Amazon is by far the largest e-commerce platform worldwide, and global online retail sales are constantly growing. The “marketplace” on Amazon gives third-party sellers easy access to this huge commercial potential. All those sellers who already make use if this opportunity are faced with a simple question:
How can I increase my sales on Amazon?
Unfortunately, there is no straightforward answer to this. With this background information article however, we are approaching a basic, fundamental explanation to this “black box” of a process. For this purpose, we will first explain the factors determining the sales success of a product by looking at the typical buying process on Amazon. After that we will describe the different levers at the seller’s disposal for driving success factors. For detailed insights on how to adjust these individual levers to boost sales, you may have a look at our specific articles dealing with ranking and buy box optimization. This article is designed to give sellers two important insights:
1. A good product positioning for relevant keywords and buy box ownership are the two key success factors on Amazon. For some products, keyword ranking is more important, while for other products it’s owning the buy box that matters most.
2. Sellers have a lot more options to improve the rankings and buy box ownership than just lowering prices.
Search, Click, Buy – The Buying Process on Amazon
To understand the success factors on Amazon, you have to get in the users’ shoes and reflect on the buying process from their perspective. This way, it is possible to determine the relevant steps of decision making which guide the user to a decision on whether or not to buy certain products. Sellers, in turn, have to make sure that users will decide for their products.
The buying process on Amazon consists of three simple steps: Users search for certain products, click some of them and finally buy one.
In a second step, users click on the products that aroused their interest and which they want to get more information about. As with other search engines, Amazon users primarily pay attention to the first couple of results only. Extensive studies on click behavior in search engines showed that over 90% of users only consider results listed on the first page. Therefore, the further back a product is listed, the smaller the probability that users will see and click it. But without clicking, there’s no buying. Succeeding on Amazon means making your products rank as high as possible for relevant keywords!
After clicking a product, users land on the product page. This is where they can find detailed information about the product and its characteristics and conditions. The most important thing here though is to make sure they actually buy the product on this page! But since a product may be offered by multiple sellers at the same time, at different prices, it is also important which offer will be chosen, who will close the deal with the user. Generally, users can view the full list of offers and sellers available for the specific product they selected by another click. But in fact, 85% of users buy from the dealer that was automatically selected for the shopping cart box, i.e. the “buy box”. So in order to win on Amazon, sellers need to become the owner of the buy box.
In summary: In step 2 (click), users decide which product they intend to buy. In step 3, they decide which seller to buy it from. Analyzing the buying process, we can conclude that sellers maximize their sales on Amazon by being ranked at the top for all relevant keywords and by always owning the buy box. The two key success factors on Amazon are therefore:
1. Ranking of a product for relevant keywords
2. Ownership of the buy box
The Relevance of Ranking Optimization and Buy Box Optimization Varies by Product Type
An important aspect to note is that usually, either ranking or buy box optimization is relevant for a given product. Only in exceptional cases a seller should try to optimize both ranking and buy box. Which of the two is relevant depends on the product type. Simply put, all products on Amazon can be categorized into two types:
Proprietary Products (There is Only a Single Seller): Ranking Optimization
For those products that are offered by only one seller, ranking optimization is the main course of action. In the case of proprietary products, the seller usually has full control over product title, description, information and images – which is a prerequisite for ranking optimization. Buy box optimization is unnecessary since there are no other sellers against which to compete for the buy box. Sales of proprietary products can thus be increased by ranking optimization.
Reseller Products (There Are at Least Two Sellers): Buy Box Optimization
For products that are being offered on Amazon by at least two different sellers, buy box optimization is key. Of course you may also try and optimize the ranking of reseller products for relevant keywords. But the problem here is that sellers without ASIN priority cannot influence a product’s presentation in terms of title, description, etc. This makes ranking optimization tricky and hard to monitor. In addition, most sellers would not want to waste time and effort when another seller may win the buy box and reap the extra sales in the end.
Exceptions to this rule include (well-known) brand products. Brand manufacturers should make ranking optimization efforts even if there are other sellers offering their products, as the brand manufacturers will also benefit from the sales generated by their intermediaries.
Thus it becomes clear that correct classification of products according to these two types is very important for optimization. For proprietary products, the goal is to increase the amount of clicks through a better ranking. For reseller products, sellers should aim at generating incremental sales through optimized ownership of the buy box.
Usually, sellers offer both types of products at the same time. Nonetheless, many sellers do have a focus on a certain product type. If a shoe manufacturer, for example, sells shoes of its own brand and additionally sells shoe accessories by other brands, ranking optimization probably is the focus. For a wholesaler featuring 20,000 electronics products, including 50 with exclusive distribution rights, buy box optimization is probably the main focus.
Which Levers Exist for Optimizing the Ranking and Buy Box?
Now that is has become clear that sales of proprietary products can be improved by a ranking optimization and sales of reseller products can be improved by a buy box optimization, the following question arises for sellers:
What can I do to optimize the ranking of my products or to increase my buy box ownership?
The following section presents all the levers that can be influenced by sellers on Amazon. Contrary to popular belief, there are many more levers than just the price of a product. Unfortunately, the myth persists among sellers that “optimization” on Amazon basically equals price reduction. We intend to bust this myth in the following!
Price, Assortment and Shopping Experience Determine Amazon’s Profit
DThe levers that can be actively used by sellers can be deducted from the levers that Amazon itself has for maximizing its profit from the marketplace. Accordingly, it’s useful to understand how Amazon’s marketplace profit is composed.
For each successful transaction, Amazon receives a variable fee (7-20% of the revenue) from the dealer. Simply put, Amazon’s profit is made up of revenue and merchant fee:
Amazon’s Profit = Revenue x Merchant Fee
Revenue, in turn, is composed of the number of purchases and the price.
Amazon’s Profit = (No. of Purchases x Price) x Merchant Fee
The number of purchases depends on multiple factors, but Amazon can mainly influence this number by two main factors. The first factor is the assortment: If a user wishes to buy a product but does not find it on Amazon, there can be no transaction, i.e. Amazon has lost earnings from merchant fees. The bigger the assortment, the more transactions are realized on Amazon and the more profit Amazon makes.
The second factor consists of various sub-factors, but can be summarized as shopping experience. This factor particularly includes delivery conditions (time and cost), product presentation (images, description,…), return conditions, comfort (no creation of new accounts), user-friendliness (product reviews), customer service (response time, cooperativeness), etc. A shop in which products are presented in detail, where the user has already created an account, where products are delivered within one day, where there are no complications, where there is a quick and friendly customer service, all this means a very good shopping experience for customers. Comparing this shop with a store in which products are presented without images and descriptions, where a complicated registration is required, where it takes 2 weeks for the product to be delivered and where it then cannot be returned, should make clear which shop will be favored by customers. A positive shopping experience thus leads to more purchases in the short term and in the long run it helps to increase customer loyalty, which in turn leads to more purchases again.
For the profit made by Amazon, this means:
Amazon’s Profit = [(Size of Assortment x Shopping Experience) x Price] x Merchant Fee
It is in Amazon’s best interest that these levers are adjusted the optimal way, because that’s how Amazon maximizes profits. These very levers are also crucial for a seller’s success on Amazon, and therefore should be optimized as much as possible. A successful store pleases Amazon and the seller the same way: This is why Amazon and its algorithm reward those sellers using said levers optimally by preferring them in keyword rankings and buy boxes.
Sellers Can Optimize Not Only Prices, But Also Assortment and Shopping Experience
For sellers we can conclude that there are two big additional levers to adjust other than just prices.
Assortment: A unique range of products which is not yet to be found on Amazon will automatically reward sellers through a good ranking for the related keywords. A seller being the only one offering a rare ming vase will be at the top position for “rare ming vase” and will also automatically own the buy box, since there are no other sellers for this product.
A good assortment can lead to decreasing or avoiding competition. For sellers in direct competition with each other, however, shopping experience and price are the crucial factors.
Shopping Experience: Sellers are not able to influence all the factors that determine the shopping experience. For instance, sellers cannot change Amazon’s checkout process or the user-friendliness of Amazon’s interface. Other factors though clearly are in the seller’s domain. Especially the product presentation, delivery conditions and customer service are core responsibilities of the seller. Since Amazon too benefits from a good shopping experience customers have on their website, sellers taking measures to improve this experience will be rewarded.
Price: Among many retailers the belief is strong that on Amazon, the lowest price always wins. But this is not correct. Neither is the best product always the best ranking one, nor is the cheapest seller always the one winning the buy box. This can be explained using Amazon’s profit formula: The lower the price, the less profit Amazon makes. Naturally, a high price in turn leads to users not buying or buying from a cheaper competitor. Therefore, for Amazon it is important to find the right balance of price and quantity in the marketplace. Balance means that the price is set as high as possible in order to get the highest merchant fees. At the same time it has to be low enough for Amazon to defend its reputation as a price leader and to prevent users from buying from a competitor or not at all. For sellers, this means that it’s not always the cheapest price that wins, but on the contrary, increasing the price may benefit sold quantities.
Sellers want to maximize their profit on Amazon. Profit depends on two success factors: Contingent on the product type (proprietary or reseller product), what matters is a good keyword ranking (ranking optimization) or owning the buy box (buy box optimization). In order to influence these success factors, sellers on Amazon have the following levers to adjust in their favor:
- Shopping Experience
- Product presentation (title, description, product information, reviews, images, …)
- Delivery conditions (delivery costs, duration, use of FBA)
- Customer service (e.g. response time to customer inquiries)
All of these levers can be adjusted actively and systematically in order to optimize keyword rankings and buy box ownership. How exactly these levers should be pulled is explained in our background information on ranking optimization and buy box optimization.
Sellers on Amazon can now make all optimization operations really easy by using the Sellics analysis tool: The software tracks all your products and will tell you exactly what should be done to improve the product listings and increase sales. Check out all the features here and start your free trial today!
Note: The purpose of this introductory article is to give a simple overview of success factors on Amazon. For this reason, this article focused on the most important topics while some details are left out that may be relevant as well (e.g. the role of navigation and filters in the buying process or Amazon’s interest in selling its own products). Advanced topics will be covered in further posts.
Sellics is the leading Amazon analytics platform for brands and sellers. It is used by large multinational brands as well as small Amazon-only merchants to optimize rankings, manage product reviews, observe prices and monitor competitors in order to increase their sales on Amazon.