There’s a tip in venture capital that if you’re in the same line of business as Amazon, get out. And if Amazon isn’t in your line of business, also get out. The sector is irrelevant. Nowhere is this truer than in retail. Amazon is a ferocious beast, with 30 per cent of the UK’s entire ecommerce market. And it just keeps expanding.
Mid-November saw the unveiling of Amazon Pharmacy, which will offer discounts of 80 per cent on generic drugs and 40 per cent on branded products. The share prices of other retailers plummeted: Walgreens, owner of Boots, fell 10 per cent in a day.
Just a week earlier, the European Union informed Amazon of its preliminary view that it breached rules by using sales data to benefit its own-brand products. It is alleged Amazon uses non-public data to find profitable lines and then enters them with its own products. The legality is disputed. The effectiveness is not.
So what’s the solution to retailing in the age of Amazon? The only answer is branding. A handful of brilliant brands are proving it is possible to thrive. They enjoy loyal customers and can charge a premium.
Building a brand with personality
Hannah Chapman is the founder of Ava May Aromas, a candle brand she launched two years ago from her family kitchen, aged 23. She melted wax on the kitchen hob to pour into moulds. Today she employs 26 people and expects turnover to hit £10 million.
“My brand is an original,” she says. “Some of our fans have followed my story since I started. Our name and logo are unmistakable.”
Her fame on social media triggered a raft of copycats, but the brand ensured sales are still booming. “My dad is now my business partner,” she explains. “I remember speaking to him about all the people copying me. I was quite stressed. He was very calm and said ‘Don’t worry, no one can copy your story’. And he was right.”
Chapman built the brand on social media. Instagram is her main platform, with 242,000 followers. “I talk to my followers like they are family,” she says. “I show my face nearly every day. My followers feel like they are on my journey with me. I have customers from my first days who still check in.”
The result is a bullet-proof brand. This is reflected in price: Ava May Aromas charges £18 for a candle and £24 for a two-wick candle. Amazon’s recommended brands are both cheaper and lower quality: no threat.
How to measure brand strength
When brands want to gauge their superiority to generic rivals, the best place to start is price. For example, Nurofen is 100 per cent ibuprofen, yet costs three times more than a generic version. This method of comparing a brand to a generic rival is enshrined in ISO 10668 and used by venture capital firms to calculate the value of unlisted retailers.
A great brand can push any product line into this premium branded category. Mark Shephard and his business partner Chris Niebel launched a collagen beauty brand in May, using a basic online shopfront for sales. They targeted celebrities to build their brand, called Reverse Life, and won endorsements from Christine McGuinness, Peter Andre, Tanya Bardsley, Carole Malone and Amy Childs. They sold £100,000 worth in the first two months and hit £250,000 in August.
“We have already outperformed every collagen company,” says Shephard. “Our target for the first quarter of 2021 is £500,000 a month making us by far the largest, most successful collagen company in the UK for collagen and vitamin products.” These are sensational numbers in a crowded product category.
Big brands enjoy the same uplift; an improvement to the brand leads to stickier customer loyalty and the ability to charge a premium.
Insurance, for example, is notoriously generic. Insurers tend to compete on price. Yet branding can make a huge difference. Liverpool Victoria worked with a creative agency Designate to push its LV= brand as a warm and emotional symbol of happy family life. The result was sales growth of 696 per cent in five years. Cost of acquisition fell 77 per cent.
Failing to invest in branding is a mistake
Yet too many small brands fail to invest in branding. James Beveridge, co-founder of brand consultancy Made By Giants, observes: “From our experience, small-business founders come to realise the value of their brand quite late in their journey; initially it’s about products and the bottom line. They are also very stretched so don’t have a lot of time to define the foundations of their brand.”
Beveridge believes retailers need to spend more time on their branding. “Brands aren’t created out of thin air. The art of defining, articulating and bringing to life a strong brand across an organisation takes love, care and crafting. The people doing this kind of work are the equivalent of the research and development team behind the Aston Martin. Aston Martin even call themselves a design company.”
The rise and rise of Amazon means products without a strong brand will struggle. Cut-price rivals are flooding the market and Amazon’s own-brand products will drag prices ever lower.
Chapman at Ava May Aromas believes her strategy to build a premium brand means her candle business can soar above this maelstrom. She’ll find good margins and loyal customers no matter what the market does.
“I am trying to stay off Amazon and stay independent,” she says. “It would dilute my identity. My way is to run my own website; the only way you can buy my products.” Her story makes a convincing case.