Amazon Prime Day: Is it worth it for Sellers?

Prime Day has become a staple for Amazon Sellers and customers alike. Launched in 2015 to celebrate Amazon’s 20th anniversary, Prime Day is now a 48-hour online shopping extravaganza with a range of deals, discounts, and record-breaking global sales figures. In 2020, Prime Day sales reached an estimated $10.4bn worldwide, making it the most successful shopping event in Amazon history. 

The accepted view is that Prime Day is great for brands to acquire new customers. But we want to interrogate that perspective. Our data shows that if you are not careful, there is a risk that brands will simply provide discounts to customers who would have purchased anyway.

At Nozzle, we provide analytic services and technology to Amazon Sellers, Vendors and Agencies — helping you better understand your customers, and how to effectively drive online sales. We’ve crunched the number based on the success that our own customer had on Prime Day last year in order to help you understand whether or not Prime Day is really worth the cost.    

Note: We’ve kept all of the brands discussed here anonymous. This is in order to ensure that the competitive advantage those brands achieve working with us will remain confidential. If you want to learn more about what we (at Nozzle) can do for you, get in touch and get a free audit today.  

The problem with Prime Day

Prime Day is undoubtedly the big Day for tech deals. Amazon typically offers deep discounts on their own products (e.g. Ring, Fire Stick, or Alexa devices), stimulating all types of technology purchases. With the Amazon empire now stretching to grocery, health and personal care, beauty, fashion, beverages, and pet food — the halo is widening. 

The timing of Prime Day this year could also kick-start some summer projects, including home improvement, gardening, and interior design. Past search trends we’ve observed show the continued importance of seasonal buying patterns on Amazon — e.g. chocolate at Easter and sun loungers in the summer — something that persisted even through lockdown-related impacts Amazon searches.  

The accepted wisdom is that to benefit from this halo effect, Sellers need to run special discounts to put deals in front of customers in a buying mood. But does the data back that up? 

• What if you would have made the sales anyway? 
• Could your discounting cannibalize your repeat revenue by selling to customers who would have bought again at full price anyway?

This is a nuanced question and very much depends on:

• What category you are selling in 
• Whether you are targeting new customers or building up brand loyalty 
• A deep understanding of your target customer base.

The risk with any discount is that you eat into your profit margin without generating a direct result — just because you made a lot of sales on Prime Day is simply a correlation. In order to justify the expense of discounts, you need causal proof that you are making sales that you would have otherwise missed out on. Let’s look at who we believe are the winners and losers on Prime Day to find out more. 

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Brands that lose out on Prime Day

In order to identify Prime Day winners and losers, we want to focus on new-to-brand customers. This stat, particularly in the context of daily averages, can help benchmark the value of discounting — and Prime Day, more generally. Looking at some of the categories and data from Prime Day last year, compared to the average for the previous 12 months, gives some fascinating insight into how Prime Day can affect your sales figures.

Brands in category niches

Category niches include subcategories of a wider market. For example, vitamins and supplements or niche pet products. These tend to have a high percentage of repeat purchasers, meaning they are at risk of providing discounts to customers that would have purchased anyway. Our stats demonstrate this.  

Average Order Value (AoV) 

Average orders per Day

Average customer per Day

Vitamins

Down 25%

Up x3

Up x4

Supplements

Down 8%

Up x1.5

Up x4

Repeat orders

New-to-Brand

Vitamins

Up (from 46% to 69%)

Down (from 54% to 31%)

Supplements

Down (63% to 38%)

Up (from 38% to 62%)

While the vitamins Seller has discounted strongly (indicated by the depreciated AoV), they mostly succeeded in selling to repeat purchasers — indicated by the fact that their new-to-brand sales were lower than the 12-month average. Likely, this means they sold products to people who would make those purchases anyway but at an unnecessary and steep discount. 

On the other hand, the supplements brand has managed not to discount strongly and still increase its new-to-brand customers.

Quick selling and low price products

Low price products require less thought to purchase and generally do not benefit from discounting as much as big-ticket items. This is actually a well-understood phenomenon within promotional marketing more generally. Think about it, would you go to the same lengths in order to save $0.25 on a $1 purchase vs $25 on a $100 purchase?

The answer for most of us is no, even though from the Sellers’ perspective they are losing the same amount of margin. We’d expect to see this play out on Prime Day as well. Arguably, the previous example illustrates this point, but so do two other customers — one that sells arts and crafts, and another that sells specialty food ingredients. 

Average Order Value (AoV)

Average orders per Day

Average customer per Day

Arts & Craft

Down 9%

Up x2

Up x2.5

Ingredients

Up slightly

Up x1.25

Up x1.8

Repeat orders

New-to-Brand

Arts & Craft

Down (from 14% to 12%)

Up (from 86% to 88%)

Ingredients 

Up (31% to 47%)

Down (from 69% to 53%)

The arts and crafts Seller was clearly careful with their discounting — only seeing a marginal drop in AoV (average order value). However, this barely impacted new-to-brand customers. The ingredients provider has increased both AoV and orders during Prime Day – primarily to existing customers. This is an excellent example of holding the line when you don’t have to discount.

The answer: don’t offer discounts

For some brands, the best course of action is to simply not offer a discount. You will likely still get a bump in traffic because it’s Prime Day. But you don’t actually need to offer discounts. 

Let’s look at the pet products we alluded to earlier — from chews to pet vitamins. 

Average Order Value (AoV)

Average orders per Day

Average customer per Day

Dog chews

Up slightly

Up 39%

Up x 2.7 

Dog health

Down 5%

Up 33%

Up x 2.4

Well, that looks pretty successful — average orders increased, and average customers increased for both Sellers during Prime Day. 

By looking at the percentage split of new customers to existing customers — again comparing Prime Day with the previous twelve months — we can see that both had different outcomes.

Repeat orders

New-to-Brand

Dog chews

Up (from 46% to 69%)

Down (from 54% to 31%)

Dog health

Down (63% to 38%)

Up (from 38% to 62%)

With the dog chews brand, 69% of those who bought during Prime Day were existing customers already and would have bought anyway. 

It actually looks like the existing dog chews customers were waiting for a Prime Day discount that didn’t arrive. The average order value went up, so some clever selective discounting or bundling may have been applied. If that weren’t the case, the dog chews Seller would have simply lost future revenue due to Prime Day.

The dog vitamin brand’s AoV went down 5% during Prime Day. However, they managed to attract more new customers, which decreased the percentage of repeat orders taken. This demonstrates that Prime Day strategies must be data and customer-led, and calculated very carefully for brands that do not fit the profile of a successful Prime Day Seller. 

But that doesn’t mean everyone should take this lesson...

Brands that should engage with discounts

Though nothing is off the table when it comes to Amazon Prime Day deals, we can expect the bulk of deals to come from top brands, with Amazon focusing on exclusive sales and product launches.

If you’re serious about Amazon Prime Day sales, you should definitely be submitting your best deals for multiple products at competitive prices. Amazon will be inundated with deals on Prime Day, and you could end up with only a few of your submissions being successful. 

As we’ve addressed, some brands should avoid discounts altogether. However, there are a few types of Sellers that almost certainly stand to benefit from engaging in Prime Day strategies. 

Big-ticket brands

According to Sellics, during Amazon Prime Day 2019. sales revenue in the US increased more than the number of orders. Shoppers seem to be purchasing more expensive items. What we have seen with Prime Day trends in the past is for the Top 20 search terms to move from the more expected “headphones” and “accessories” searches to specific big-ticket items. 

For example, laptops, Apple products, and Nintendo Switch all move into the top 3. Laptops went from an average rank of 17 to number 1. If you are involved in these categories, you can’t afford to miss out.

Suggested reading: To see the breakdown of search trends for Prime Day 2020, check out our blog — Prime Day Search Trends Update.

Collectibles

An area we have noted that has success on Prime Day is collectibles. One example achieved:

• An increase in AoV
• 3x more orders 
• 3x more customers per Day

While the percentage of repeat orders increased, areas such as collectibles have the range of products to encourage new sales in other areas to existing collection-focused customers, rather than repeat buys of the same item.

One-off purchases

While differentiating yourself by more effectively targeting customers and building a brand is a strategy we believe in at Nozzle, sometimes the goal is simply to shift inventory. If your brand is driven by one-off purchases, then Prime Day is a gift.

An example we’ve seen is a nail care supplier who achieved:

• AoV up 25%
• 3x average orders per Day 
• 5x average customers per Day 
• With new-to-brand customers up 50%

A successful Prime Day — by any measure.

Understand CLV and customer acquisition is the key  

A lot will be happening on Prime Day — and there is stiff competition. You need to be selective about where you choose to focus and remember some sales opportunities last beyond events like Prime Day. The most significant metric at your disposal is Customer Lifetime Value (CLV). 

Instead of taking a transactional view of profitability, you can look to outmaneuver your competition by understanding which customers you need to focus on and, just as important, why you should focus on them. Ultimately, CLV contextualizes the value of new-to-brand customer acquisition, while benchmarking your current percentage of repeat customers. Together, this is the critical information you need to understand the importance of Prime Day and the risk associated with engaging in discount-led strategies. 

The challenge is digging into the details. Going through individual and product-level analysis requires advanced analytics to be done in real-time. Ultimately, this is not a task that can be done by hand (specifically if you want to keep the information up to date), and it’s not information provided by Amazon Brand Analytics — however, check out that link if you want more details about what ABA can deliver today.

CLV is our bread and butter at Nozzle. If you want to learn how we do it, check out our blog — Can CLV Calculations Ever Be Accurate? CLV is how we differentiate ourselves, and it’s how we can help you differentiate your brand. Fundamentally, understanding your customers can change your perspective and create advanced strategies to get the most out of any event — especially Prime Day. Get in touch if you want to learn more, and good luck with Prime Day 2021.