Imagine, for a moment, an alternate reality.
Tim Berners-Lee didn’t just invent the world wide web by connecting hypertext and a transport protocol and an address book (DNS). He also invented RML (retail markup) as a subset of HTML and started sell.com, an open platform for selling any product from any organization to anyone and shipping it globally in a safe, trustworthy, and efficient way.
Would that be good for brands? Probably.
Does it loosely describe Amazon? In some ways, yes. In certain markets, Amazon is essentially the world’s mall: everything for everyone at any time.
“I am completely bought in to this idea of Amazon as the largest platform we have at our disposal for growth of … brands,” Mike Frekey, the head of advertising for retail unicorn and modern house of brands Perch, told me recently on the TechFirst podcast. “Well over 50% of sales that are going on online [are] happening directly on Amazon.com.”
Perch is a modern phenomenon in retail, brand, and marketing. Proctor & Gamble, Unliver, Clorox, and Johnson & Johnson are examples of “house of brands” companies selling products like Tide laundry detergent, Tylenol, Burt’s Bees, and thousands of other products under hundreds of brands, mostly via good old fashion bricks and mortar stores like Target and Walmart. Many were literally founded in the 18th century. Perch, on the other hand, is a tech company. 30% of its workforce is developers and engineers. It’s raised $900 million to buy, build, and grow microbrands … the internet’s niche retail answer to Godzilla brands that have dominated markets for decades, even centuries.
According to Perch, it’s the fastest profitable company to ever reach unicorn status, and it has a fancy billion-dollar valuation just 18 months after launch.
In other words, it’s a very well-funded David throwing rocks at Goliath.
And it uses technology to outsmart and outcompete.
Not on physical grocery store shelves, but on the endless virtual shelves on online stores where data-driven algorithms driven by predictive spending and estimated interest calculations — and paid advertising — determine whether consumers will even see a product some brand is offering.
“We have a number of plans in our roadmap for how can we utilize technology to identify any opportunity, whether it’s better tracking of reviews to identify when a product’s efficiency might start to go down and we can start to shift more of our resources towards going from a 4.0 visible rating to a 4.5 visible rating, because we know that that’s going to have a large impact,” says Frekey.
“I think what makes this really exciting is we are looking at the technology piece for supply chain and fulfillment. We’re looking at how can we better utilize technology and our data team on merchandising, and how can we speed up our processes for creating assets. How can we just find any aspect within our way of doing business, and we want to find a way to make our technology support that.”
As such, Amazon is a massive opportunity.
It aggregates more buyers than any other store in the U.S., and that means if you know how Amazon decides what to show to its users, and how people make buying decisions on Amazon, you have just as good a shot at getting Men’s Shampoo #99 selling as anyone else. And maybe more.
“We’re looking at Amazon as a growth lever for these brands,” Frekey says.
It makes a lot of sense.
Amazon is the default place for hundreds of millions to check products. Compare prices. Find an estimated delivery delay. It’s convenient: Amazon has your credit card and a single click sends product your way. And it feels safe: Amazon has a good (if not always great) return policy and predictably fast ship times.
Simply put, it’s the easy choice.
Listen to the interview behind this story:
For brands, of course, getting their products in Amazon has some downsides. With unlimited shelf space, the currency is attention. And brands pay for that via advertising, just as brands have paid in cash or kind for prominent shelf space in physical stores.
Which means even when Amazon doesn’t win, it wins. Amazon might have a private label house product, which it may have developed after seeing high sales in a category, and it can place that product wherever it wants — and even buy Amazon ads for its Amazon products. People can buy that product, or they might buy something else. The “something else,” however, likely had to buy Amazon ads to get noticed. So the house always wins.
“Advertising is just such a high margin space for them, where they can make every single interaction on their site a profit-driving one for the company, even if no cash is changing hands,” Frekey says. “There’s always going to be that way for Amazon to make their cut.”
And advertising is necessary.
“[If] you’re trying to build a brand that is going to be a dominant player in a category … you cannot do that without advertising,” Frekey says.
Which, of course, is the reason why Amazon has grown ad units from two sponsored products at the top of search results in 2016 to sometimes six product ads, plus a sponsored brand ad, plus high review products related to your search (also an ad placement), plus, potentially, additional affiliate ad placements too.
In other words: an entire screenful of ads on desktop, and perhaps a few screenful on mobile.
And: even if your product is the top organic, natural, unsponsored result for a search, you might still be buried far down on the list of results.
Which is why even though Perch knows the ins and outs of selling on Amazon, and views it as their number-one place to connect with buyers, and is a major buyer of Amazon ads, the company is also leveraging sales and customers to develop one-to-one relationships with its customers post-purchase. That means it can sell directly at some point, as well as cross-promote: people who buy soap might also buy shampoo.
And, having a house of brands — 70 at last count — means Perch can potentially develop a better picture of customers across multiple product categories.
That’s another reason for the house of brands: scale.
“We’re trying to disrupt the world of e-commerce in a way that brands on their own just simply don’t have the ability to do,” Frekey says. “Where are they doing things that based on limitations in their catalog size, their catalog breadth, they just are unable to take advantage of a growing consumer base in any given channel? Because we have so many of these brands, because we’re able to go across portfolio, across different categories, deeper within the same category, we’re able to find people to … resonate with our brands on a deeper level.”
And it enables loss leader brands that might just drive customer acquisition for more profitable products.
The future of retail, Frekey says, is microbrands at scale, via this new kind of house of brands. That’s interesting. The question is whether Perch and other new retail conglomerates can grow business faster than P&J and Johnson & Johnson et al can learn digital.
Because they are certainly coming: Clorox, for instance, has a direct-to-consumer division for new challenger brands as well as existing brands.
Wherever that competition goes, it’s going to be harder and harder for individual brands to compete on their own.
“I’m viewing the direction of more brands going towards aggregators because of what it means that they can do,” says Frekey. “Where I think a standard one-brand seller has to be more conscious of their end-of-day profit, I think an aggregator is able to go into the space. They may have some loss leader brands. They may have some brands that are a lot more efficiency focused that enables them to spend more across their entire portfolio.”