notable benefits.
Efficient Customer Reach: Amazon is one of the most effective ways to reach customers, particularly for U.S.-based shoppers. An astonishing 66% of new product searches now begin on Amazon, compared to 20% on search engines and 4% on brand websites. Amazon has become the go-to platform for product discovery.
Leveraging Positive Reviews: Positive reviews on a product’s Amazon page can significantly boost a brand’s sales across various channels, including their own websites. Since many shoppers consult Amazon for product research, customer reviews on the platform play a crucial role in purchase decisions.
A Significant Revenue Stream: For many DTC clients, Amazon contributes to a substantial portion of their total retail sales, ranging from 10% to 40%. Some brands even generate monthly revenues ranging from $150,000 to $200,000 on Amazon alone. According to Feedvisor’s 2019 research, 42% of survey respondents selling on Amazon claimed that the platform accounted for over half of their online revenue.
Cost-Effective Advertising: Amazon’s advertising costs can be up to 10% cheaper than DTC brands’ ad expenses. The key factor often comes down to organic versus paid traffic. DTC website traffic typically relies on paid marketing through platforms like Google, Facebook, and Instagram. In contrast, brands on Amazon benefit from increased organic traffic, thanks to the platform’s dominance in product searches.
Lower Customer Acquisition Costs: Amazon tends to have lower customer acquisition costs compared to DTC websites. Amazon is closer to the bottom of the purchasing funnel, where shoppers are closer to making a purchase. Shoppers searching for specific products or brands on Amazon often have high purchase intent, making it easier to convert views into sales. On the other hand, advertising on platforms like Google targets users in the middle of the funnel, with less decisive purchase intent, resulting in higher customer acquisition costs.
In summary, for DTC brands, embracing Amazon sales can open doors to a broader customer base, enhanced credibility, and cost-effective marketing. The decision to expand onto Amazon should be made strategically, considering the unique characteristics and goals of each brand. By understanding both the limitations and the array of benefits, DTC brands can make informed choices on how to navigate the dynamic e-commerce landscape.