Were Amazon diversification through Amazon Go and Amazon Elements appropriate, given the company’s resources and capabilities? Were such diversifications risky strategic moves?
Please reference the six critical questions for Diversification Success outlined in the HBR (To diversify or Not to diversify) article to formulate your response. (questions under the title: “The critical questions for diversification success” in the grey box on page 7 of the HBR article.)
Diversification strategy is the practice of not putting all your eggs in one basket. It’s a tried and true method that spans many industries. For brands selling on Amazon through third-party (or first-party) sellers, diversification strategy simply means selling through multiple sellers instead of a single seller. A limited seller diversification strategy is the practice of working with a select few trusted sellers.
We broke down the pros and cons of an exclusive partnership vs multiple sellers in a prior blog post. The short version is that an exclusive partnership maximizes control and streamlines strategy, whereas multiple partnerships risks disjointed strategy and diluted performance because your sellers compete against each other as well as your competitors.
If an exclusive partnership has such strong benefits, why then are some major brands choosing the limited seller approach?
It comes down to four chief reasons:
Importantly, the brands we see adopting this approach with the greatest success are segmenting their catalog by seller. Each seller is permitted to carry only a specific set of ASINs. In this way, brands prevent their sellers from competing with each other on the same ASIN, while still diversifying their strategy to mitigate risks.
Tired of chafing against the limitations of exclusive contracts and wary of under-performing competitors, major brands have begun to split test their B2B partnerships. These brands are segmenting out their catalog to two or more agencies to see which performs better. This allows these brands to see what each company has to offer before making a final commitment.
This ‘try-before-you-buy’ diversification strategy does seem to have merit, and not just for the brands. Let’s explore the potential benefits of diversification – and possible pitfalls – to determine how brands and their agencies can make the most of this growing trend.
In 2020 and 2021, Amazon tightened inventory caps in response to growing demands that were outpacing their limited fulfilment center space. As discussed in the blog post, Overcome Amazon’s Restricted Inventory Limits with Dropship, Amazon’s power to make such unilateral decisions can have devastating effects on thousands of brands with little or no notice.
A partnership diversification strategy is a way to solve this issue. Diversifying business-to-business sales gives brands a secondary option should one seller not able to send in enough inventory.
At the same time, third-party sellers with robust inventory management teams and extensive Amazon experience can easily flex their skills in a head-to-head face off with competitors. During times of unexpected supply chain demand and changing regulations, experienced business-to-business marketing agencies have the knowledge and resources to pivot quickly and save their brands pain in the long run.