The Moneyball Method for Amazon Product Sourcing

This post is by Meghan Gleason, Amazon Account Specialist at Teikametrics.

The typical Amazon product lifecycle has become very short, which is a result of increased competition and transparency within ecommerce.

We’ve seen a lot of clients have successful product launches on Amazon, only to have their growth quickly stunted by new products within that category.

We often hear about products that were ranked #1 in a particular category 6 months ago, and now have dropped dramatically in the rankings. This is partially due to the extremely transparent marketplace that Amazon has created, making it easier for the competition to quickly catch on to newly sourced products.

What does this mean for sourcing?

The Innovation S-Curve

The Innovation S-Curve does a great job of modeling the average lifecycle of a product on Amazon. In the Launch Phase a product’s performance starts to pick up, then quickly gains traction in the Growth Phase. Soon after the initial launch, their performance will plateau in the Maturity Phase.

The S-Curve is great for consumers but horrible for retailers. In this case, a process must be built to allow your buyers to continuously source new products to replace the decaying ones. When it comes down to your overall strategy, you must evolve faster than your competition through the discovery of new investments.

“Moneyball” for FBA Sourcing

Have you seen the movie Moneyball, or read the book by Michael Lewis? For those who haven’t, Moneyball demonstrates how sabermetrics, “the empirical analysis of baseball,” can build a winning model for selecting undervalued players. If you’ve read the book or watched the movie, think about how you can apply this methodology to supplier selection.

The heading on the book cover, “The Art of Winning an Unfair Game,” can be translated directly over to retail, where many sellers would agree it can be difficult to win. The key is to use data to constantly optimize your selection process so that you can beat the unfair game of ecommerce.

The Sourcing Strategy You Should Employ

Your goal for sourcing should be centered around developing a competitive advantage over other sellers on Amazon. We’ve observed that successful Amazon sellers measure and track just about everything when it comes down to sourcing. Tracking and measuring will help you calculate your capital requirements and diversify your investment risks.

We’ve recommend before that you should approach your sourcing strategy in a way that mirrors how trading in the stock market works. Once you’re in the mindset that you’re an Amazon retailer trading in the “stock market” of sourcing, you’ll need tools to help guide your investment decision making. Tracking and measuring your investments’ performance will enable you to make decisions that support your gross margin goals.

Build and Manage Your Sourcing Pipeline

You may be asking yourself, “How do I source the best products?” This can be done through your most valuable asset: supply chain relationships. If you’re handling a high volume of suppliers, you’re better able to manage and prioritize sourcing activities if you use a data-driven and analytical approach.

A tool that’s extremely useful for tracking your sourcing efforts is a Customer Relationship Management (CRM) System. Some of our clients who aren’t using a CRM system don’t have a structured process of tracking investments and supplier ROI. By keeping an eye on these metrics, you’re able to gain visibility on which brands are good targets and which are a poor fit.

If you’re doing well on Amazon but aren’t utilizing any tools, think about how much more effective your strategy could be when armed with organization, accountability, and data.

Some common CRM systems/management tools include:

• Salesforce
• Insightly
• Zoho
• Highrise – A contact management system
• Google Drive – Great for starting out

How to Manage Sourcing with a CRM System

Once you’re ready to start using a CRM system, you can begin to create your own records based on your supplier interactions. We’ve compiled a few ways to organize your entries (in Salesforce terms):

Track sourcing relationships as “leads”

These include qualified contacts that you’ve obtained through trade shows or even regional sales manager efforts.

Track active negotiations as “opportunities”

If you’re working with a specific account and negotiating payment terms, you could categorize it as an opportunity in Salesforce. This is a great way to track all of your efforts through each stage of the sourcing pipeline. Measuring the ratio of leads to opportunities is one metric to keep track of to determine how effective your team is at following up with “leads.”

Track trade shows and other lead acquisition activities as “lead sources”

If you go to a trade show, such as MAGIC in Las Vegas, it’s beneficial to keep track of the efforts or ROI that originate from that lead source.

We’ve had clients who have gone to trade shows year after year, and weren’t able to accurately quantify the value they were getting as a result of not tracking lead sources. Trade shows can be very expensive, so knowing if they’re worth your time and resources will further help you optimize your sourcing strategy.

Once you’ve obtained these “leads” through your “lead sources,” the next step is to begin managing these relationships. Within your CRM system you can set up and schedule tasks to communicate with your suppliers. Building strong relationships will enable you to obtain better terms and early/exclusive access to inventory.

In addition, not only can you use a CRM system to track external relationships, but it can be utilized for managing the performance of your own buying team. This can be especially useful for rewarding buyers that sign on high performing brands.

Develop a Lead Scoring Rubric

One of the hardest parts of sourcing is finding the right suppliers. Instead of leaving good supplier selection up to chance, create a rubric that scores them. By rating them on specific areas that are important to your sourcing objectives, you’ll be able to formulate a model on your ideal supplier. Keep in mind that each business will have their own parameters that are critical in a good supplier.

This model will help you understand which brands have a better chance of being successful while building a database full of potential sourcing deals. Lining up options will minimize your risk and enhance your growth, giving you a competitive edge.

Here’s an example of a lead scoring rubric:

Other ideas that you can incorporate into your lead scoring rubric:

• Logistical capabilities
• What is the expectancy that they’ll sell to Amazon down the road?
• Lead time

How to Win Big at Trade Shows

Trade shows enable you to interact in a way that you can’t remotely. By attending trade shows, you’re already beating many competitors to new opportunities. Many sellers don’t realize that human interaction can go a long way.

Here are a few ways to get the most out of trade shows:

• Research brand leads that fit your sourcing objectives in advance. Parameters to look out for include Amazon rank, price, and competitors within the product’s category. This allows you to target the most valuable brands ahead of time, so you can have a game plan for when you first arrive at the trade show.
• Not only are trade shows great for making new relationships, but they give sellers the ability to strengthen their current supplier relationships. By visiting them in person, you might be able to gain exclusive access to inventory that brands aren’t offering to other resellers.
• Trade shows are also a great place to scope out products that haven’t penetrated the Amazon market yet. Get ahead of the “S-Curve” by discovering new inventory before your competitors. Not only can you get an overview of new products, but you can also get a good grasp on industry trends or market shifts, such as what brands are frontrunners or who the underdogs are.
• We strongly encourage that you try to negotiate exclusive selling deals with current and potential suppliers. Giving your trade show team incentives to win these kinds of deals will really benefit your long-term sourcing strategy.

Sellers who are able to expand outside of their normal business practices have a greater chance at creating more successful opportunities for portfolio growth. Trade shows are an underutilized resource.

4 Ways to Pitch Your Value

When approaching potential suppliers or negotiating with current ones, you may find yourself asking, “How can I show them my value?”

Use these 4 value-added approaches to get the deals you want:

1. Capital

Brands always need more cash to grow their business. By offering attractive terms, such as prepayment, you can potentially help position your company as a key account. If you have capital to deploy, you will be seen as a valuable partner to work with.

2. Data

Pitching your value requires you to know your value. Utilize data from Amazon to show your track record and the potential you have as a partner. You can look at data on:

• Sales performance
• Customer geography
• Product reviews
• Sales rank
• Seller coverage

Offering to provide this information to suppliers shows that you aren’t a risky investment. Many of our clients use the above data, which they were able to collect through our software, to demonstrate what kind of value they can bring.

3. Minimum Advertised Price (MAP) Compliance

A successful MAP policy can sometimes be a top objective for many brands. Offering to proactively resell within MAP guidelines can help build valuable trust with your brands. Brands with a strong focus on MAP will appreciate your acknowledgement and consideration.

4. Transparency

While many brands perceive Amazon as an unpredictable marketplace, you can set yourself apart from the pack by being very transparent. By pitching transparency to potential brands, you can plan out a strategic roadmap for your partnership.

Benefits of Being an Exclusive Seller

Although achieving the status of an exclusive seller can be difficult, it can bring about a handful of benefits:

• You’re able to monopolize the Buy Box with 100% ownership.
• Reduce your volatility and risk through aligning interests with your brand relationships.
• More accurately predict required inventory quantities.
• Invest in larger quantities and create economies of scale, which will drive down your overall costs.
• Obtaining exclusive US distribution rights from international markets that haven’t penetrated the US markets.

As the Amazon landscape becomes more and more competitive, we’ve seen these kinds of partnerships pop up to capture an advantage over other sellers in their category.

Conclusion

When these steps are combined, you’ll be armed and ready to tackle new suppliers and strengthen existing relationships. We hope these tactics help you advance your sourcing strategy and further your efforts as an FBA seller.

Your business is only as strong as your sourcing, so give yourself a sturdy foundation by utilizing these important tips:

• Use strategic sourcing to gain a competitive advantage
• Master the new retail supply chain model
• Adjust to the short Amazon product lifecycle
• Utilize a CRM system
• Develop a model or checklist of your ideal supplier
• Take advantage of trade shows
• Aim to be an exclusive seller

Remember: always be sourcing!

This post was by Meghan Gleason, Amazon Account Specialist at Teikametrics.