There is a common question among brands and manufacturers selling on Amazon: how is my product currently performing and how well could it be performing? This is ultimately your potential- and when we evaluate product potential, it is equally as important to ask what is the true value of the Amazon category and how can you use it to maximize your Amazon Business potential? As a brand or manufacturer, you can only do so much on your own to push your products on Amazon before you hit a ceiling. However, analyses and data, as well as the right tools can help you break through this ceiling in order to reach your maximum potential.
The first step though, is finding your “why”:
- What is your motivation for finding the potential of a category and what do you need to know to make the decision?
- What information, including data and insights, do you need to make your decision and also to convince your stakeholders?
- And finally, what kind of analysis do you want to perform?
In order to perform a successful analysis, there are two important aspects to focus on: consumer preference and the competitive environment. Keeping an eye on both of these elements will help you make informed decisions that serve your customers as well as your business. So – what are the most important factors to consider when beginning your potential analysis?
For the consumer side, look at the products on Amazon that sell best, the attractive price points and where your products fit in the consumer demand. For the competitor side, look at who you are competing against especially focusing on visibility (Share of Voice, Share of Shelf) and analyze the strengths and weaknesses of the competition to determine how you can win within the category.
Of course, when evaluating your potential, a common question that arises is what is the actual size of the Amazon market? Unfortunately, while this is a hot topic, Amazon does not share any data on market volume in general and instead is a bit of a “black box” when it comes to this data. However, in the end, this information isn’t as useful as you might think. Due to Amazon’s rapid growth, whatever information you find right now will likely be irrelevant in a year’s time as you never know what might happen within the company that could cause major changes very quickly. So, what is important to focus on instead?
Current Knowledge Gaps
Our approach to understanding what is currently working in a given category can help fill in current knowledge gaps about the ways customers are shopping and products are selling on Amazon. It will help you:
- Understand what kinds of products consumers like to buy
- Understand how you product will work in an existing category and monitor over time to track changes in that category
- Understand why certain competitors are performing better
Tip: Checking the reviews can offer a lot more insight as to WHY certain products are performing well
Firstly, let’s outline the basics of how categories work on Amazon.
Top categories– the broad topic that directs shoppers to the right area, but is really meant to house other categories, not products (i.e. Home Care & Cleaning)
Middle categories– more specific categories within top categories, products may be found in these categories (i.e. Laundry Supplies)
Leaf categories– the most specific level- products are also found here, but the same product could be found in a leaf category as well as its middle category (i.e. Colour Laundry Detergent, Stain Removers, etc.)
A key metric to keep in mind throughout the analysis process is sales rank. Sales rank is the easiest method to determine how products are performing because it is updated automatically based on the sales performance hourly on Amazon.
Sales rank– The number of sales of a particular ASIN compared to the number of sales of other ASINs. It doesn’t tell you the quantity sold of a particular ASIN, but rather the relationship among ASINs
What is the importance of sales rank? The higher your sales rank, the more relevant you are on Amazon, so it is a key indicator that shows your product’s potential to grow.
When you begin your potential analysis, you first must find the correct categories to analyze and then identify the correct products that align with your own and cluster these products. Finally, you must analyze the price segments of the product clusters and focus on their sales rank.
Tip: Monitor the Sales Rank over a certain period of time to get a good idea of the average Sales Rank
Performing the Analysis: Step-by-Step
Step 1: What are the correct categories to analyze for your potential? The top category is usually not the right category to analyze as it is very broad- better to zoom in on a middle category or leaf category. The more precise your category selection, the better BUT keep a close eye on the product hierarchy as it may not be what you expect.
Amazon has its own semantics; perhaps what you think may constitute only one category, is in fact, several different categories on Amazon(and vice versa). For example, you may think there should be just one category for “Laundry Detergent” while Amazon has separate categories for white, dark, delicates, etc.
Tip: Keep in mind that categories are not MECE (mutually exclusive and collectively exhaustive) and there sometimes may be multiple categories suitable for a given product.
Step 2: Use sales rank to identify market trends.
- Which leaf category is the most important within the middle category?
Evaluate the top products, based on sales rank, in each category. Use this data to help identify which leaf categories are the most important within each middle category based on the rankings of each (ex: middle category is Laundry detergent with the leaf products ranked within the leaf categories Color and Fine Wash, White and All Wash, etc.) This will serve as an indicator of the most important leaf categories.
Next, identify a real set of relevant products by gathering the top 100 sales ranks over time and building an average sales rank (accounting for those in an incorrect category and products that aren’t true competitors).
The goal here is to look for products that would best serve as a substitute for your product.
Step 3: Cluster products. This is one of the most crucial steps as it helps you group the products based on similarities (i.e. liquid vs. powder detergent).
When creating clusters, be sure to evaluate from a consumer perspective, considering what important factors you want to use to create logical clusters. There is no right or wrong answer to this and you can use any aspect of the product style from colors and sizes, to different types or looks, depending on the item (i.e. furniture or clothing).
Once the clusters are established, identify a real substitute set, looking at how the products are distributed and then match your products to the clusters. Analyze the price segments per cluster and look at where your product falls among these price segments.
Firstly, evaluate the total price of the product in order to find the “sweet spot” also known as the market average. Then, take it one step further and evaluate the price segments per style. You may have to check a few to see which best fits your potential analysis (i.e. price per liter vs. price per kilogram), and use this to determine where the top 10 (based on sales rank) fall in terms of pricing.
Do very cheap products perform well? Very expensive? Somewhere in between? Determine what price bracket is most relevant for the category and how your product pricing falls comparatively.
Step 4: Analyze the sales cluster, price and sales rank. This is the stage where you combine the previous steps to collect real competition products with the same functionality, focus and cluster. You may even create a more specific cluster with the more valuable positions in market placement.
Evaluate everything in terms of sales rank, looking at where competitors are compared to your products. THIS is your potential to grow within the category.
Tip: Check the average market share over best seller ranks- brands in the same price segment and direct competitors to evaluate how big your growth potential is
Look at the top 10 products and determine if they are at a higher or lower price point; evaluate your product’s price accordingly
Once you’ve determined that you have a good market fit and price range, look at how you can improve the execution of your products to move them into the top 10 sales ranking.
When analyzing the competitive environment, it is important to look at the major factors including: the strengths and weaknesses of your competitors, the share of voice, and an overall understanding of the market shares.
Using the combination of visibility and search results along with some other factors will help you relate to your market shares because the more visible you are, the higher your market share.
In order to utilize your full potential, you must first evaluate how much you need to invest (i.e. in media and promotions) and perform a 360° analysis of the competition. To summarize let’s break down the analysis into four key parts:
- Measurement of visibility performance paid advertising traffic
- Analysis of organic visibility and SEO performance
- Potential Analysis for market opportunities
- Overall strengths and weaknesses evaluation of competitors (including all available data)
So, what’s next? A successful category analysis can provide you with the foundational knowledge you need to improve visibility market shares as well as content, retail, promotion and advertising, budget and return on investment that will take your products from how they are performing to how they could be performing. From here, even further improvement is possible through search term and market size evaluations.
Relevant search terms are accessible to vendors while the market size is not always easy to determine; however, visibility shares can provide a general understanding of market positioning.
At factor-a, category analysis is part of our repertoire of data products that we offer to help your Amazon business meet its full potential. Our experts specialize in these evaluations and can help you implement the findings of your category analysis to determine the most appropriate next steps for your Amazon business.
We help you build a strategy and allocate your budget in the most effective and efficient manner possible, making sure every single euro is allocated to its maximum potential purpose. This analysis combined with our expertise eliminates the guesswork and uses real data to bring your business real success. Reach your full Amazon potential now- speak to one of our experts. Contact us now!