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 27, 2022

Global Ecommerce Weekly News: 27th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon drives renewable energy push with 71 new projects Amazon is planning to add 2.7 gigawatts of clean energy capacity through a couple of new projects as the company attempts to use 100% renewable energy by 2025. The ecommerce business will soon have a total of 329 renewable energy projects, generating 50,000 gigawatt hours of clean energy, which is equivalent to powering 4.6 million US homes every year. [Read more on Reuters](https://www.reuters.com/business/sustainable-business/amazon-drives-renewable-energy-push-with-71-new-projects-2022-09-21/) Amazon launches Prime Early Access Sale Amazon is launching a new 2-day shopping event for its Prime members only, beginning on the 11th of October. Across 15 countries, Prime customers will have access to the shopping event, with thousands of deals on offer globall, ranging from fashion to electronics to essentials. The event has the purpose of giving Prime users the chance to spread the cost of items over the winter months, 6 weeks ahead of Black Friday. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/26/prime-early-access-sale/) --- Other Marketplace News --- Shopify unveils new localisation tool Shopify is launching a new localisation tool, called Translate & Adapt, which works with Shopify Markets to offer localisation for sellers who are looking to expand into new markets. The tool translates a user’s online store into different languages, including product pages and information pages. Merchants are also able to create different shipping terms for each market using the new tool, which allows international expansion and offers a more localised consumer experience, unveiling new potential. [Read more on Ecommerce News](https://ecommercenews.eu/shopify-launches-new-localisation-tool/) Etsy is set to invest hundreds of millions into its marketing platform Etsy CEO claims that the company is on route to spend more than $570 million USD on marketing this year. Even during a time of macroeconomic pressure, inflation and rising interest rates, the company is preparing itself and its sellers for the upcoming holiday season and is focused on retaining interest from buyers. [Read more on Yahoo News](https://uk.news.yahoo.com/etsy-600-million-on-marketing-ceo-154054219.html) --- Other Ecommerce News --- Meta looks to cut costs by 10% in the coming months Meta employees are facing job redundancies as the company plans to cut its costs by 10% over the next few months. Meta reported a 22% YoY increase in costs and expenses, totalling over $20 billion USD. The cuts are expected to come in the form of job redundancies as a result of department reorganisations rather than formal layoffs. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/22/meta-to-slash-costs-by-10-over-coming-months/) DHL teams up with Quadient to offer smart locker deliveries in the UK DHL and tech company, Quadient, have partnered to offer smart lockers parcel pick-up throughout the UK. The new contactless, secure locker stations will give recipients more choice and flexibility to receive their parcels at a time and location best suited to them. The partnership plans to install 500 locker stations across the country by the end of 2022. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/21/dhl-partners-with-quadient-to-offer-smart-locker-delivery/) The online fashion market is set to be worth nearly $170 billion USD in 2025 The European online fashion retail market is set to grow 50% by 2025, with an online turnover of $170 billion USD, which is 33% of the retail branch’s total. Cross-border marketplaces prove to be the largest drivers of this growth, with online websites and apps like Vinted largely pushing the market’s online growth. Zalando recently became the largest cross-border fashion retailer/marketplace, responsible for 11.7% of the online market’s share. [Read more on Ecommerce News](https://ecommercenews.eu/online-fashion-market-worth-e175-billion-in-2025/)
Sept 22, 2022

How an Amazon SEO Agency Should Be Serving Your Brand

If you’re in the global ecommerce space, you are most likely aware of Amazon, and probably selling your products on the marketplace. With over $470 billion in sales in 2021 alone, Amazon stands as the third largest company in the world based on revenue. The ecommerce giant is a household name in the U.S. and working hard to grow its market share across five continents worldwide.

Having your products available on Amazon and being competitive there, though, are definitely two different things. If you want to really succeed on Amazon, you’ll need specialized insight into how Amazon works and how to make it work for you. So, for many brands, it’s a great idea to work with an Amazon Search Engine Optimization (SEO) agency.

At Pattern, Amazon SEO optimization service is one of our key competencies. We understand that technology, data-driven insights and expertise  are the most important tools brands can leverage to win top listing spots on digital marketplaces. With expert teams and years of experience, we help brands conquer the Profitability Death Spiral as they compete with other products and sellers online. We offer Amazon SEO agency services as a core solution to brands that need more resources to get ahead. 

What is an Amazon SEO Agency?

An Amazon SEO agency serves brands by improving their products’ rank and listing performance on Amazon. They make strategic decisions about ad spending and placement that lead to higher traffic, conversions, and revenue for ecommerce brands.

A great Amazon SEO Agency partner will:

Prioritize Your Success

Unfortunately, many Amazon SEO agencies profit in unfair ways from your brands’ perceived success based on the ROAS numbers they provide. This is done through including branded search terms in ROAS reports, which naturally skew listing performance

Let’s say, for instance, your brand is called “Annie’s” and you sell lollipops. Your brand has a very high likelihood of winning the top listing spots on Amazon for lollipop search terms that are paired with “Annie’s,” your brand name. So, SEO agencies will spend your ad money on those terms and report a very high ROAS. 

To avoid scenarios like these, it’s best to look for an agency that either calculates their profits on metrics other than your ROAS scores or weighs branded search terms differently in the performance metrics reports. Regardless of your Amazon SEO agency’s cost structure, you should align onbranded search terms before committing to a scope of work.

Provide Detailed Competitive Insight

A great indicator of a high-quality Amazon SEO agency is the level of insight they can provide into your competitors’ listing positioning and how it compares to yours. Data fanaticism is so important at Pattern that we’ve developed proprietary technology to display this exact information with precise detail for every brand we work with. In fact, you can find our free version here to see how you compare to some of your top competitors based on ASIN.

It’s certainly possible to improve your Amazon search performance with blind spending strategies. But a truly great solution will help you to know where your dollars are at their most powerful and competitive.

Reduce Your Ad Spend Over Time

Amazon’s A10 algorithm prioritizes customer satisfaction—it wants to show consumers the best products that align with their search intent to improve conversions and sales. So, the best way to gain momentum on Amazon is to work on incremental wins. 

Improving your performance on more obscure search terms that align with your customers’ search intent is a great way to increase ROAS for the long term. A10 will reward your success with better rankings on higher-volume search terms and the virtuous cycle can help you conquer your most-coveted listing spots. And the best part? This process of gaining momentum, if done right, will naturally decrease your ad spend over time as Amazon recognizes your value and works with you to keep your products at the top of consumers’ search results.

Amazon SEO Optimization and More

As an Amazon SEO specialist, Pattern knows how to help your brand win better success for long-term profitability on Amazon. With our data-driven tools and brilliant teams of ecommerce experts, we help brands with listing management, content optimization, Amazon ad strategies, and more.

Contact us to learn more about our SEO optimization services.

Sept 20, 2022

4 Ecommerce Marketplace 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.