L2 Founder and Clinical Professor of Marketing at NYU Stern kicked off L2’s first Amazon Clinic last week by drawing attention to Amazon high cost to capital ratio. Galloway likened Amazon’s strategy to a scuba diver going under water and dragging everybody with him, knowing he has the largest oxygen tank. Unlike other brands that try to maximize their profit to capital expenditure ratio, Amazon has made large investments in fulfillment. Galloway added that once Amazon starts to sell groceries, it be an atom pipe into American households.
Next, RBC Capital Markets’ Internet Analyst Mark Mahaney pointed out that the distance between Amazon warehouses and the 50 largest cities in the U.S. has been cut into a third or half in the past few years. Emily Culp, former Director of Social Strategy and Emerging Platforms at Unilever, said Amazon’s success is in the wealth information it has about its consumers. Culp pointed out that 80% of items in customer’s second purchase are determined by first cart purchases, and Amazon is good at replenishing.
Spencer Millerberg, Managing Partner at One Click Retail, discussed the value of user reviews on Amazon. A product with more than four stars, need 40% less traffic to drive the same amount of sales as other products. Products that have more than 21 reviews need 50% less traffic for the same amount of sales.
L2 Research Analyst Mabel McLean closed the forum by discussing how prestige brands can work with Amazon. In a surprising move Burberry officially distributed 24 fragrances on Amazon, and in exchange was able to protect its other beauty products from the gray market on the site. Burberry gray market products on Amazon are fairly limited compared to the hundreds of thousands of LVMH products sold by independent retailers on the site. LVMH has declared a zero engagement policy with Amazon.