227 Amazon Market Research with Reed Menssa Part 1 of 3
We are talking with Reed Menssa of AZAnalyzer.com to talk about market research.
Reed worked in an oil patch in Alberta Canada as an inspector. After20 years, he was tired of being away from home in a job that was not going anywhere so he spent the last year in his job working on his Amazon business.
After that year, it became his full-time job in 2015. Leading into 2016 his business really grew and became self-sufficient. He believes in SOPs and was able to scale his business easily because he structured it well.
These tools were being used in-house to solve their own problems before they packaged them for users. A lot of the software out there today is being built by developers that have a rudimentary understanding of Amazon. You really need to have a background in Amazon to truly create a solid tool.
Using Market Research to Start on Amazon
Reed spent $10k trying to get into drug stores which were a complete failure. Had he done the market research he would have learned that there was no way to compete with the big names that can offer steep discounts.
One bit of advice Reed offers is to stay away from competition but don’t introduce a completely new concept. Look for products that have a few sellers, so you can gather data from them. You can do that by going on Kickstarter and looking for products that you know you can make better. Reed has experience in manufacturing, so he can easily beat them to market. If you’re a new seller, you might not be able to do it, but with the right help, it may be an option.
You don’t want to copy their products because obviously, you’ll run into some intellectual property issues, but you can use their product as inspiration since you can tell there is interest. You could make a peripheral for that product and have it ready for when their product launches. For example, if you find some device that is meant to be used underwater. You know when they will launch because they tell you. You know there is social proof because they have the backers. Now you can go out and create an armband people can use with that device. Look off Amazon before going on Amazon.
Using AZSocial to Validate Your Idea
If you have a concept for a product but want to see if there is anything to is, Reed uses a tool called AZSocial which is part of the AZAnalyser package. It has a research element to it where you can do the research to see who your actual customers are going to be. You can find out how they like to be talked to and, more importantly, sold to. These are the people that are going to buy your product and you can start asking them the questions you need to know.
You can then bring all the information into one spot and see if there is a product there. You can start talking to manufacturers and get their feedback. Sometimes these manufacturers are already working on the product and have some sort of prototype. They are looking for people to sell it to. If you’re first in line, you can influence a lot of the details and negotiate a great price.
Testing Product Viability
Once you have an idea of what you want, you need to make sure it’s viable. A lot of sellers want to use moment-in-time data where they take a quick look at an ASIN and determine it’s viable. You need to track it at least two weeks. AZAnalyser has a tool to help with that. It’s not intended to give you product ideas. It’s a way to justify whether your idea will be successful or not. It’ll inform you of whether you have the capital for it. It can break it down based on your risk-aversion.
Use Market Research to find Demand Depth
It’s important to determine what the demand is and where you can fit into that using market research. If you look at other sellers and find that two products have a lot of reviews, but the rest have none. That could tell you that only those two are getting many sales. If those sellers have a huge lead on you, as soon as you get started they can put so much into marketing that you won’t be able to keep up.
That brings up a good point. You must be aware of how much marketing you’ll need to sell your product. It may take three times as much money than what you spent on the product. If you spent $2000 to get your product to Amazon, it will likely take $6000 in marketing just to get it to the point where it will make you profit.
Real World Example
First off, you must account for all the extra expenses. It’s not just the cost to manufacture and ship your products. You must factor in your Amazon pro-seller account, the cost to set up an LLC or other type of company and you have to get a bank account. New sellers often overlook these details.
The next step is to talk to the manufacturer. They may quote you at a price to make the product but then you have to pay to the box, the insert it goes in, and the packing for each item. Then you next to consider lead time. You won’t be able to sell all your products before you must order a new shipment or even get all your money from Amazon. You need to account for the cost of your next order before you’ve sold out of your current inventory.
Reed has coined his own term when it comes to calculating the advertising cost. Rather than ACoS, advertising cost of sales, he uses AACoS which is the actual advertising cost of sales. This looks at the total costs compared to sales and you want to keep that around 10%. If you’re getting higher than that you’re risking slowing your cash flow.
Reed doesn’t look to reviews as an indicator of the viability of a product. Amazon is making it more and more difficult to get reviews. They are removing a ton of reviews and cracking down on unverified reviews.