Why Amazon is the Perfect Channel for New Product Launches
Amazon provides companies with an ideal new product launch channel, requiring a fraction of the cost of a traditional launch.
July 9, 2020 - By Kathy Cummins
Consumer Packaged Goods companies know that ~75% of all new products fail. Unfortunately, failure can cost tens of millions of dollars in “lost” investment. Not surprisingly, many bigger CPG companies have become risk-averse towards innovation. By contrast, e-commerce (especially Amazon) can provide a lower cost, real-world “proving ground” for new product launches.
Launching in Brick and Mortar is Hard, Slow, and Expensive:
To launch new products into traditional retail, companies either need an extensive sales team or access to brokers. Companies need a trade promotion budget to fund merchandising such as display and temporary price reductions. They may also need to pay slotting fees to the retailer. There may be lost sales caused by the need to swap out existing products to make room for the new products on-shelf. The media budget for a CPG nationwide new product launch often ranges from $10MM – $25MM (or more). And, after all this, brands may still need to wait several months for resets before their product appears on store shelves.
Additionally, very innovative or disruptive products can face other hurdles. For example, in 2006, Coca-Cola introduced a mid-calorie coffee-flavored soft drink that sold at a price premium, called Coca-Cola Blak. The product was niche, appealing to a specific audience willing to pay the premium for the unique flavor. To make matters worse, consumers had a hard time finding the product in stores. Distribution ramped up slowly, and sometimes the product was shelved with coffee, sometimes with energy drinks, and sometimes with soft drinks. By 2008, the sales velocities were insufficient to keep the item on-shelf, and the product was discontinued. Despite this, Coca-Cola Blak still has a loyal following to this day. In fact, some fans of the product even use recipes to try to recreate the flavor in their own kitchens.
With the total cost of failure ranging up to $50MM or more, it is no wonder that many companies have become wary of launching new products. Bigger companies now rely more on M&A strategies, versus innovation, to drive growth. But it doesn’t have to be this way!
Amazon Is The Perfect Channel For New Products Launches
In contrast with traditional retail, Amazon offers endless aisles and access to a huge, nationwide potential consumer base. Amazon reaches 206 million unique visitors in the US every month (112 million of whom are Amazon Prime members). Amazon shoppers are often less price sensitive so long as the product meets a unique need. Digital advertising has a more direct link to online sales, and thus a higher ROI.
This means that if you have a strong product that delivers on its consumer promise, e-commerce is a great channel in which to launch. To succeed online, you just need:
- Keywords to enable organic search
- Pay-per-click (PPC) advertising to drive paid search
- Digital media advertising to bring traffic to the site
- Strong product reviews
- Flawless operations
(Note: The PPC and digital media budgets required to support e-commerce are a small fraction of traditional media – no need for SuperBowl ads here!)
Amazon Identifies Winners Quickly
What is surprising is how quickly a strong product can succeed online if the digital content, paid marketing, and operations are managed well. Goli Apple Cider Vinegar Gummy Vitamins is one of the top Vitamin Supplements on Amazon in terms of dollar sales per SKU. This brand was launched in 2019. Death Wish Coffee is the #1 in Ground Coffee on Amazon in terms of dollar sales per SKU. This business was founded in 2012. In the Beauty industry, the #1 Mascara in terms of dollar sales per SKU on Amazon is Asavea 4D Silk Fiber, launched in 2018.
E-commerce is a way to “Make a little, sell a little” (to quote former P&G CEO, Durk Jager). It enables companies to assess consumer adoption and competitive threats on a relatively smaller scale, without needing to spend tens of millions of dollars. This learning a boon for traditional retailers as well, enabling them to assess the online results before deciding to take the item. Here are a few examples of products that have used their e-commerce success as a springboard to enter brick and mortar: Nutpods, Phocus, Perfect Keto Bars.
HINGE In Your Corner
HINGE COMMERCE can help you manage your e-commerce business and your new product launches. Our team has over 125 combined years of e-commerce experience. We have the tools and technology to help you succeed with new product launches on Amazon, Walmart.com, Target.com, and other sites. HINGE COMMERCE can also provide you with market analysis to help you gauge demand and estimate market potential. We help you remove the guesswork and create actionable insights and a commercialization plan for new products. With HINGE COMMERCE in your corner, we can help you launch and win with new products! Reach out to us to learn more!
Check out this article on the steps necessary to ensure that you make money in e-commerce.