Kris and Dustin discuss what the Amazon Flywheel Effect is and how Amazon sellers can implement this into their own Amazon business.
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– Hello everybody and welcome to episode 34 of two Amazon sellers and a microphone. I’m Dustin Kane and with me as always is Kris Gramlich. What’s up, Kris?
– I’m glad it’s Friday.
– It is Friday. But it’s not a red Friday here in chiefs kingdom ’cause the chiefs have a buy this week. So we’ll be able to have some more free time this weekend when there’s no chiefs game which is nice.
– It’s going to be a lot of a honey-do list.
– Exactly, it’s the honey-do list weekend. I’m excited today because we are going to be talking about the Amazon flywheel effect. You hear this term thrown around a lot when talking to sellers, talking about Amazon. There’s a couple of meanings to this actually, which is interesting if you start really researching what the Amazon Flywheel Effect is and who’s used this term in the past. So we’ll talk about, I’ll let you go over just sort of how, the initial Amazon flywheel at practice. And then we’ll talk about how as sellers we’re trying to utilize the Amazon Flywheel Effect to grow our own personal business. So, Kris, you want to talk about what Jeff Bezos meant originally when he coined the term, the Amazon Flywheel Effect?
– Yeah, I mean, this started back in, I believe 2001. It’s kind of where, where the early stages are like lower prices lead to more customer visits which leads to more customers increase the volume of sales which attract more commission pain, third-party sellers like us, but then allows Amazon to get more out of their fixed costs, like fulfillment centers and all the servers needed to run the website. And this enables them to offer prices even lower further which feeds the flywheel, which accelerates them up to the top as far as customer experience goes. So there’s a lot of moving parts there, but essentially what it is, is have lower prices give really good customer experience, and just keep that customer experience positive and keep them coming back so they continue to buy more and more and more. And then us as third-party sellers will flock to Amazon to sell which gives Amazon more selection which keeps customers coming back, which keeps prices low but it keeps the experience good. I mean, you can kind of see it, it keeps going in a circle. So today, I think we should really hit on and what you and I can really probably focus on is, how to use this strategy in your own business and your own brand. ‘Cause, you can kind of get this going in your own system. You can reap the benefits as you’ve launched more products offer better pricing and kind of get your own Flywheel Effect going for your own brand.
– It is interesting. I mean I talk to, when we talked to sellers all the time we talked about this Flywheel Effect that they can get going. How they can really ramp up their sales quickly to a large audience on Amazon. But it’s so interesting. It highlights how Jeff Bezos when he started Amazon just sort of the genius of it. Making it an open marketplace where he brought in third-party sellers, gave us, people like us the opportunity to use the distribution channels that he was developing. And, it was a symbiotic relationship. We were becoming successful selling on his platform that he developed and he was able to charge us a fee to do that which made him more successful and made Amazon more successful. It’s a win-win. It was like a growing ecosystem and it just keeps feeding that flywheel. So it’s fascinating to look back and see how he perceived it when he was developing Amazon itself and as it was growing. But yeah, like you said, there’s so much opportunity for third party sellers like us to get things in motion like that, where every action we take snowballs into more and more sales. And I think the easiest way and I think it’s often misunderstood on Amazon that when you start driving sales on Amazon, Amazon appreciates that and their algorithm starts ranking your product higher which means you’re going to get more and more and more sales. So sales just trigger sales, and Amazon is a unique platform like that, where every sale helps you exponentially. It helps you grow and grow and that when you move up the rankings you get in front of a larger and larger and larger audience. And as a brief explanation too, when I’m talking to people about selling on Amazon, that’s how I describe it. Is if you start advertising and you start generating sales that’s going to increase your organic sales. And just as your product gets more popular Amazon treats it more popular puts it in front of more people and it just keeps going and going and going and going. So it’s interesting to watch. I mean that was what sold me on the FBA model when I first started, is I didn’t understand that, but I launched a product and I witnessed it. My small efforts turn into huge rewards, which is fascinating.
– And do you want to continue this momentum, especially on new products? Like when you launch a new product there’s a belief out there that there’s like this honeymoon phase at the very beginning where Amazon gives you a little bit more cushion or benefits on a new product, as far as testing goes. So when you’re launching new products and new ASINs, that’s where you would really want to drive all that effort into that because you want to get this flywheel moving. You know you want to start ranking for your keywords. You want to show Amazon you’re really the pay for ads. You want to start getting on your organic rank at the top of page one so you get organic sales along with your paid sales. So on new products that’s where you want to really get your focus at. If you’re trying to bring a product back to life per se and like get a move in. That’s where you can use things like advertising to boost that back up again. And so this whole Flywheel Effect, it’s going to take time. It’s going to take effort, it’s going to take investments but as soon as you get this thing moving, soon as you get your product moving up the organic ranking you’ll reap the benefits on the back end.
– I’m actually in the process of launching a new product right now. And you bring up that honeymoon phase. I’ve seen examples of it in the past for sure. I’m excited about this new product launch, just to see if there’s any relevance to that honeymoon phase. When now, when I launch, I’ll be reporting back on that for sure. But this Flywheel we see it all the time based on the different actions that we take. And we can talk about some things ’cause you mentioned an interesting point. Obviously, if you launch a brand new product you’re invisible on Amazon, when you launch it, other than this potential honeymoon period where they show you around a little bit. But so you have to do things that trigger this action that triggers this starting of sales and then getting that flywheel moving. But the point, to your point about, you can have products that sort of die or that you’ve not paid attention to. Sales have started to dive that doesn’t mean that they’re dead. That may mean that you need to give them a little nudge that they need some love and they need to get some inertia behind them so that they can get back into this Flywheel Effect and really start expanding on the platforms. So there’s lots of ways that you can do this. One, We’ll talk about a bunch of them here. But one for me that proves this works is, whenever you do a lightning deal. So it’s a quick lightning deal, six hours where you’re giving a discount and it’s advertised over the platform and you generate a whole lot of sales in a quick amount of time. Well, once that lightning deals over you maintain a decent sales velocity that’s higher than your normal sales velocity because you’re reaping the benefits of all Amazon’s algorithm changes when your product started having that sales velocity. So that shows that a little nudge can keep it going for a while. So if you’re able to every once in a while give it that nudge you can kind of keep it in a good spot where it’s constantly generating sales.
– And I’ve seen this happen, where you can do a lightning deal, one week and then the next week we’ll do another lightning deal. And you’ll see bestseller rank get lower and lower, which is good. It’ll get lower and lower and lower. Your rank in that category will get higher and higher and higher as you rank. So whenever you get a chance to do lightning deals do them because you’re going to start to get that momentum going for this flywheel. ‘Cause, it’s going to take some time and effort to do that. But the more you show Amazon you’re willing to invest and market your product the harder it is for somebody else to take over that spot. So I always, I’ve mentioned this a few times but I always do lightning deals because I want to continue to get that momentum moving. And I’m also throwing truck traffic, external traffic at my listing as well. So I got, you know, Amazon lightning deals going on. I got external traffic coming to the listing but I’m giving them a discount code. I’m trying to get that wheel to spin. ‘Cause the faster that thing spins, the harder it is to stop. And you’ll see your ranking go up. And then as you, as you stick the landing per se you can kind of dial back, maybe your ads a little bit but just keep it moving. You want to keep that flywheel going.
– And that is a mistake that sellers make. And it’s a mistake that probably you and I both made in the past is, once you are ranked, then you stop putting efforts into it because you think that this is some permanent landing spot and it’s not, you will fall quickly from that spot when you stop putting the energy into it. And that’s why I like what you said You have multiple things going on where you’re taking advantage of all the deals you’re driving the external traffic, you’re doing things to maintain that. And what gets lost in that is that those little efforts constantly to keep driving traffic to it can double, triple, quadruple your sales. And so that’s what that flywheel effect is. And people are scared maybe to invest money like a lightning deal, it could be 150 bucks, put in. But what if that triples your sales for a while? I mean and that’s the best 150 bucks you can spend for sure. And the same thing with all those. So that those are just important things to be doing. The other thing that you can do, and it’s where Sellozo comes in as constantly run pay-per-click ad campaigns on your med minimum on your main keywords and potentially on some of your main competitors Running ads get your product at the top of the ranking paid. And so you have a better chance of generating sales on certain keywords and as you do you’re going to increase your rank organically like we talk about on those keywords. So your ads give you the double benefit of ensuring that you get more organic sales. which is interesting because there’s not many, I don’t know of any ad platforms that basically give you a double benefit for advertising. Where you’re getting your product at the top of the list but they’re also treating your product as more irrelevant organically even though you’re paying for it they could just keep you suppressed so you keep paying for it but they’re moving you up. And so it’s a double benefit.
– I remember this a few days ago I showed you a product. This guy started out and I had the product first and now look at him, he’s killing it. So for those who listened, I showed Dustin a product the other day on Amazon that I had originally. And we looked it up the other day. And this guy had like 12,000 reviews. He had different variations, different colors, sizes. He was a bestseller in that category. Which he was killing it, he was doing like 750,000 a month. So he’s killing it. when he first came into the niche that I was in he was offering the same product but he had a low price, much lower price. I’m sure he was negative for a while. He ran heavy PPC like he was all over the keywords. They did a bunch of brand ads, video ads but they invested a lot of money at the very beginning to achieve that ranking. And eventually I just, I gave up on that product I was like, “I’m getting out of this product.” And now look at him. He’s doing 750,000 bucks a month in sales. All that effort that he put in and it is probably quite expensive, I’m sure. But he got his flywheel moving. He got that momentum going. They got a lot of sales, got a lot of revenues got a lot of reviews, and ranked really fast. It probably took them, I don’t know a year year and a half, maybe a little bit longer. But now he’s ranking and is taking organic ranking from a lot of keywords. And he’s banking in that 750 a month.
– I know. And whatever he’s spending is a percent of a tiny percentage of that 750 right now. But the moral of that story is he never took his foot off the gas.
– And that’s sort of the key. And I think another thing that we could dive into is this Amazon Flywheel Effect Works for every product in every category on Amazon. It’s just some are more competitive than others. So just think of the amount of energy it takes to start getting a flywheel going that’s enormous and it’s heavy. It’s gonna take a lot of capital, a lot of resources, but if you’re in a less competitive niche you can get that thing spinning fast for definitely a lower cost of entry. And you can, there’s chances for you to do that. And so, I think what we’ve had this conversation before, if we can get into these less competitive niches and have five, six, seven, eight products in lower competitive niches that are really ranking high and selling, maybe that’s better than one ultra-competitive product that does really well. And so there’s, that’s part of what we talk about when you’re in the product research phase, knowing what your barriers to entry are in your category is super important because all of us can utilize this Flywheel Effect to our advantage. It’s just depending on the product and the category we’re in it’s how much work and money is it going to take to get it going?
– Some people don’t even think about that when they do product research, they just look at the cost of the product and they don’t think how much marketing they’re going to need, marketing dollars they’re going to need to launch that product. And then it’s like, “Oh, this is going to cost me five grand okay, let’s go ahead and go with it.” Well, then they’re probably going to need another five grand in marketing when that product comes live because you’re going to have to spend money on, have you PPC lightning deals, If you’re doing external traffics through Facebook ads or Instagram you’re gonna need to do that to get this thing moving. So I think that’s a step people miss is when they source a product they just look at the cost of goods part of it and they don’t add like how much they’re going to need in marketing or they don’t make a budget for marketing for that product. So when you’re sourcing of product it’s not just the cost that you’re going to incur. it’s going to be your marketing. You’re going to have logistics fees. You’re going to have, there’s all types of stuff. So think about that when you’re sourcing a product there’s other there’s other fees to source them.
– There’s there’s products that you could easily advertise $10 a day budget and just fully get that wheel going. There’s other products where if you want to do it it’s going to take you $500 a day to get it done or more, you know? And so it’s just, it’s just a matter of being smart when you pick your product and knowing where you are. But the main thing here to see is that the Flywheel Effect is fairly unique to Amazon. We’re leveraging a multi-billion dollar company’s infrastructure, distribution channels, their shipping methods to get it to the house within two days, their customer base, which is millions and millions and millions of people they’re advertising. Whether you know it or not Amazon actually advertises your product for you. They do a ton of retargeting that you don’t have to pay for. Like, there’s a lot of times you could go if you start looking at your products on Amazon and then you go to some other website you’ll see your product. That’s Amazon paying for that retargeting ad. I mean you’re getting a monster effect of just being able to piggyback off of that. And that’s what makes this business model so fun. That’s what allows people like Chris and myself to run fairly large businesses on a shoestring just a one-person deal. Or one like you know I’ve had virtual assistants in the past but I don’t have warehouse employees. I don’t have designers. I don’t have all this other stuff, we’re able to utilize Amazon. And that’s all part of that flywheel. And the ability to scale quickly on Amazon is just different than anywhere else.
– Yeah Cause that’s where all the traffic said, all right. you want to put your product where all the shoppers are. And I think that’s to Jeff Bezos credit here. Like he created a platform where they have everything that you need, low price and it’s kind of like, maybe not when I say it, but it’s kinda like an addiction, right? Like when you buy stuff off Amazon, when you’re buying stuff you’re always like, “Where should I go look at it? It’s on Amazon.” Because you know, you’re going to be able to get a low price. It’s going to be easy, quick delivery. They got everything. And if you do need to return something they made that process super easy. So you’re like a customer for life. And we just want to put our products in front of those people and just continue to get that wheel spinning.
– Exactly a good way I think to make this analogy just so it’s really easy to understand is the way that this works, the way you get rewarded for selling on Amazon is. Let’s say, instead of talking about online, we were talking about our brick and mortar store. So let’s say I was able to walk into Walmart and I had my products that I want to sell and I pitched them to Walmart and then they put them in the warehouse in the back. So my products are at Walmart, but nobody sees them ’cause they’re sitting in the warehouse in the back. And then I tell some people, “Hey, you guys should go to Walmart and ask for my product and buy it.” And so my buddies go and they go in there and ask for my product and then Walmart says, “Oh this looks like it’s going to sell.” So they put it on a bottom shelf, somewhere in the back. Now you’re starting to get more sales. And they say, “Oh, this is working.” It’s all of a sudden your products now on the middle shelf at Walmart and you’re selling tons and tons and tons. And that’s sort of what happens really easily on Amazon. It’s a virtual way of doing what we just talked about there.
– That to kind of go off track here I don’t know if you’ve ever heard of this story of how Spanx got started from Sarah Blakely. she went into the department store and was like selling it herself to customers. She wasn’t even working and then she would have like her friends and family go in and ask about it and like kind of get into the minds of the buyers. And now, I mean, that’s a billion-dollar business. So I mean, she did it the same way. Like she went in there and kind of sold the product herself to customers, just being in there. And then she would have her group or her have her following go into other stores, asking about it. And eventually, she got into those. It’s funny because my wife is an author-illustrator of children’s books, and one strategy it’s kind of like guerrilla marketing that sometimes an author will do is they’ll go into like a Barnes & Noble and just put their book on the shelf. Okay just set it there. And so what happens is when somebody goes and gets it and goes to check out, it’s not in their system. But all the books, they have this book, this catalog of ISBN numbers of books that they can just order from. So they feel like it’s an air and then they just reorder more of those books for the store.
– I got a lunch hour pretty soon I know that I’m doing it for this.
– So that’s guerrilla tactics. But it’s funny because that really is. And so if you’re a brand you’re not selling on Amazon or you know you’ve got either you’re a brick and mortar and you’re looking to move to online e-commerce as well or you’ve got your own website but you’re not selling on Amazon. Or you’re looking to start selling in general. You ought to look at what this effect and what it does. I mean, you’re missing out on a potential big piece of the pie. And I think a lot of people are nervous or they feel like Amazon some giant corporate beast that’s just a money generating machine for Amazon and it’s using everybody else. And it’s just not the case. It is a huge opportunity. And if you’re not on Amazon, your customers are and they might be looking for you there and you’re not there. And there’s so many ways to get in front of them on that and then really generate, get this Amazon Flywheel Effect going. Since the pandemic started, I feel like Kris, you, and I have talked to a lot of retailers and e-commerce people that were not on Amazon but now feel like they have to be. There’s just been a lot of conversations we’ve had like that and this is the conversation we have. We just, we’ll go on to Amazon. We’ll pull up helium 10, we’ll type in their main keyword and show them like, “Oh look every month, $5 million of that type of product gets sold on Amazon.”
– How do you know that? How do you get that number? And where did you get that?
– Would you like a sliver of that? I mean, it’s like, is your website doing 5 million a month on that one product? Are you doing that in your brick and mortar? And you want to be in front of it. So we want to really get that flywheel going.
– Yeah, gotta love it, that’s why we love it.
– Exactly, so anyway, if you would like to learn more about Sellozo and how we can help you get this Flywheel Effect going through advertising and how Sellozo’s tool can help you optimize it so that you’re getting your ad spend efficiently while you’re doing this you want to talk to Kris. We talk to sellers all the time. We obviously are, we love Sellozo, we love what it does, but our calls, if you book a call with us, it’s not going to be salesy. We want to learn about your business. I love learning how other people are running their businesses and what they’re doing. And we’d love to consult and help you as well as show you what Sellozo can do. So you can go to Sellozo dot com, click the button that says request a demo. You’ll get either Chris or myself for that demo. We’ll get on a live screen, share with you. We’ll demo the platform. And we’ll talk about how we can get those ads running. So you can get this Amazon Flywheel Effect rolling for you. Also, if you like this content, if you liked this podcast, please subscribe to us. Leave us a review, a great review if that’s possible, just kidding. You can leave an honest review. And then also if you’d like to watch us live not just listen to us, you can like Sellozo on Facebook. It’s S E L L O Z O on Facebook. And you can like that page and you’ll get notified when we get alive or check us out on the Sellozo YouTube channel. You’ll see all of our videos there as well.
– Kris, that was fun. I get excited talking about it, that’s one of my favorite topics. ‘Cause that just sums it all up about what your businesses like. As you can get that Flywheel Effect going and I still think back. I remember when I started, I was like six months into it and I sold 300 units in one day and I almost passed out. I almost fell off the couch, watching. I was like refreshing my numbers. I’m like, I can’t believe I just sold 300 things in one day. And I was sitting on my couch, just watching it come in.
– It’s an addiction, it’s a game.
– So that was that’s fun. All right, well that’s the Amazon Flywheel effect. Everybody. Thanks so much and have a great day.
– See you.