5 Ways Challenger Brands Can Win Against Big Brands on Amazon

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Image credit: William Potter/Shutterstock

With surprising ease, thousands of small private-label brands have popped up over the past five years on Amazon, successfully nibbling market share away from better-known national and global brands.

To win on the Amazon channel requires a set of skills quite different from what most brands do today in traditional brick-and-mortar channels. Top brands have not adopted these practices quickly enough, leaving the door open for challenger brands that continue to capture significant traffic and sales.

Winning on Amazon requires a clear understanding of what it takes to succeed on this e-marketplace. Many of the levers that large brands exert in traditional retail channels have little to no effect on Amazon. Let’s examine what these challenger brands are currently doing to win against bigger brands on the Amazon marketplace. Their tactics could be helpful to you if your SMB sells on Amazon or plans to.

1. Nimbleness (and willingness to pursue smaller opportunities) 

For most of the large-cap brand portfolio companies that we have worked with, it can take 3-4 years to launch a new brand, and sales expectations can be set at around $250 million a year within another 1-2 years. Only a handful of such launches might happen each decade. Even if the Amazon channel portion of sales eventually makes up 10-12 percent of all sales, generating more than $30 million a year on Amazon would be a significant accomplishment.

Yet challenger brands launch weekly on Amazon. For them, getting to $1 million of sales per year can more than legitimize the brand with one or more top-selling SKUs. Using a test/refine/re-test approach on Amazon, many private-label challenger brands are rolled out rapidly, while the national brand portfolio companies move slowly, stacking their cards carefully before launch to ensure that their new brands are successful in conventional channels. The quicker go-to-market approach and willingness to pursue smaller sales opportunities helps the challenger brands to fill product gaps with smaller revenue success by brand, while constantly evolving to satisfy Amazon customer needs.  

We have also seen many large brands get delayed with their marketing agencies, building a full-scale, often overworked (Amazon-specific) product launch strategy. The challenger brand (which may not have a marketing agency relationship) moves more quickly to launch its new products on Amazon, willing to adjust mid-flight, recognizing that market conditions can evolve quickly on the Amazon marketplace.

There is a strange irony in the difference between these two approaches: The large brand spends years and millions developing its new products after patterned success, while the challenger brand invests less overall time and money, but because it is more willing to adjust and capitalize on market opportunities, the smaller brand produces many niche products that capture sales opportunities the larger brand overlooks.

Big brands are caught between two ends of the spectrum, and their real estate is becoming narrower all the time. On one end, Amazon builds out its own stable of private-label brands, using accrued customer data to perfect its product launch efforts. On the other side, challenger brands are also accumulating their own customer data, seeking to be more responsive to product gaps and improved product opportunities. The challenger brands mine customer reviews of top-selling products to gather information so they can improve and refine their own versions of these products.

The marketplace landscape allows Amazon private-label brands and challenger brands to develop superior, less expensive products and push out larger brands, because customers shopping on the Amazon marketplace have largely abandoned attachment to brand name recognition and trust. Instead, there is a new brand equity on Amazon, and it is the almighty customer review count and star rating.

2. Listing optimization 

The Amazon marketplace lends itself best to individual transactions, not brand building or repeat purchases. The successful launch of new products heavily depends on whether you optimize listing pages with best-practice product titles, bullet points, product descriptions, back-end generic keywords (for SEO purposes), and different types of product images (main image, lifestyle images, infographics, photos of product packaging) and videos. Investments in these digital assets drive higher customer conversion and increase search discoverability.  

Far too many large brands we have studied have chosen to focus on advertising efforts at the neglect of listing optimization. Unfortunately, these brands are spending large advertising budgets driving traffic to product listings that are not optimized to highlight product benefits and answer customers’ questions. We view this approach as tying one hand behind your back and throwing money at the wrong problem. Spending money at the top of the sales funnel is very expensive, so let’s make sure the traffic that moves down to the bottom of the sales funnel is ready to be converted properly into buying customers.

Amazon advertising personnel recently told us that over 70 percent of all visitors arriving on Amazon start their site journey with an unbranded, generic product search – looking for categories of products rather than specific brands of products (e.g., “men’s running shoes” rather than “Reebok men’s running shoes”). Such customer behavior makes it imperative for brands to have proper SEO in place.

To make problems even worse for the brand that depends too heavily on its name recognition winning over customers, we find on Amazon that sponsored products (based mostly on unbranded keywords) typically fill the top of the first page of search results on Amazon. This reaffirms that unbranded keywords are more important than branded keywords in a significant amount of Amazon customer activity.

3. Efficient traffic

While the challenger brand likely doesn’t have the same advertising budget to drive traffic to its product listings on Amazon, this smaller brand is more likely to engage in more complicated, multilayered online efforts to drive traffic. We have seen challenger brands spend their time and money more efficiently on Amazon, driving eyeballs to their products. These traffic-building efforts include email campaigns, on-Amazon advertising and off-Amazon traffic to the Amazon listings (e.g., Facebook group engagement, Facebook ads and squeeze pages to warm up prospective customers before driving them to the Amazon listings).

Companies like AnkerDirect have earned hundreds of millions of dollars of Amazon sales each year by developing and nurturing their Facebook and YouTube audiences – audiences who respond quickly and with enthusiasm when AnkerDirect launches new products on Amazon. That enthusiasm translates into initial spikes of high-converting sales on Amazon and immediate Amazon customer feedback on product launches – sales and feedback that the Amazon search algorithm will reward with precious first-page placement on unbranded keyword search by subsequent Amazon customers.

4. Channel governance 

A large, well-established brand has likely built a wide distribution model into hundreds or thousands of distributors and retailers. While such a distribution network helps to garner offline market-share brands, each of those intermediaries is a potential source of product finding its way onto Amazon. Some of this product may be sold on Amazon by resellers authorized by the brand to do so, but usually this is accompanied with a much larger number of resellers that are not formally authorized to sell on Amazon – either retailers or distributors selling without permission on Amazon, or gray-market resellers that have sourced diverted products from distributors or brick-and-mortar retailers. Once even a few unauthorized resellers appear on an Amazon product listing, price competition will ensue, eroding the brand’s margin and pricing structure offline.

Additionally, the algorithm Amazon uses to determine the preferred seller at any given time (the Buy Box algorithm) also determines whether individuals’ products are eligible for advertising. When unauthorized resellers, who often choose not to advertise, win the Buy Box for a given product, the brand loses the ability to advertise that product to customers on Amazon.

Without control of who sells its products, brands lack management of their overall advertising efforts on Amazon. This includes both making sure that sponsored product ad campaigns show up more often and that any headline advertising is driving traffic to authorized resellers rather than to products where the Buy Box-winning seller is an unauthorized seller who has cut their price. Yes, large brands regularly spend money driving traffic to their listings before first controlling distribution, creating an absurd incentive for more unauthorized sellers to compete for a share of sales for these well-advertised products.

When the brand gets to the point where it has only authorized resellers (or, better yet, just itself selling directly to Amazon customers), the brand’s control of its overall distribution will allow complete control of its advertising and stabilize pricing across all channels online and offline. This, in turn, allows the brand to develop a better centralized view of available inventory on Amazon, ensuring fewer stockouts that seriously harm any product listing on Amazon.

It is our experience that successful challenger brands have both fewer overall sellers and fewer unauthorized sellers on their Amazon product listings. In fact, brands that sell only through their own third-party seller accounts can generate 50-70 percent more unit margin than a national brand that relies on a distributor pricing model that necessitates feeding another layer before the product gets to the Amazon customer. The successfully executed third-party sales model of the challenger brand is more likely to produce price stability, better inventory management, and consistent advertising visibility where the higher margins are offsetting costs needed to address advertising, channel governance and listing optimization.

5. Avoiding significant spend on headline advertising 

Through Amazon’s first-party AMS advertising platform, companies can spend money on the banner ad at the top of search results, known as the headline ad. This ad is typically an effort to drive brand awareness, very high up in the sales funnel. Furthermore, it is rather challenging to measure the effectiveness of such spend through Amazon’s advertising reporting portal. Given the transactional nature of the whole Amazon platform, we see challenger brands spending their money on sponsored product ads (driven by generic keyword search) and product placement ads (advertising on the product listings of competitors – often the large national brands’ listings!).

As Amazon customers continue the trend to overwhelmingly search for types of products rather than specific brands, the challenger brand will have a clear opening to focus on the specific mechanics of driving Amazon customers through the sales funnel to its high-converting listings. Coupled with constant experimentation and refinement, channel governance, and slow-and-steady efforts to build off-Amazon customer engagement and traffic, the challenger brand will continue to be significant to Amazon customers, capturing share and margin that eludes the big brands.