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We’re an Amazon first company, so naturally we’re advocates for an Amazon-centric licensing strategy. For a high level strategy perspective check out this article, or for a brand specific approach we wrote specifically about what Nike could do to grow on Amaz
This piece is more technically focussed, exploring the tangible value that established household brands can offer to manufacturers or adept licensees exclusively operating within Amazon’s ecosystem.
We will review the advantages and pitfalls of marketplace licensing and culminate with a detailed analysis of the factors required when appraising a licensing agreement’s worth from both a licensor and manufacturer/licensee vantage point.
This article will be data-driven, zeroing in on specific metrics: fulfillment and referral fees, conversion rates, click-through rates, and PPC costs that licensees should anticipate, especially when benchmarked against lesser-known counterparts
For licensees, it’s a game of numbers. Elevated click-through and conversion rates, coupled with the potential for a premium price point due to brand strength, are juxtaposed against the potentially hefty licensing fees.
A powerful brand translates to higher click through and conversion rates, which in turn result in a higher organic ranking – this is a simplified version of the ‘Amazon flywheel’.
The challenge for a licensee is to obtain the increased sales velocity and to maintain a reasonable net margin on the product.
Can you remember the brand name for the last 5 products you purchased on Amazon? If you can, you’re in the minority!
In practice, only if the brand is recognized by the customer before the search commences can the halo benefit of a trusted brand enhance the product’s appeal.
For instance, consider Reebok. Introducing a hypothetical Reebok product among others instantly casts the competing products as mere imitations.
Click-Through Rate (CTR) measures how often people click on a product after seeing itslisting, calculated as the number of clicks the product receives divided by its number of impressions.
When a renowned brand squares off against an Amazon-native brand, several factors come into play: the value of the offer, creative quality, review score, and the number of reviews. All things being equal, the established brand typically enjoys a higher CTR.
However, a crucial point to note is the prominence of branding in the main image. Amazon shoppers are trained to look at the product images; they do not review the brand name in the product title; it isn’t impactful enough.
Observe the image above: the presence of a Reebok gun might be clear, but without distinct branding on the image, it’s less likely to divert clicks from its competitors.
The Conversion Rate (CVR) is an indicator of how well the listing offer converts into sales. It is calculated by dividing the number of sales by the total impressions on its page.
Once a user lands on a product page, the challenge is to convince them to make a purchase. As previously discussed, many established brands miss the mark by not optimizing their product listings to align with Amazon’s platform constraints.
Take Reebok as a case in point. The examples below illustrate that the sheer weight of a brand name might not compensate for a listing lacking in product details
Amazon.com : Reebok Unisex’s Premium Ankle/Wrist Weights – 1.5kg, Black, 1.5 KG : Sports & Outdoors
Merely to retain a reasonable organic rank; Amazon sellers should anticipate at least 10% of their revenue on Amazon Ads. This is called the Total Advertising Cost of Sales (TACOS), which is just the revenue divided by the total ad cost.
For those who own well-known brands, there’s a bright side. Your listing goes into an ‘ad auction’, and it gets a score known as an ‘ad rank’. Where your ad shows up depends on this score and how much you’re willing to pay for each click.
Your ad rank gets better if a lot of people click on your ad (CTR) and if a lot of those people buy something (CVR). If both of these numbers are high, you end up paying less for each click and for each sale from an ad.
The rationale for a licenced brand here follows the Amazon Flywheel; the improved CTR and CVR rate lead into a reduction in ad costs; allowing the seller to achieve a lower TACOS; leading to a greater sales velocity; leading into higher organic rank.
We'll discuss your Amazon marketing strategy for new to market, or existing products in your range.
Before diving into licensee challenges, it’s essential to understand the power of strategic pricing.
Price is pivotal. With a favorable margin, brands can set a competitive price, harnessing the CTR and CVR benefits without hampering sales momentum. With a top-tier license, brands can elevate prices without dampening demand. However, high royalty rates might necessitate a further price hike. It’s crucial to monitor CTR and CVR diligently in these scenarios.
Referencing our hypothetical Reebok massage gun, in the ensuing examples, the product occupies the third spot. Brands must discern the optimal price threshold before customers gravitate towards more economical alternatives.
Subsequently, evaluate the ripple effects of pricing alterations on sales volume, overall profit, and royalty obligations. Tools like Amazon’s in-built reports or third-party software like Sellerboard can offer insights.
Price determination is a nuanced process, blending data-driven insights with seasoned marketing acumen. Options include:
Ultimately, the optimal pricing strategy hinges on various factors. For renowned brands, adept pricing can offset royalty costs and present lucrative revenue opportunities, especially when the brand resonates with consumers.
One of the understated advantages of collaborating with a prominent licensor is the access to their seasoned design and creative experts. Often, you’ll receive a comprehensive style guide, and depending on the depth of your partnership, additional digital assets, design suggestions, and perhaps even a dedicated photography team and models tailored for your branding needs.
Both the advertising and product design processes become cost-effective and more efficient.
The licensing agreement then becomes pivotal. It lays the foundation, determining if the venture is worthwhile for the licensee.
A balanced agreement, beneficial to both licensee and licensor, is the bedrock of lasting success. As an online-focused licensee, you have room for innovative negotiations.
Highlighting the added value the brand can anticipate beyond just the licensing fee, such as market expansion, audience diversification, or the introduction of new products with lesser capital needs.
Of course, royalties are the flip side of the licensing coin. We hope this article underscores that the potential advantages can, in many instances, eclipse the downsides.
In Conclusion: Brand Power on Amazon
Navigating Amazon with an established brand provides a significant advantage in the bustling e-commerce world. The clear benefits range from heightened engagement to boosted sales.
If you’re a recognized brand or licensee eager to unlock your Amazon potential, contact us. We offer insights and custom strategies tailored to your niche.
Our design process is powered by thorough market research, ensuring that our products are not only eye-catching but also meet genuine market needs. We scrutinize customer feedback on existing listings to identify areas for improvement.
For example, our teams work on creating the perfect ‘hero image’ that not only appeals visually but also persuades the customer to click over competitors.
We prioritize aligning our design ideas with feasible manufacturing solutions. Our cross-functional teams, which include sales experts, designers, and manufacturing coordinators, collaboratively turn a product concept into reality.
Every product, whether complex or simple, meets our stringent quality criteria.
Before a product goes into manufacturing, we undertake meticulous due diligence checks that cover:
We are committed to upholding both our standards and those of our partners, safeguarding our mutual reputations.
Our sales strategies are finely tuned to market demand. We primarily focus on Amazon as our key platform to ensure our products are easily visible and accessible to consumers.
Our sales team has a knack for understanding what products or brands are a good fit for a specific online niche, a key skill we are eager to share with potential partners.
We'll discuss your Amazon marketing strategy for new to market, or existing products in your range.
June 2023
Sales First: Spotting The Market Gaps
Our approach is straightforward: we identify unmet market needs and build products to address them. Specifically, we target product niches where existing brands do not create a captivating offer, or where existing products could benefit from enhancements.
Specifically, we target product niches where demand surpasses supply or where existing products could benefit from enhancements.
Our expansion into licensed brands from 2023 is a strategic move as we believe that established brands have room for improvement on the platform.
For example, consider the screenshot below of brands like AERLANG, TOLOCO, RAEMAO, and APHERMA. They may not be household names, but they rack up more than $150 million in yearly sales.
Our design process is powered by thorough market research, ensuring that our products are not only eye-catching but also meet genuine market needs. We scrutinize customer feedback on existing products to identify areas for improvement.
For example, our teams work on creating the perfect ‘hero image’ that not only appeals visually but also persuades the customer to click over competitors.
Aligning design visions with manufacturing capabilities is key. Our multidisciplinary teams, consisting of sales experts, industrial designers, and factory liaisons, collaboratively guide a product from concept to reality.
Every product, whether complex or simple, needs to meet our stringent quality criteria.
More Than Compliance: Upholding Standards: Before a product goes into manufacturing, we undertake meticulous due diligence checks that cover:
We are committed to upholding both our standards and those of our partners, safeguarding our mutual reputations.
Manufacturing: Excellence In Production: We collaborate with select global factories to ensure the consistent quality of our products. We have manufacturing partners across the world; China, Turkey, Poland and the United States.
Our sourcing team, based in Malaysia, is essential for venturing into new markets and for assessing our supplier partnerships against strict criteria like CSR compliance, expertise, and frequent factory evaluations.
Sales Strategy: Amazon First: We align our sales strategies with market demand patterns. Emphasizing Amazon as a primary platform, we ensure efficient product visibility and reach.
The sales strategy is where we thrive; we have a team that instinctively knows if a product or brand is a good fit for the marketplace in a specific niche; this is our primary skill that we are more than happy to share with potential partners.
For more details or to discuss potential partnerships, we invite you to connect with us.
Our central office is located in Cheshire, North West England. We have a global, remote team that stretches from China to the United States and beyond, fully supported by our distributed work model.
If you’re contemplating a partnership with Stretton International, here’s an in-depth look into how we operate and what principles guide us.
