How to Build a Successful E-Commerce Brand in the Age of Amazon

I’ve been an entrepreneur my whole life–it’s what I live to do. But when I look around at the current startup landscape, I often wonder what I would do if I were launching a business today. In just the last three years, gaining a foothold in e-commerce has become almost prohibitively expensive. Data and analytics have become such important drivers of growth that only the companies that can afford to invest heavily in their data and machine learning capabilities will become the dominant players in their space.

But perhaps the biggest challenge facing any e-commerce startup today is the threat posed by Amazon. For any new DTC business, the appeal of the platform is undeniable. By some accounts, more than half of all online transactions flow through its portal. But the tradeoffs are huge. For starters, you may find yourself competing against a company with an almost unlimited access to capital and a willingness to lose money on its own marketplace. 

The best defense is to build a strong, differentiated brand. And in my opinion, that’s almost impossible to do if you launch on Amazon’s platform. It’s simple math. Let’s say you invest in out-of-market advertising to build brand awareness for your product. People will see your ad on TV or on the subway and want to learn more about your company. Most likely they’ll Google your brand. And what happens? As long as you sell on Amazon, Amazon will show up in the top organic results for your brand search. More often than not, the customer will click. And once they do, you’re on the hook to Amazon for a fee—15%, 20%, even 25%, depending on your deal—and you still have to pay for the out-of-market advertising. For most companies, that math does not add up. 

Over the years Amazon has studied everyone’s business. Not that they’ve done anything wrong. But it stands to reason that once they’ve learned the behaviors and spending habits of your customers, they’d rather sell them their own products than settle for a cut of yours. (The same can happen even to brands that don’t sell on Amazon.) And what happens when, as was recently reported, Amazon tweaks its search algorithm to give favored placement to its own brands? For many people I know, it means a huge cut in revenue and profits.

Like a handful of other companies (you can read about some of them here), I’ve opted to go a different route. For one thing, as a luxury brand the Amazon platform doesn’t make sense for us. And because we launched a decade ago, when CPCs in the mattress space were lower, we could afford to invest in building out our own distribution network. That would be a lot harder today—if one could afford to do it at all.

So what would I tell somebody trying to succeed in e-commerce in the age of Amazon? It’s hard but not impossible. It starts with building a trusted brand. 

Find your customer. Every business, whether you’re a storefront or a website, projects a sensibility that appeals to a particular consumer. That’s the essence of brand: What makes somebody buy one car or couch or mattress over another? Years ago, the only way to find your audience was to rent a retail “box,” stock it with goods, blanket local print and airwaves with ads, and hope that people showed up. The advantage today is that data can help you find the customers who share your sensibility, and once you’ve connected with them, data lets you build a relationship around the things that really matter to them.

Amazon found their customer: It’s everyone. Since you can’t beat them at their own game, the way to win is to zag where they zig. Instead of selling everything to everyone, sell one thing (or a few things) in a very particular way to very specific people. The bigger players, who can afford to spend the most on data, will always have a leg up when it comes to finding their audience, but smaller startups can compete if they’re smart about how they allocate resources. If I had it to do over again, I would have traded off some of my marketing budget and built my data team sooner. Even though top-line results might suffer in the early stages, the efficiencies driven by data will more than likely make up for it in the long run.

Don’t sell a product, sell a value prop. Nobody is better than Amazon at fast, cheap products that can be dropped on your doorstep. Amazon’s zig: turn every product into a commodity. Our zag: over-index on product differentiation. That starts with a clear value proposition. When we were thinking about launching Saatva, I went out and bought every luxury mattress on the market. Then I ripped them apart and did a raw-materials analysis. With my background in home furnishings, I knew that I could build a bed of equal or better quality and sell it for half the cost if I didn’t have to pay store overhead. That value prop gave rise to Saatva, and it has informed every single product decision we’ve made in the decade since.

Your value prop doesn’t have to be about price—it can be about design, convenience, exclusivity, social responsibility, or something else. But it has to be grounded in reality, not slick marketing messages, and your customer needs to clearly understand it. Otherwise you’re just a “me too” voice in a crowded marketplace.

Keep hold of your data. This is perhaps the strongest argument for resisting the lure of Amazon. When you sell on Amazon, the platform gains a view into your customer data, which tells it everything it needs to know in order to compete with you.

Let’s play it out with an example from my own industry, mattresses. Most of the new entrants in the space are “bed-in-a-box” companies, selling compressed mattresses rolled up and shipped to the customer in a 16-by-45-inch box. A lot of them did very well selling on Amazon. And wouldn’t you know it? Last year Amazon introduced its own bed-in-a-box. Now, when somebody searches for those other brands, they will invariably end up competing with Amazon and dealing with massive price compression. Forget about brand awareness; in the customer’s mind, the brand is simply “bed in a box.”

Control your distribution channels. This is a big and expensive proposition in today’s DTC marketplace. But if you can afford to do it, it’s the best way to truly create a meaningful and sustainable brand. Ten years ago, it made financial and logistical sense for Saatva to invest in building a distribution network to hand-deliver our large and heavy luxury mattresses. If I had to point to one thing that has allowed us to succeed, it is the fact that we built this network before it became cost prohibitive to do so, which is why it remains unique in the online mattress space. 

But you don’t need to be in the business of white-glove delivery to reject the Amazon model—just ask Glossier cosmetics, Bombas socks, or Harry’s razors, which all opted to sell exclusively on their own platforms. It’s no coincidence that those brands, all launched in the last six years, have become business and cultural successes. As Harry’s co-founder Jeff Raider has pointed out, why put your products on a third-party platform when you’re already online?

Help, don’t sell. Consumers today have high expectations from a brand. They also have access to more information, good and bad, than ever before. The brand that wins is the one that puts being helpful above closing the sale. Sure, you can use data to identify customers’ pain points, but it’s what you do to solve those problems—while always putting the customer’s needs first—that will empower them to make a decision that ultimately benefits your business.

At Saatva, that means investing heavily in content that helps people navigate the often murky terrain of buying a mattress. We made it our mission to honestly answer any question a shopper may have about mattresses and sleep, even to the point of recommending a competitor’s product over our own if we think it’s a better fit. At the end of the day, the long-term benefit that accrues to your brand from being genuinely helpful outweighs any one individual sale.

Deliver on your promises. More than anything else, reputation is what distinguishes a trusted brand. It’s not enough to get the customer in the door or on your site; you want to build a long-term relationship that extends far beyond the sale. That means always being at the other end of the line (or the email or the text or the tweet) when they have a problem or a question, sticking to your warranties and policies, and never letting anyone walk away from an interaction unsatisfied.

All sorts of wonderful things follow when you’re a trusted brand. You can kick-start more product launches, because your customer base trusts that you’re going to give them what they expect. You can learn what you’re doing right and wrong, because now you’ve opened a dialogue; at the end of an email campaign, we aim to be sure there isn’t a single person we’ve contacted who has any issues with our company or our products. When you find the right customer, target them with the right message, deliver a high-quality product, provide service beyond the sale, and keep your promises, you are positioning your brand for success—now and in the future.  

This article has been reposted on LinkedIn.