The Amazon Marketplace is increasingly becoming the go-to destination for online shoppers. Last year, Amazon claimed 44 cents for every e-commerce dollar spent in the U.S., and it’s projected to account for 58 percent of all U.S. e-commerce sales by 2020. Today, more than half of all consumer product searches begin through Amazon’s search bar.
Though there are massive financial opportunities on Amazon, what many online retailers and brands don’t know is that operating a successful business on the platform requires a much more sophisticated approach than simply pushing products and adjusting prices to win the Buy Box.
As the Amazon Marketplace continues to increase in complexity, adopting a strong portfolio analysis strategy only becomes more vital to managing a successful business on the platform. By taking a holistic approach to managing their catalog, retailers and brands can gain valuable insights into their overall account performance, identify areas of risk, improve productivity, and focus on the areas that are most important to their business.
Here are three definitive portfolio management strategies for retailers and brands to ignite their Amazon growth and reach their store’s full potential:
Put non-selling items into motion
When online retailers log in to Seller Central, it’s easy to determine which items are selling and which ones are not. However, they must go one step further to understand which items in their portfolio are actually relevant to their business growth.
First, break down non-selling items into two groups: non-selling items with inventory and non-selling items without inventory. For those items without inventory, if they have been static for a long period of time and there are no plans to replenish them, sellers should prepare this stale inventory to be liquidated. Review these items every three to six months to ensure that money is not being wasted on storage fees for stagnant products.
For those items with inventory, it’s crucial for sellers to determine what factors might be contributing to their standstill. It may be linked to a traffic or conversion issue, which typically means that the Buy Box share is low. Solve this by optimizing the listing with stronger content and images, and review these items on a monthly basis.
Leverage the 80/20 rule
The 80/20 rule refers to the industry barometer that says 20 percent of all selling items should generate approximately 80 percent of sales. The actual number of top selling SKUs will vary depending on a variety of factors, including the business size and product category, but it’s a fast and easy way for sellers to identify priority products. To leverage the 80/20 rule in their business growth strategy, sellers can use these numbers to identify and focus on the top performing items to spend their time on; which ultimately will help them manage their time more effectively.
Set actionable targets for sales and profit margins
When setting goals, sellers shouldn’t look at sales or profits independently, but should examine both variables together. In order to set targets, sellers must first break down their portfolio to view it in five different ways:
High Sales, High Margin
In this case, high sales can refer to either units or dollars, depending on how the business accounts for that specific target. These are items that should always have ample inventory to ensure that they remain in stock. If for some reason these items cannot be replenished, sellers can increase the price to maximize margins. These items should be assessed on a regular basis to spot any shifts in velocity and Buy Box share.
High Sales, Low Margin
When it comes to operating a business on Amazon, there is not a ‘one size fits all’ strategy. However, if there is an opportunity to increase margins and still hit targets, sellers across the board should consider this approach.
Low Sales, High Margin
At this crossroads of sales and margins, it’s necessary to determine why these items are moving slowly. Is it a visibility or conversion issue? By increasing advertising spend and rolling back prices, sellers can effectively increase sales.
Low Sales, Low Margin
In this situation, sellers must first deduce where these products are in their life cycle to then understand why they have stalled in both sales and margins. Once this is determined, sellers should track down other variables like specific ad campaigns, visibility, and competition that may coincide with the particular time period.
These are items that are selling, but at a loss. If the item is not already under liquidation, sellers must consider if there is an opportunity to increase prices.
With this comprehensive approach to product management, sellers can streamline their efforts to invest valuable time and resources in areas that will have the greatest impact on their growth.