What Is the Profitability Flywheel? 3 Steps to Boost Ecommerce Sales & Profit

John LeBaron

September 30, 2020

Earlier this month, we taught you about the Profitability Death Spiral, the vicious cycle brands fall into when they decide to focus on revenue at all costs. A slip into the Death Spiral starts with wide distribution and leads to businesses losing control of their brand online and watching their prices erode as bad players undercut other sellers to get ahead.

At its worst, the Profitability Death Spiral creates channel conflict that damages your relationship with other sellers, it siphons your profits, it leads to your products CRaPing out on Amazon, and it may even prompt Amazon to shut down your account. The Death Spiral is a death knell for your ecommerce business.

Price Erosion Over Time from Unauthorized Sellers on Ecommerce | Pattern

True to its name, the Profitability Death Spiral will eat into your business over and over again until actionable steps are taken to end it. The good news is there’s a strategic solution that can effectively stop the Death Spiral in its tracks and get you back on top again. We like to call it the Profitability Flywheel.

What is the Profitability Flywheel?

The Profitability Flywheel is a series of strategic maneuvers that take your ecommerce business from dysfunctional to a well-oiled machine. In our work with nearly 100 different consumer brands across myriad marketplaces, countries, and selling categories, we’ve found that focusing on three specific maneuvers—selective distribution, stabilized pricing, and seller expertise—is key to creating a Profitability Flywheel that gets you out of the Profitability Death Spiral.

Here’s where it all starts.

1. Selective distribution

Think about all of the car dealerships in your city and where they’re located. Now think about a single car brand. Let’s say Honda. Imagine what would happen if Honda put all of their dealerships on the same block instead of geographically spreading them out. For one thing, that would be an excessive amount of Hondas chilling out in the same spot, but more importantly, each dealership would be forced to compete primarily on price to get anybody to consider buying their cars.

Selective Distribution for Ecommerce to Grow Profit & Sales | Pattern

This same scenario happens on ecommerce channels every single day. Because consumers can easily compare prices across channels on their smartphones—think of ecommerce like a virtual cluster of Honda dealerships on the same block—the seller with the lowest price is the one getting the sale. The more sellers you have for your product, the more incentive there is to lower prices to stay ahead, and once a price drops in this kind of environment, the race to the top becomes a feeding frenzy where your margins are the meal. That’s how the Death Spiral starts.

The best way to avoid price-based competition is to limit your distribution on ecommerce marketplaces. Choose as few sellers as possible—the ideal is to pick just one—and make sure those sellers are committed to following your pricing policy. This will give you the control you need to stop price erosion, pull yourself out of the Death Spiral, and take back control of your brand online.

2. Stabilized pricing

Beyond limiting your distribution, another thing you can and should do to escape the Death Spiral is level the playing field with online pricing.

Set up a MAP policy and brand guidelines and make sure they’re enforced so your sellers know who’s boss. Track violators and remove them from your distribution list with the help of a legal partner if they won’t comply—even one violator can cause a lot of damage to your pricing. Data from Pattern’s Predict omnichannel ecommerce software can inform and empower you to take action on your own sellers before the problem grows out of control.

3. Seller expertise

It’s not enough to limit the distributors you work with. You also want to make sure those you do work with make caring, aligned, and intelligent partners.

When you’re selecting a distributor to partner with, be picky enough to find someone who’s as devoted to your brand’s success as you are. Look for a partner that has the expertise to double down on investments in content, advertising, customer service, and more so that your customers have a consistent, quality experience with your brand that makes them want to come back.

Selective distribution combined with seller expertise can help your brand regain lost Buy Box sales because you’re no longer competing against unauthorized sellers. You’ll also be able to offer better customer experiences that lead to higher conversion rates, better reviews, and more profitable sales that help your business grow and thrive in the long-term. That’s the key to defeating the Death Spiral: focusing on growth overtime instead of the ravenous rush for profit now.

How the Profitability Flywheel works

All of these maneuvers make up the grease that gets the Profitability Flywheel moving. Selective distribution leads to price stability. Price stability leads to leverage with retailers, and leverage with retailers leads to better brick-and-mortar performance, more control of your brand, and ultimately, investment in your customers in a way that grows your business.

How the Profitability Flywheel for Ecommerce Works to Grow Sales and Control Online | Pattern

When you have control over your brand online and limit your partnerships to sellers who bring their expertise to the table, you’re able to be more efficient in ad spend, make concentrated investments in your content and SEO customer service, own the Buy Box, and continue growing in a way that’s healthy and lasting.

That is the Profitability Flywheel, and while it isn’t the quick fix to increased revenue, it’s by and large the best fix for sustainable growth and profitability.

Profitability Flywheel success stories from Pattern brands

The Profitability Flywheel can have major impact for ecommerce brands wanting to grow revenue and increase brand control. Here are success stories from 3 Pattern brands in their own words.

INTEGRATIVE THERAPEUTICS: 39% REVENUE GROWTH IN 1 YEAR

“Prior to Pattern, we had two individuals spending a lot of time on ecommerce and not making much progress. Going to the next step of making Pattern our sole Amazon reseller was critical to achieve the control we ultimately needed and have been able to maintain. They treat our brand as if it was their own and not only empower us through data to enforce our MAP policy, but take into account every aspect of quality management, ensuring it is of the highest level. We trust them with our brand.” — Mandy Kraynik, VP of Innovation, Integrative Therapeutics

PURE ENCAPSULATIONS: 400% REVENUE GROWTH OVER 4 YEARS

“We implemented an omnichannel legal framework for distribution control, authorized reseller enforcement, and MAP policy, and consolidated our online channel to one exclusive 3P Amazon seller (Pattern) and fewer than 10 preferred non-Amazon e-retailers. Pure Encapsulations has grown 4x since 2016, and has become the #4 VMS brand overall and #1 professional brand on Amazon. MAP compliance is consistently 100% online, resulting in improved wholesale and retail margins.” — Adam Branfman, E-Business Director, Professional Brands at Atrium Innovations

SPECTRA BABY: 73% AVG. MONTHLY REVENUE INCREASE DURING 1ST YEAR

“In the beginning, we were selling directly to Amazon, which was a big mistake because then our pricing strategy went nowhere. We decided that we were going to go with a 3P company like Pattern. It wasn’t shortly after that where all the doors that we were knocking on at big box retailers took a look at Spectra because when people are looking at pricing and looking at brand, they go to Amazon first, and the stories that Pattern helped us create within our product line really helped us get to our goals.” — Chris Mayhew, Spectra Baby USA Sales Executive

Here at Pattern, we have the data and expertise to help companies regain control of their brand online. Our unique approach to ecommerce with the aid of our specialized Predict software helps brands assess where their weak spots are, create a strategy for success, and focus on profitable growth, not just revenue, so they can find sustainable expansion across ecommerce channels.

For a free, comprehensive analysis of your brand across ecommerce that can help your profitability grow, reach out at hello@pattern.com, schedule a demo below, or call us at 888-881-7576.

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Sept 26, 2022

Top 5 Ways to Prepare for Peak with Google Ads

Peak season is almost upon us and with all signs pointing to it starting earlier than ever, with Christmas gifting searches now ramping up in August and September, it’s time to start preparing for peak. In this article, we’re sharing our top five tips for planning and preparing for peak season with Google Ads and the strategies required to get your Paid Search ready so you can drive success over this crucial period.

1. Go Early

In 2021, gifting search terms started increasing in popularity in August. The general trend is that people are looking, researching and weighing their options early, so it’s best to start your Paid activity early to ensure that you’re capturing that early research traffic. This will help drive revenue alongside aiding those consumers who are in their research phase.

From 2020 to 2021, spend during Cyber Week actually only rose 2% but in the weeks leading up to it, it increased by 16%. However, Cyber Week is still the biggest period during the latter half of the year, accounting for 23% of all online spend by consumers over peak. Being prepared and starting early will help you to maximise your time during this period.

2. Get Ready for Privacy Changes

 According to Google, 48% of global consumers have stopped buying or using a service due to privacy concerns. Privacy is front of mind when consumers are shopping online and we know that Google is phasing out 3rd party cookies in 2023. This is going to make it much harder to track users online and it’s something that brands need to think about this now – waiting isn’t an option.

From a Google Ads point of view, you want to ensure you have set up the Google Ads tag across your site and have enabled ‘Enhanced Conversions’, which ensures all conversions are tracked and allows you to monitor other actions such as ‘Add to Cart.’ This is relatively easy to set up, especially if you use ‘Google Tag Manager’.

It’s also vitally important that you build up your first-party data during this time as this is data you own and it can be used when targeting consumers that have provided your brand with their email address. Pattern’s own experience shows that by segmenting and using first-party data, you can see a 10% improvement in revenue and ROI.

3. Ensure Consumers Can Discover your Brand

A full-funnel approach is now more important than ever as consumers become more discerning and have more choices than ever of where to shop.

Pattern has seen success with Google Ads’ ‘Discovery Campaigns’ (image-based ads that appear on Google platforms such as Gmail and the Google app), which have driven success both from a traffic and revenue perspective.

The performance of these campaigns is significantly enhanced by adopting a segmented and nuanced approach to first-party data and incorporating these into your campaigns. Other options for a full-funnel approach include YouTube and testing bidding on keywords that are more representative of the research phase. (e.g. ‘best baby clothes’ for a baby clothes brand)

4. Get Moving with Performance Max

Earlier this year, Google announced that they were moving away from Smart Shopping and launched Performance Max. This is a new campaign type that incorporates features and placements from Smart Shopping but expands them onto other platforms such as Gmail but also alternative creative options, such as images and videos.

Since Google has already started automatically upgrading Smart Shopping campaigns to Performance Max, expect to see some fluctuations in the first 2 weeks following the switch over but results generally seem positive. We recommend upgrading sooner rather than later to limit any potential impact to peak period.

5. Flight Budgets Accordingly

Peak period will be even more competitive than in 2021 and you’ll need your budgets to support this period, we recommend boosting budgets in October to start capturing that early peak traffic. As we enter November and the Cyber Period, start early and make sure you are capturing those consumers looking for early bargains, ensuring you are being nimble in your optimisations and reacting to the data that you are seeing.

Overall, peak period is vital to help drive your sales and by preparing early, you will see strong results and drive success for your brand. If you want to discuss how your brand can navigate this next peak period, contact us to discuss your options with our performance team now.

Sept 20, 2022

4 Ecommerce Consultant Must-Haves

Entering the ecommerce landscape is a huge undertaking for any brand—it usually requires a large investment in resources and expertise to really be successful. Any brand can quickly get in over their heads trying to navigate the nuances of SEO, fulfillment and logistics, distribution control, listing optimization, and meeting the numerous other requirements and administrative tasks to show up well on marketplaces. 

Unfortunately, because it’s so easy for third party, gray market, and unauthorized sellers to obtain and sell products online, many brands find themselves pressured to execute an ecommerce plan without the right resources to succeed on marketplaces and their other channels.

So, for brands looking to enter the ecommerce space or improve their current and future performance, it makes sense to partner with an ecommerce consultant.

Pattern’s global presence and proven success with hundreds of brands has allowed us to develop highly effective ecommerce consulting services. We can guide your brand to navigate issues both large and small in marketplaces worldwide. To maximize your ecommerce efforts, you’ll need to understand what an ecommerce consultant does and how to select one who drives the right value for your brand and products. 

What is an Ecommerce Consultant?

An ecommerce consultant is a specialist in the ecommerce space who can give you personalized guidance on how to market your products and grow their presence on digital marketplaces.

An ecommerce consultant should be able to analyze your brand, audience, category, opportunity, and current roadblocks and help you understand how to utilize your resources (or what resources are missing) to be most effective in capturing your opportunities in the ecommerce space.

Not sure how to evaluate a consultant? Here are 4 key attributes to look for as you make your choice.

1. Brand Obsession/Specialization/Passion

At Pattern, we prioritize brand obsession for a reason—we know that a brand-centered mindset makes a crucial difference in the outcomes and results our partners achieve. So in our experience, when you begin your search for an ecommerce consultant, it’s important to look for a partner who is specialized in ecommerce, invested in the product, and passionate about helping brands build and improve their strategies. Typically, this means finding someone that consults exclusively for ecommerce marketplaces, rather than choosing a consultant who offers many different services. 

2. Proven Results

It’s also important to avoid choosing a consulting partner who can’t deliver the right experience for your brand. The best indication of whether your potential consultant can do that is to review their history, data, and results with other brands. Ask if they’ve helped others in your selling category, if they’ve solved specific issues your brand is facing, and why they feel you are a good fit. The key is to leave the conversation feeling confident that you understand your consultants’ capabilities and whether or not they match up with your needs.

3. Wide Range of Marketplace Expertise

It’s best to pick a consultant who knows how to guide a brand onto and through multiple marketplaces worldwide. You’ll want to take a look at your long-term strategy and think about the regions and platforms you’re currently on and where you might want to take your brand in the future. If your consultant is truly great at what they do, they’ll be able to help you perform well enough with your current product roadmap that it’ll be a no-brainer to expand your presence at the right time.

4. Network of Resources

The most effective partnership with an ecommerce consultant will be able to give you both recommendations and point you to solutions for making those changes in your planning, processes, and execution. Your time and money is valuable, so you want to make sure that you’re spending it as efficiently as possible as you follow your consultant’s advice. So, before you commit to an ecommerce consultant, ask about the resources and concrete solutions they typically recommend to the brands they work with.

Achieve Your Ecommerce Goals With Pattern

Finding an ecommerce consultant that checks the boxes can be a difficult task. At Pattern, our entire focus and drive centers around giving brands the tools and resources they need to succeed on domestic and international ecommerce marketplaces. 

With over 100 global ecommerce consultants across 10 global offices, we have the right tools to partner with brands across the world to achieve better ecommerce success. We give specialized advice, then make sure our partners have all the adequate SEO, social media, CRM, Amazon multi-channel fulfillment services, and ecommerce outsourcing services they need.

Interested in ecommerce consulting services? Set up a call here to learn what Pattern can do for your brand on global marketplaces.

Sept 20, 2022

Global Ecommerce Weekly News: 20th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon to raise pay and add extra work benefits for delivery drivers Following the rise in fuel prices and protests by Amazon workers, the ecommerce giant is raising its delivery drivers’ pay and adding more work benefits. Amazon has mentioned that it will be investing $450 million into rate increases along with an education program and a Delivery Service Partners program. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/14/amazon-to-raise-delivery-drivers-pay-and-add-more-work-benefits/) Amazon announces it will give away shipping software to merchants at no cost Amazon has recently announced that it will be giving ecommerce merchants free software to manage shopper orders on and off its platform as it extends its reach. The ecommerce giant will be ending monthly costs for sellers using Veeqo, a shipping software it recently acquired and instead offer to them a new, free shipping software. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/16/amazon-to-give-away-shipping-software-to-merchants/) --- Other Marketplace News --- Walmart unveils new virtual fitting rooms In an effort to drive clothing sales, Walmart has launched virtual fitting rooms while competitors reduce spending amid the cost of living crisis. The virtual try-on tool can be used by Walmart customers to virtually measure the clothing items and see how the products would look on them. Shoppers will now be able to see how over 270,000 clothing items on Walmart’s ecommerce site would look on their bodies. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/15/walmart-launches-virtual-fitting-rooms-to-drive-clothing-sales/?utmsource=Retail+Gazette+Subscribers&utmcampaign=2da7f0f8f8-EMAILCAMPAIGN202209150742&utmmedium=email&utmterm=0d23e2768b6-2da7f0f8f8-61040615) THG slashes sales and profit expectations The Hut Group has slashed its forecasts for 2022 as rising interest rates, inflation and energy costs take a toll on consumers. Previously, THG estimated its sales growth to be between 22-25% but after a recent evaluation, has lowered this prediction to between 10-15%. Initial predictions did not take into account the negative effects of ceasing sales in Russia and Ukraine along with the impact that the cost-of-living has had on consumer spending. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/15/thg-slashes-forecast-as-cost-of-living-crisis-hits-consumers-wallets/) --- Other Ecommerce News --- DHL and Post Office team up to provide click and collect services Through a partnership between delivery company, DHL and Post Office, a new click and collect service is to be tested at Post Offices before rolling out to over 1000 branches across the UK. Online shoppers will now have the option of choosing their local Post Office as a collection point, and DHL will fulfil the delivery aspect, opening up networks for both parties. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/14/post-office-partners-with-dhl-express-to-provide-click-and-collect-services/) US consumer watchdog plans to further regulate the BNPL sector The US Consumer Financial Protection Bureau (CFPB) has raised concerns regarding the collection of consumer data and the fast-growing nature of the BNPL sector, which includes companies such as Affirm and Klarna. The CFPB is worried that these companies could be negatively impacting consumers’ financial health and aims to put better regulations in place to ensure consumers are safe and empowered. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/16/us-consumer-watchdog-to-start-regulating-bnpl-sector/) Japanese ecommerce market estimated to grow by 6.9% in 2022 The ecommerce market in Japan, largely dominated by domestic online retailers including Reakuten and Mercari, is set to reach $194.3 billion USD in 2022, after seeing an annual compound growth rate of 5.2% between 2018 and 2021. This makes Japan the fourth leading ecommerce market globally, following China, the US, and the UK. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/13/japan-ecommerce-market-to-grow-by-6-9-in-2022/) Ecommerce brands are spending more on TikTok ads TikTok may soon be surpassing Facebook and Google as the most lucrative advertising channel, with ecommerce brands spending 60% more on TikTok ads in Q2. Facebook is still ahead as the top choice for ecommerce advertisers but only grew by 5.6% from Q1, while Google grew 20.5% in Q2, and Snap declined 10.8% in Q2. [Read more on SearchEngineLand](https://searchengineland.com/ecommerce-brands-spent-60-more-on-tiktok-ads-in-q2-387876)