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#18 The Ever Growing Impact Of Amazon As A Launchpad For New Toy & Games Companies

#18 The Ever Growing Impact Of Amazon As A Launchpad For New Toy & Games Companies

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In the Toy & Games business Amazon has been a hot topic for a long time now. I can clearly remember ordering from Amazon in the early noughties and becoming hooked on the ease of ordering at a time when many people still relied on ultra slow dial up internet connections at home! Twenty plus years on since then Amazon is a major player in the market, and is spoken about in the same breath as such mighty retail behemoths as Walmart, Target, Carrerfour and others. Those of us who have been in business throughout these two decades of massive growth for Amazon have typically grown our own Amazon businesses alongside Amazon’s own rise. BUT one area which I see as being under appreciated by established players in the Toy & Games business is the power of Amazon as a launchpad for new businesses.



In the last five years or so, an increasingly prevalent part of my Consultancy business has been advising relatively new companies who launched via Amazon and who have achieved considerable success on Amazon across multiple markets who then need help to understand and access ‘Traditional’ distribution for Toys & Games. I’m not going to share the trade secrets of my clients, but I can share the following data without revealing any confidential information: my recent clients include multiple companies who have achieved revenues of $10m+ via Amazon alone, from a standing start and from companies and people with no track record of any kind in the Toy trade. I have advised companies who were in effect a single person running a $multi-million business, through to companies who have had several rounds of investment funding and teams of 100+ people. Many of these clients partnered up with my toy industry contacts and are now strong players in the Toy business, having started out just selling direct with a small team on Amazon.



This is a real and growing sector which is having a strong influence on the overall Toy & Games business. If you look at the top sellers on Amazon, while there are plenty of well-known brands from long established Toy companies, the top 50 or 100 products generally include a significant number of products from smaller Amazon focused companies.

The first major product/brand which I can remember building significant commercial success via Amazon was Cards Against Humanity. (If you remember an earlier example, please add in the comments box!). This simple but thoroughly compelling game concept was initially funded by a successful launch on Kickstarter, which saw the game exceed the original funding goal of $4,000, eventually hitting more than $15,000 pledged. This was a strong result based on the average Kickstarter campaign at that time, but hardly worthy of mention in terms of the overall Games category. However, the game was widely pushed and sold very well via Amazon before traditional distribution was accessed. By May 2013, estimates suggest that the game had generated an estimated $12m in revenues, which clearly represents a massively successful product launch by any standards within the Game category.



Why and how then can companies without track record, and without following all the standard ways of operating in our industry achieve so much success on Amazon…

4 KEY FACTORS DRIVING THE SUCCESS OF TOY & GAME COMPANIES WHO FOCUS SOLELY ON AMAZON AS A SALES CHANNEL

1. Capabilities Specific To Maximising Via The Amazon Platform/System

It seems clear that if you build your business based on selling to mass market box shifting retailers then the needs of these customers will drive your organisational setup, structure and capabilities. If you prefer to focus on specialist Toy retailers and independent or ‘mom & pop’ sales outlets, that will also push your capabilities and structure in a different direction. But in both these cases your efforts will be focused on a). Persuading these retailers to buy your products b). Persuading consumers to buy the products from these retailers c). Managing the process of producing & delivering inventory to the right places in the right way as per the needs (or demands!) of the retailer.


On the flip side, if you start with Amazon as your only sales channel you probably won’t invest in hiring top Sales talent who have relationships with your key customer targets, you probably won’t do broad stroke ‘shotgun blast’ style marketing campaigns and you won’t need to worry so much about a disparate set of 3rd party logistics arrangements.


Those companies who sell only on Amazon instead tend to invest in more technical knowledge – knowing how to work the Amazon system overall and knowing how to work with and in sync with Amazon’s algorithms which drive much of how Amazon decides which products to show which website visitors.


Whereas established Toy & Game companies have to balance the resources and structure needed to drive sales via Traditional channels with the requirements of Amazon, which is always going to represent a split focus, companies who launch with Amazon alone from the start instead grow the necessary departments to win on that platform.




2. Focus On Growing Sales On Amazon

Which leads nicely into the second key factor driving success for these companies who launch on Amazon first and foremost…and that is focus on the needs and concerns of this one platform/retailer only. When I talk to Toy distributors these days about taking products from my clients and selling into their markets you routinely find among the first few questions comes the requirement to be able to manage Amazon in their market to try to finesse things to cause less disruption to their other customers. This disruption is caused of course by several factors, but perhaps the weightiest factor is Amazon’s impact on retail pricing.


Whereas we normally look at key price points in traditional retail channels, with every price ending neatly in .99 i.e. $9.99, $14.99, $19.99 and so on, and with clear expectations of product specifications at each price point. The algorithms on Amazon do not automatically follow those old rules. In the end, Amazon allows us to bend many so called ’hard rules’ from packaging sizes and formats through to price points, and those companies who have the focus and therefore flexibility to amend their approach to maximise results on Amazon as opposed to sticking to rigid format from other retailers tend to do particularly well on the platform of Jeff Bezos.


3. Product Selection & Development Based on Amazon Alone

The other key point here is that while Amazon is a major customer for nearly every medium to large Toy & Games company out there, product development for those Toy Co’s tends to be driven more by the reactions and inputs of other major retailers. In the same way as retail Exclusives can be good sales drivers where the Exclusive product really fits that retailer, so these companies who focus solely on Amazon can develop products around what will work best on the Amazon platform. The most obvious example of this would be a product range with multiple iterations – just for the sake of illustration, let’s look at the iconic Monopoly board games brand. If you are trying to sell to Walmart, Carrefour, Smyths Toys or others, you will only get a limited number of versions on shelf - even for an iconic brand like Monopoly. In fact, 20 years ago, I remember joining a meeting at Hasbro with one of the major UK retailers with my role being by way of brand support to the sales team. The retailer advised that they would only take 3 versions of Monopoly, and firmly outlined that the number of SKUs would not change, but he was open to which three versions to select, and asked the sales team for advice on which versions would work best based on his stores & consumer profiles. Bear in mind this is Monopoly - a brand with many many product iterations, and a major retailer could only fit 3 versions into their planogram, and therefore opportunities in that case inevitably become about focus on fewer bigger things, and not about adding more and more SKUs.


We don’t have this restriction with Amazon. In practical terms there is not really a limit to how many Monopoly games could be (and are) sold on Amazon. When you type in ‘Monopoly board game’ into the search box on Amazon.com, more than 1000 results are returned (!).


Moreover, when you choose to buy, or even look at one product within a range, Amazon will tend to show you other products in that range, and in the future will suggest more items similar to what you previously bought before. Therefore, Amazon will tend to favour those brands which have multiple product iterations with some points of difference maybe driven by theme, consumer target, size, price point and so on. This therefore logically pushes companies who have a successful product to focus on brand extensions first, ahead of developing completely new items. Whereas with traditional bricks and mortar retail, the limits to how many products they can take per brand pushes us towards developing more totally different products across multiple product categories.


4. Driving Sales Via Amazon’s In-Built Marketing Options

I count myself as fortunate to have been trained in classic ‘blue chip’ marketing in the pre digital age, because the fundamental principles of marketing apply more today with a bemusing number of marketing options and platforms than ever before. Amazon offers several ways of driving success via marketing activity. At the most basic level is the product listing, which favours more product images, video and strong and slightly longer than is typical copy. Then we can look at the paid for marketing options. The challenge for those coming at Amazon as an addition to their Traditional distribution is that the marketing %ages which work in general in the Toy & Games business are lower than those who don’t have the same organisational cost structures can profitably justify. This again gives those companies solely focused on Amazon an advantage, not only can they afford to spend more per unit on Amazon marketing, but by being solely focused on this platform their entire organisation is deeply engaged in the ins and outs of the platform.



WHY COMPANIES WHO LAUNCH & ACHIEVE SUCCESS ON AMAZON TEND TO HAVE SUCCESS IN TRADITIONAL DISTRIBUTION CHANNELS AFTERWARDS

From a boring financial perspective, the Toy business is primarily a business concerned with risk management. OK, it’s also great fun, our products are cool and we get to make a positive impact on millions of young lives…but nevertheless from a business perspective, our business is about managing the risk of product launch failure. If you think about both retailers and distributors, they actually have a terrible business model, whereby they have to invest more in each unit than they make back in profit. So, they want to work with known and trusted products and brands which consumers will buy in sufficient numbers to avoid inventory hangovers.

Well guess what, a top seller on one platform or in one retailer is usually a safer bet than something completely untried and untested. Therefore, when distributors and retailers are offered products which they haven’t seen before, but which have already sold millions of units, then they are usually quite keen to take on those products, because consumer demand is fully proven.

I have been fortunate enough to have worked on some of the very best-selling products and brands in our industry, and unlucky (or stupid) enough to have worked on some of the worst selling. and the funny thing is I take exactly the same approach to selling each time, often meeting with the same people I have dealt with and met with for a couple of decades…and sometimes the products I am working on have clear appeal and are very compelling for the people I am presenting them to and they can’t wait to buy them. And sometimes they are literally of no interest whatsoever! My approach is the same each time, but the propensity to buy comes down to the product proposition – does it tick the boxes for the people I am presenting to. Anyway, the point is this – those product ranges I present which are established already on Amazon and are clearly appealing to Amazon’s consumer base are typically fairly easy to sell. OK, you sometimes have to talk to a few different partners before closing deals, but the fact that these products already have a commercial track record of success makes them more appealing than many others. Of all my clients who enjoyed success on Amazon first, all have gone onto achieve success via other distribution channels – my role is to accelerate the success they would most probably enjoy eventually regardless of my input, but if I can save them a couple of years by way of the right introductions that would seem to be a worthwhile outcome all round.


AMAZON AS A LAUNCHPAD FOR TOY & GAMES COMPANIES: THE FUTURE PROSPECTS

So, what does all this mean for the rest of the Toy business? Will Amazon continue to be a springboard for new Toy & Game companies? Will there be more companies building fairly large-scale businesses out of left field? In short, I believe the answer is absolutely yes!

There are some clear advantages for companies launching on Amazon and focusing on building up that business first before looking at any other distribution channels. Amazon is not going away – in fact, there is an argument to suggest that as artificial intelligence advances, Amazon as a leading tech firm with massive resources and grasp of technology may move even further ahead in a competitive context.

Either way, we can learn a lot from these companies who build their businesses on Amazon first and then to look to rollout further into other distribution channels. But there may also be a myriad of successful distribution opportunities out there for those companies quick enough to spot successful Amazon focused companies who need a helping hand accessing other distribution channels.


OTHER CONTENT


PLAYING AT BUSINESS PODCAST

EP 97 – UNCHANGING FUNDAMENTALS OF THE TOY & GAMES BUSINESS

We are living through times of massive change and disruption. Technology is advancing at a frighteningly quick rate, and the very fabric of society has been changed by our adoption and development of new technologies.

However, despite that there are 5 unchanging fundamentals of the Toy & Games business. In this podcast we take a look at these fundamentals that have not changed for decades and are unlikely to change in the coming decades despite the huge technological change we have seen and are yet to experience.


EP 96 – 5 CHARACTERISTICS OF BEST-SELLING TOYS & GAMES

There are some recurring characteristics of bestselling Toys & Games. In this episode we run through the 5 most important features. This is not so much creative inspiration as it is a ticklist for new Toy & Games products in development.

EP 95 – HOW TO SELL MORE TOYS & GAMES INTERNATIONALLY

Regardless of which country is your home market, the opportunity outside your borders is greater...in this episode we take a look at some simple ways to significantly increase your export sales of Toys & Games.

AND FINALLY…

If you want to find out more about my Toy & Game business consultancy services, please just click the link below. Our company has helped hundreds of Toy & Game companies to get ahead and grow sales/make more profit. I have worked on all product categories across a 20+ year career in Toys & Games, and genuinely love sharing knowledge, contacts and facilitating greater success for our clients.

As per the content of this newsletter, if you have successfully established a business selling via Amazon and want help, advice and hands on help with setting up distribution into ‘Traditional’ sales channels for Toys & games, you can find out more about our Company services & get in touch here: https://www.toyindustryjournal.com/toy-business-consultancy

Sign up for my free e-newsletter and receive all the latest reports, analysis and insights on the Toy & Games business: sign up for free here: https://forms.aweber.com/form/54/1325077854.htm

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