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MarkPower
PODCAST - Unpacking the digital shelf

Interview: Achieving profitability on Amazon with Mark Power, CEO and Founder of Podean

As the importance of Amazon as both a sales channel and marketing channels continues to rise, it is critical that brand executives focus on how to achieve profitability on the world’s largest retailer. Mark Power, founder and CEO of Podean Marketplace Marketing, joins Peter and Rob to talk about the need to invest in the analysis, data, and actions to make Amazon a profitable channel.

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Transcript

Peter:

Welcome to unpacking the digital shelf, where we explore brand manufacturing in the digital age. Thank you so much for joining us on the podcast and, and talking about Amazon and driving these programs right now. And I think we should just get right to it, which is, you know, we all hear this phrase starting basically every sentence right now, but in this moment, what are you, what are you hearing among yours, your customers among the brands and manufacturers that you're talking to about what's happening across their commerce plans and where does e-commerce fit into that right now? 

 

Mark:

Oh, thanks, Peter. Really, really pleased to be here with you guys today. And this, this is a very hot topic right now, as you can imagine, over the last three months as being just such a, an incredible amount of change that we're all adjusting to, but essentially what I've, what we're seeing is there's this whole sort of digital transformation that, that brands have been embracing over the past few years. Now, some got in early, other brands have taken a little bit more time just because of their dependencies and other channels, but, many brands were sort of well on their way into this world of, you know, the digital world and, and how they, how they now live in that world. But then since covert hit brands and now embarking on urgent, completely urgent e-commerce transformations, right? And revisiting these overarching marketing and sales strategies and trying to work out how they become present in this new you consume a behavioral environment. And that is just an incredible challenge for brands, particularly those where they were just so over-dependent on bricks and mortar, but that there's just a lot happening in this space. And I'm seeing a lot of executives at all levels now realizing that they need to pursue a more robust strategy in these areas. And they are really looking for a lot of advice and guidance and skills and talent to help them along the way. So we've seen that happen. There's also a big shift of media dollars into this world of retail and eCommerce. So you've got e-commerce people, all of a sudden with huge budgets to spend, and how do they spend those? Traditionally they are described for dollars now. They're like, Hey, I've got this big budget. What do I do with it? And then it's also causing, I guess, attribution problems. So a lot of the brands we talked to and now like, well, hang on. I was already having trouble between Amazon, Google, Facebook on Facebook, and all of the other wall gardens that we spend with. And now I've got Walmart. Now I've got a target, I've got these other walled gardens and that's becoming challenging because how do you manage that investment? And now all of a sudden content is way more important. So whilst brands were investing heavily in their D to C content, their social content, and other areas. Now they're like, well, hang on. How do we build our brand in these marketplaces? So we're a big trend in, in massive investments compared to what they were spending in bringing their product and brand experiences to life in, in the worlds of like Amazon Walmart and the others, but with all this activity and attention, Amazon and marketplaces, and now just major blips on the radar of the C suite. And we're seeing that with our clients, we're not just dealing with you know, heads of marketing and CMOs and heads of e-commerce. Now the CFO wants the CEO. It's like, how do I tell our investors or the market, what we're doing in this space? And so this is leading to a lot more interest and mainly any sort of the level of scrutiny around profitability because that's what a lot of the C suite is responsible for. They're not just around profitable, they're not just responsible for growth, they're responsible for profitability ultimately. And so that's what we're saying. A lot of conversations start to take shape. So that's, I mean, those things the inscrutability of the walled gardens as you're putting it, and the push for profitability are kind of at odds with each other. I mean, I just, I just think of two of the recent trends in this pandemic. One is Instacart Instacart. I saw a couple of weeks ago claim that they were more than 50% of all online grocery in the United States at the same time, sometime in, I want to say April, they launched their own pay per click advertising search service.

Rob:

So in January, you couldn't pay for placement on Instacart, and now you can't. And that's a massive shift for the largest online grocery in the United States and manufacturers for years have struggled with exactly how the attribution works. Like if you shop on Instacart, yeah. It's being serviced from a Publix, how do you actually reconcile where the volumes are coming from? Cause they're not actually buying from your customer. They're there, they're acting as an intermediary. We're seeing the same thing with drizzly or not exactly the same because the alcohol market is different from the three-tiered system, but drizzly has been booming in alcohol. And again, there's a, there's an attribution issue. If you are constellation brands, are you, are you DiMaggio? You're somebody, the purchase is happening ultimately from a local liquor store. It's being serviced through drizzly and you yourself are not transacting with drizzly.

Peter:

And so this, this figuring out even what's profitable, it's hard. And even to get back to Amazon, folks have struggled for years to figure out if I spend money on Amazon, does it impact just Amazon sales, in which case your margins look terrible, or does it impact your Walmart sales too, in which case your margins on that, that advertising spend looks great. So like, what am I, it's hard to even stack rank with the biggest problem here is, but how did you see people even begin to tackle this? 

 

Mark:

You've just identified the Holy grail of the modern marketer is to solve attribution. I worked at a big agency back several years ago, and that was still an issue then, and it's still an issue now, and it's really come down to walled garden management. And, this is a topic on its own, right? And it's something we could discuss at length, but every CMO has a challenge because they are, we don't see that. We don't see CMOs as chief marketing officers. I look at them as chief investment officers because they're investing a huge amount of company resources and funds into things that need to generate a return. And at the moment you've got Google Facebook, and now you've got Disney, you've got Comcast, got others, then you have your marketplaces. So really the future of a CMIO and, and how they manage all this world, gardening is, is really going to be challenging. And I think the only way to do it is to build internal resources that are going to help you. So data science capabilities and other things that are going to give you at least, I mean, sites that you can dive deep into and get control over versus having to rely on different agencies with different methods and models and, and platforms. I think there is a big challenge here. I think someone's going to solve it down the track, but it will be a, it'll be a dynamic evolution, I think, but, but no, I don't, I haven't seen a single client yet say that they have solved it.

Peter:

And when you talk about sort of making this profitable, we all know that certainly in the online grocery space, like margins are really tight and yeah. Fulfilling you know, pick up in-store or click and collect all that is a really expensive proposition like which it seems like at the moment, companies are willing to maybe even lose money on, because they're trying to grab market share and build habits. But how do you, you know, what are some of the ways in which you can revisit your financial models? Or how do you sort of align that? I remember we had a, a session, a debate session between sushi Rita Cadalli from Forrester and Sri, Roger Gopalan, who used to be at J and J in Revlon, just about what is the new PNL to be able to allow for a different kind of investment in a piece of the business. It's still only driving, you know, five, seven, eight, whatever, 10% of your revenue, but that is such and particularly right now, a key part of, of entry into the funnel. So yeah. What do you think about those financial models? 

 

Mark:

Well, before we get to the financial models, and that's something that we can discuss in a moment, but I think we've got to get back to the concept of what the brands want from, let's say, an Amazon or marketplace or, or a sales channel, essentially, they are looking for something that's going to be profitable. That's not going to cannibalize, other sales channels, and one that could also build their brand. Okay. And they're senior executives. So the ones who are trying to ensure that, you know, resources and funds are deployed in the right way, they're looking to mitigate risk and ensure that the capital is invested in areas that will, I guess, confidently deliver growth, but also have a sight towards sustainable profits. We, we, we rarely come across a client or a brand who's like, Hey, we're not willing to spend, but we need visibility. And so there are lots of things that can go wrong to impact profit. A lot of the Amazon and marketplace world has been very, very sales-centric and we believe the conversation is quickly going to be shifting towards profitability. Okay. Just because the scrutiny is that at a whole new level now. So to do that, we've got to sort of dive deep into where brands go wrong. Okay. So I believe firstly, and this is, this may be controversial, but, they expect Amazon to be okay. Or that there's like an Amazon profit one Oh one guide book available that we can go and buy on, on Amazon and off we go. But it just, it's just not, it's not the case.

Peter:

And is that your next book?

 

Mark: 

Could be my next book, my next book was going to be called world gardening, which I think is a good title considering that's what CMOs have to do in the future. But, if you are probably on Amazon, it actually means Amazon is likely losing profit. So it's not in their interest to help you, but many brands, they really trust Amazon a lot. And they're not willing to challenge that status quo because they almost feel threatened that if they do something that annoys Amazon, it's like, Oh my gosh, Amazon's name. They're not going to treat us the way that we, that we want to be treated. But there are just so many different factors that impact profit potential. Right? And I can run through those in a moment, but I do believe that we need to get to the crux of what's going wrong before we start going and modeling things. There's just a lot that can go wrong, which once you get to grips of that, that actually becomes your model of profitability.

Rob:

So if I, if I think about the model of profitability though, and you think about things that can go wrong. Mmm. One thing that can go wrong is that your attribution with regards to your trade marketing spend is, is not correct. So what are the, what are the things that I remember having a conversation about three years ago with a top 10 CPG company? And they said that their margin for a traditional, a first-party selling relationship with a major big-box retailer, you know, your Walmarts targets, CVS Walgreens, where were their top four in the United States? We're 28%. And on Amazon, their marching was 8% and they were looking at every single dollar that they spend on Amazon advertising as impacting the Amazon margin. And that there's a bunch of reasons for this. But the primary one being that there's a lot more cat in category price, a competition on Amazon.

 

Peter:

And there's also competition even for your own products, by you, your channels, selling your products below the map, to try to unload them and drive volume away. And so like protecting that margin and protecting that profitability is something that a lot of companies really struggle with today. So if we just look at that one specific a piece of the profitability equation, where do you think that the, I dunno, top one to three places that a brain goes wrong today are, 

 

Mark:

Well, there are, I mean, we've identified dozens of places that you can address factors you can address and areas you can optimize. And I don't just mean ad copy optimization or immediate campaign optimization. I mean, true optimization of modeling everything from FBA and, and the fulfillment model right through to other areas. But, I think one of the big areas that we're seeing right now is a lot of the brands have been very used to working with wholesale partnerships. Okay. And so when Amazon came along and they said, Hey, we were going to buy a product for you and we're going to sell it to our consumers. A lot of brands in many, many years ago, some of them actually got into a relationship with Amazon, which was a first-party relationship and Amazon bought the product off them. But then they lose control of a lot of different things such as pricing and what have you. And, and over the years, they've sort of become addicted just like they would with Walmart and other bricks and mortar and other areas the, of the retail sector, just addicted to POS coming in and fulfilling those POS. Okay. With we're now finding that if you get under the hood and do some analysis several years later after those relationships may have initially been struck, there is a huge opportunity for brands to remodel this right, to now embrace potentially a third party model. And we don't mean go all-in on a third party model that may explore a hybrid model. So a first-party model with third party model, and we're seeing huge, huge impacts, not only to profit margins, where we've seen in some, some cases ranging from 50 to a hundred, hundred and 50% increase in profit but also impacts your revenue because you're allowed to reinvest various profits and other factors. So revenues have been increasing from 30 to 50% because you have more control over the experience and other factors. And that is, that's quite huge, but Amazon isn't going to come along to you tomorrow and say, Hey, we think that you could make more money as a seller. So you guys should go and explore that. And the other agencies out there and consultants out there, I just used to do what they're inheriting or the way that they know, which is usually a vendor relationship for larger brands. So we believe conducting analysis and getting under the hood of these things, working with CFOs, CMOs and others across an organization, including supply chain and logistics experts that are, that all of this brought together. The the the the three P model can be incredibly lucrative if done well. But, that's what we're seeing right now. But it is confronting a brand because at some point, if they say, yes, that's what we're going to do. It needs to be very, very robust data that you've got and you've calculated for them. But also you need to be confident that you're not gonna lose sales for them because the last thing they want to do is change models on an Amazon or, or one of these other marketplaces. And all of a sudden they see a dip in sales, or they see their growth not be achieved to what they've promised the market or investors or, or others. So, that's what we're seeing is a huge potential opportunity for those that take that by the horns.

Rob:

It's hard though. I mean, one of the things that in that conversation that Peter mentioned between sushi, Rita, and Shri sushi Rita made the police, that brands are used to shipping pallets and shipping containers and their whole logistics function is based on that. And so going from that to picking, packing shipping each for marketplace orders directly to consumers is not a small problem to solve and requires a lot of capital investment. And one of the things that, you know, we interviewed Sam Gagliardi back in December and Sam he's from IRI points out that major brands have spent a hundred billion dollars in stock buybacks in the last 10 years, but not a hundred billion dollars building out supply chain capabilities to pick and pack and ship eaches and have a robust direct to consumer or marketplace strategy. So, I mean, you're, you find brands right now at a place where, you know, temporarily anyway, the stores are shut down online is the way to go. The point that you're making is the way to make online profitable is to have a hybrid model, but they're not, they don't have a hybrid model. Their profits are already down, and they've got to make an, they've got to make an argument to invest and new logistics capabilities. And those investments don't fall under marketing, and they don't fall under sales. They fall under a different part of the organization. So I, how, how has it even, how has it even reasonable to make the argument right now? Like what, what brands are sitting there saying, Oh, man, the best time to plant an Oak tree was 20 years ago. The second best time is right now, are they really taking that attitude?

Mark:

Well very, very interesting point you make, but I counter that traditionally the distribution networks that are Coke or, or Pepsi or other major brands had to build out themselves, right. Do you not have to be at the degree that a brand would need to do it? Now that we look at some of the most successful theater, C brands out there they've tapped into other distribution networks, solving the supply chain challenges and definitely need investment. But it's also a huge opportunity. If you can, you know, Amazon, even Amazon, themselves, they've got FBA fulfilled by Amazon. You've now got a vast array of three PLS that are prime eligible, right? You've also been fulfilled by merchant models. We're helping companies. One of them is in pet care right now. And they've actually got a fairly good if being fulfilled by the merchant model, but they want to scale that, but I just want the data, the CEO and the CFO want the data to understand, okay, if this investment, we make this investment, what's the return. And at what time, and I think that's the that's what the C suite needs. They just need more data that is being crunched in the right way to allow them to make better decisions. But I just don't think that the investment is as great as it once used to have to be right. Particularly when there are so many other service providers now that you can tap into versus the traditional build-out model that we all grew up with. 

 

Peter: 

So Mark, I think, you know, you've been talking about kind of your work with CFOs and CEOs in terms of data and then particularly even achieving sort of, Oh, per product basis, financial modeling for Amazon. Can you, can you dive into the details of those conversations and kind of what your advice and model is for them? 

Mark:

Well, I think one of the, one of the big issues is, the fact that Amazon and I write about, we write about this in the book, right? Amazon for CMOs, that we wrote Amazon is now touching certainly parts of the organization, but traditionally not all these parts of the organization have been talking to each other and aligned, on the overarching strategy. So marketing is separate to sales is separate to ecomm is separate to fulfillment and supply chain experts and things like that. But getting all those folks together is really important so that they can all align to the overarching strategy. But what we've seen is, is essentially profit needs to be the focus, right? And for-profit to be the focus, you need to know how you're going to drive profit and get everyone across that. And, we're sometimes surprised when people within the organization don't even understand what cogs are like, the cost of goods sold, or just the cost of the product. And there's a big confusion between what wholesale and retail are and all these basic things that we think are straightforward. But when you get under the hood of an organization, everyone's just focused on what they're trying to do, which is usually Hanning to sell more versus being responsible for driving more profit. And really, I think that's a huge change that we're going to see in this space. And, and they need to also calculate what the sweet spot is for profit, right. That means you've got to go deep into, you know, which products are we going to promote more than others? What, what, what's the pricing that's right. What benefit does scale bring through our cogs and what halo impact is there on other channels there's just, and the list goes on and on, on trying to ensure that you've got the right, right set of products that you can then promote on Amazon, but then also not just focus on sales, actually get really all the data together to model it, to then work out how we're going to promote things in a profitable way and achieve profitability that's sustainable and in the long term.

Peter:

So, so so Mark, when, when you've been in the room and you're, you're trying to help drive these conversations for the right decision making the players are the CEO, the CFO, and then some sort of VP of eCommerce or chief digital, what, who are the players. And what is it that you found that has broken the log jam? What has made people comfortable with proceeding, with the strategy?

 

Mark: 

I think I'll come back to just the data, just making sure that once we have the data from the client, plus the data coming from the marketplaces and, and bringing all that together into an easily understood sort of set of insights that quickly proliferates when we're talking profitability, because that thing gets, you know you know, chief commercial officers involved, chief growth officers, some clients, the CMOs, and then it also starts to open up the conversation to, you know, the heads of supply chain and the warehouse team. And, and the other day we counted, I think there are 26 executives at one of our clients that we interact with on a monthly basis, just because we're trying to optimize all the different facets for them across Amazon and other marketplaces. And that's really interesting. So now we've got buy-in from these people, but getting that data initially and making sure that the two to two or three key people have been a CFO, a COO, and a CEO. And in some cases, it's a chief digital officer or someone who's responsible, ultimately that e-commerce performance. But once you've got that attention, that is then being pushed back down into every one to say, guys, this is of strategic importance, and it's imperative for our organization, and we all need to get behind this partner or this strategy or this approach, which is different to what we've done, which is just look at it as a sales channel to sell a product.

Rob:

So along those lines of the people you need in the room, do you know, a fortune 1000 CFO that doesn't, that doesn't sweat, Amazon and subway. I mean, it just feels like demand, forecasting and margin forecasting, and everything. Having to deal with that channel is impossible for people.

Mark:

It's very difficult, it's incredibly difficult. And, and that's, that's one of the challenges, and that's why you bring in all the consultants or agencies to help you, you know, get under the hood and be objective and be confronting. But Amazon just doesn't help guys, like, I mean, we all love Amazon as a consumer, but as a partner, it's very difficult, whether you're a brand or whether you're an agency or whether you're a seller, whatever it might be, it doesn't help you because Amazon is siloed and it has its own directive to make money. And it's not going to give you a white-glove service, to make a profit cause that takes it away from Amazon. So, you've got to sort of scrap your way around, and really hack Amazon. And so we call it profitability in a way where, you know, every single little, if you, if you get a 5% point, 5% increase here, a two and a half percent increased it, and then you really look at all these facets together and work with your client across functions underneath the general mandate, which is we need to win on Amazon and make it profitable. Yeah, you got to get you there, but it is taking us sometimes four to six months to get to that point where the clients really take some real risks based on the data and the numbers. And they've got a team really aligned to it, but for the bigger brands, it's going to take, even more, I'm the bigger conglomerates, but the large brands, one of them, we work as a billion-dollar cosmetics company. They're all aligned within months and the impacts of being seen. And that was a brand, actually one of our clients wanted to leave Amazon because it wasn't making the money. We've found a path to profitability and quite a serious one where it's going to be the second, most profitable channel behind its D to C site. So, so to get to that stage, there's a lot of crunching. But yeah, financial analysis is key,

Rob: 

But it might be, might be the second, most profitable on a gross basis, but is it the second, most profitable on a, on a per-unit basis? I mean, one of them, one of the struggles that we see people dealing with is that if you're used to 20, 30, 40% margins on your product, depending on the category in a store and, and through, through traditional retail channels online, people are still seeing 10% or less margin on a per-unit basis. And so what happens is as consumer shopping behavior shifts and store sales, sales say flat or decline, and that's picked up by online, the overall, you know, unit-based marching goes down. So it's like, are you seeing the cosmetics company, are you seeing not just the gross profitability, but the unit profitability stays strong or is it more, is the gross profitability, more sign of the volume being driven?

Mark:

I'd say it's a combination of, of volume and, and per unit profitability, but we're also watching, so let's say it let's say in the cosmetics space, you've got some products that might be below $6 that are better off in a, in a one pay relationship being sort of, you know bought by Amazon and sold to an assaulter Amazon's consumers by that wholesale relationship. But then you've got a client we've got, you know, anything above $6 with a model makes a hell of a lot of money with a three P relationship. So that's where we come in with this hybrid model. Different clients have different sorts of price points across different products and margins, but that's all these data points. We plug into our sort of models and then come out with, you know, in one instance, a client had a thousand products and we've worked out that there's only really 250, that they really should be bothering cellaring selling on Amazon and let the others find a way into other channels, whether it be bricks and mortar D to C or otherwise. So that was interesting because they were selling a thousand and that thousand, the effort to make those thousand be seen and be managed and, and all the logistics behind it, that's eight the margin overall. So I think you have to be practical about the product and the, and the portfolio as well.

Peter:

So I think yeah, if you were able to provide your, your top three for companies that are really trying to understand the profitability of their Amazon channel, what are the first three things they need to focus on too, to start to answer those questions? What is available to them to do that? 

Mark: 

I think if we don't have the CFO, well, at least, you know, C suite engaged, truly engaged and interested in making Amazon and marketplaces a key area of growth and profitability. It's going to be difficult to get them to achieve sustainable profitability quickly. Cause it's just, cause it will take some investment. It's going to take some, maybe new partners, maybe some external consultancy and time and resources internally to actually make it happen. So I think getting that buy-in is really, really important. I do believe that the right partner is, is incredibly important and the board of Amazon more recently has got a lot of companies out there and they all say that their Amazon partners and agencies and whatever, but all they really do is do some basic retail optimization and media who's, who's getting under the hood and really partnering with the CFO, the supply chain folks and all that to optimize everything end to end. It's more of a consultancy that you need than just then just sort of, you know, more marketing dollars spent. And we, we keep hearing that all Amazon and other agencies say to clients is spend more, spend more there, there's a better way to do it when you can spend more when you know you're going to be driving more profitability. But I think another area that we're trying to get our clients across and brands that we're talking to is it's not just media and retail, it's media plus rates, plus marketing plus data, plus supply chain plus et cetera, et cetera. It's all these things that work together. So it's a holistic approach that you need to win. Okay. And holistic means that you do need a vision that is bought in and created and brought in by the C suite that then brings everyone together organizationally. And all the partners that you've got can then rally around that in momentum then starts to build very quickly towards getting profits versus just sales and, and ROAS and cost is all we ever hear from, from some of these Amazon leaders, whereas it's way more than advertising cost of sale. It's way more than Roaz okay. Those are just small advertising metrics that are important, but not going to drive profitability. So I think it's a profitability shift that I think there's a huge opportunity to make it work. And I think as soon as the C suite understands that and gets it, then they'll start allocating resources to it in the right way, versus it just being seen as just another traditional channel. And, and the potential impact of getting this right is serious. I'm talking 30 to 50 plus percent revenue increases and 150% profit increases. So it's, it's not insignificant. It's not a small number that our clients are trying to sort of achieve. Now, they're going all in. But there is it's, it's a knife fight. We call it a knife fight. There's a lot of confrontation and challenges that you have with folks who are used to doing things in the same old way, whether it's a supply chain head or whether it's someone who's like, Hey, I know Amazon, I know how it works yet. They're not really aligned to profitability. They're aligned to something that is important but knowing you're as important as the bottom line. So, Dan is something that I think that once the C suite gets across its profitability then gets driven down. Everyone's been looking for ways to achieve it. And I think I'm not saying some organizations aren't there by no means some are doing very well profitably. But I think some of the traditional brands have got some way to go to really make Amazon into a profit machine, which I believe it can be for any organization. Well, I think particularly, you know, once this moment will pass where all of this, all of this money is being redirected to digital in a lot of organizations. And when there's only one shelf left where we're going on in there, we'll try some experiments, but I think you're right. The thing that will allow leaders of eCommerce and digital to keep spending and to keep investing and to retain some of that once the other shelf starts opening back up is the ability to look at the data and really see where the opportunity for profitability is. And I love that as sort of a focus that then you work kind of backward. And, and once, I mean, we don't just mean analytics. I mean, true data, you know, financial data and, and you know, cost of goods, data, and all the data that may be not everyone in an organization has access to. They're going to need access to it, to really get under the hood and make it work. And then once you get this sort of data-centric sort of decision-making kicking that might then you know, solve some of these attribution problems we discussed at the start, you know where people are just worried about sort of, Hey, I'm doing more ads in my channel and they're working. So I don't worry about your channel. I think maybe getting everyone across channels day today, I'm working out what data's you know, can we share between different sorts of analytics and attribution models and things like that might also solve and help the CMO and others invest money in ways that previously they weren't able to.

Peter:

And there is a lot of inefficiencies. So I think just generally getting this data and making it available and then able to be crunched and analyzed is very important for any organization. Mark, thank you so much for taking the time to come on, unpacking the digital shelf, and talking about profitability on Amazon. We really appreciate it. 

 

Mark: 

Thank you very much, guys.