Cahoot’s exclusive study with Forbes shows that many of the most successful DTC brands on Shopify let Amazon and Walmart beat them on price and delivery experience for their own products.

Companies like L’Occitane have spent millions upon millions building their sterling brands in an attempt to win and retain loyal customers. Their Shopify-powered webstores offer top-notch purchasing experiences. Their marketing is dedicated to building an image that will stand the test of time. Yet their product is more expensive and ships slower on their own store than it is on Amazon:

Source: Amazon.com, Loccitane.com; verified 12/6/21

With this price and shipping disparity, it’s unlikely that a comparison shopper would choose to buy from L’Occitane’s site. When you factor in that over half of all eCommerce searches start on Amazon, you’d better believe that Amazon is eating significantly into DTC stores’ growth.

This is no small challenge – Amazon takes a 15% referral fee on most categories, and every search on Amazon of course serves up multiple competitive options to the buyer. So not only is L’Occitane earning much less profit on each sale they do get on Amazon, but they’re also losing customers. The problem persists even when it’s 3rd party sellers listing the product on Amazon – they buy at wholesale prices, which cuts into L’Occitane’s margin compared to purchases from the DTC store. And of course, the Amazon listing pulls shoppers away from L’Occitane’s site, making it more difficult to build customer loyalty.

We don’t mean to pick on L’Occitane. In fact, Cahoot demonstrated that among a sample of popular products from 50 top Shopify brands that sell on both their own store and Amazon, Amazon is cheaper and offers faster delivery 49% of the time. When you look at the all-in price for a quickly shipped product, Amazon beats the brands in all cases but one.

In this guide, we’ll dive deep into how brands can manage competition between their DTC stores and marketplaces. First, we’ll establish the stakes – why does this matter, and how much does it cost brands? Then, we’ll dive into the data itself and a case study to bring the challenge to life. Finally, and most importantly, we’ll provide a primer on how brands can fight back to boost their critical DTC channel’s growth.

The “15%” referral fee of $4.95 actually is almost 25% of the item’s $25 price tag, because Amazon adds additional fees before calculating their final take. So, if the seller’s margin was a strong 35% before the fee, it’s cut all the way down to 10%.

This issue persists even if it’s a 3rd party reselling the product on a marketplace, and not the brand itself managing the listing. The reason is simple – the reseller buys the product either at a wholesale price or at a retail discount, and then re-lists on the marketplace. So, the per-unit margin is still lower for the brand

If you’re wondering how these fees compare to those on Shopify, check out this comprehensive review article on Shopify Plans & Pricing from our friends at Rush.

Lost Customer Data

One of the most valuable pieces of a sale isn’t the money, but the customer’s email. Without customer data, you can’t target them with marketing, and you can’t build loyalty. And that loyalty is incredibly valuable – the Harvard Business Review reports that just a 5% increase in customer retention rates increases profits by 25% to 95%. Not to mention, acquiring a new customer costs five to twenty-five times as much as retaining an existing one.

Shopify provides sellers with a detailed break-down of how to maximize customer lifetime value, and it suggests simple yet effective tools such as a customer loyalty program.

Source: Shopify.com

If your prospective customer buys your product on a marketplace instead of your webstore, you won’t get the chance to include them in value-maximizing programs like a loyalty program, and you’ll have to spend marketing dollars to try to acquire them all over again. Considering that a “good” LTV/CAC ratio is 3:1 in eCommerce, that means you’ll have to spend a third of the total potential value of that customer a second time, erasing a huge amount of the profit you could have earned.

No Chance to Upsell or Cross Sell

Top eCommerce platforms like Shopify and BigCommerce offer many apps to upsell or cross sell a customer to increase order value and thus profit. You have a much stronger opportunity to get more out of every visitor to your store than you do to get the most out of someone who’s considering your product on a marketplace. Sure, Amazon has features like “People Also Bought”, but it isn’t limited to your products and thus can drag customers away from you just as readily as it can win a bigger purchase.

Contrast that with an app like Zipify’s One Click Upsell, available on Shopify. This and other apps create a custom upsell and/or cross sell experience for your web store, ensuring that it’s the best possible quality and in line with your strategic vision.

Source: Zipify One Click Upsell

Each time your customer price checks your DTC store on a marketplace and finds a better offer there, you lose an opportunity to expand their cart with your products and maximize order value

Lost Custom Unboxing Experience

Last but not least, orders fulfilled by marketplaces will ship in the marketplace’s boxes, so they reap the marketing rewards while the brand loses a chance to further cement customer loyalty.

Custom boxes drive value in a few key ways:

1. Marketing on outside of the box
2. Curated unboxing experience delights customers to increase repeat rate
3. Customer unboxing testimonials are great for social selling
4. Custom boxes can include inserts that reinforce upsell, cross sell, and brand loyalty initiatives

This key opportunity to create a customer for life is lost when Amazon gets the order.

The Data: Shopify vs Amazon & Walmart

Now that you understand what’s at stake, I’m sure you’re interested to know why exactly marketplaces win over DTC sites.

We compared the price of flagship products for 50 top Shopify brands on their own webstore to the price of the same exact products on Amazon and Walmart. The degree to which Amazon and Walmart have superior offers surprised us.

Our methodology was simple – we searched Shopify stores and marketplaces for identical products from the list of top Shopify brands, and when both the DTC store and a marketplace had an identical product, we made a direct comparison. Not all brands had products listed on marketplaces – of the 50, 29 had identical products listed on Amazon, and 24 had identical products listed on Walmart.

Right off the bat, the marketplaces offer better prices for identical products most of the time. When you look at the final sale price, which includes the cost of the cheapest possible shipping option, 59% of the Shopify stores we researched have worse prices for identical goods than Amazon. 58% have worse prices than Walmart. It’s not a small gap, either – in each comparison, the DTC store is over 25% more expensive than the marketplace.

Source: Cahoot original research

It would be bad enough if the gap ended there, but it doesn’t. In addition to costing more, the Shopify web stores also often ship those identical products more slowly than the marketplaces. In this comparison, the marketplace matters – Amazon’s famed Prime program helps it ship faster than most DTC stores. On the other hand, Walmart usually ships at the same speed as the DTC comparisons, or more slowly.

Source: Cahoot original research

On top of that, shipping is free for both marketplaces. The average shipping cost for the Shopify stores is a whopping $7.61.

Finally, let’s say that a customer needs a package shipped to them quickly. If they pick Amazon, of course they’ll get that order within two days for no extra cost thanks to Prime. If they need to pay for expedited shipping from a Shopify store, though, they’ll end up paying through the roof.

Source: Cahoot original research

The average cost of fast shipping for the products we evaluated was $27.39, and if selected, it added a whopping 36% to the final sales price.

Now, remember that nine out of ten online shoppers comparison shop between DTC web stores and Amazon. They pull up the identical product on the brand’s website and a marketplace, and they’re likely to find that the marketplace offers a cheaper product that will arrive more quickly. And that’s the reason brands lose out to marketplaces online.

Want to see the detailed view? We also have a store-by-store comparison of the Shopify price vs the Amazon price for identical products.

This first chart compares the total DTC website price to the Amazon price for identical products with standard shipping. 

• Green bars show brands whose DTC store product price is less than 90% of Amazon’s price
• Yellow bars show brands with products between 90% – 110% of Amazon’s price
• Red bars show brands that have products in their DTC store that are more than 110% of Amazon’s price

You already know the outcome, but it’s striking to see the detail. Only a few brands can beat Amazon’s price by 10% or better, while nearly half are more than 10% more expensive. And of course, they’re nearly all shipping more slowly than Amazon.

Next, we took a look at the same price comparison between Shopify store products and their listings on Amazon, but we set the shipping speed for both to “fast”.

Only a single brand, Morphe, offers a better price than Amazon while shipping in 1-3 days. Two more, Rhone and Leesa, are within 10% of Amazon’s price. Every single other brand is more than 10% more expensive than Amazon, and many are over 50% more expensive!

There’s simply no comparison here – Amazon decisively wins on critical aspects of eCommerce.

Case Study: L’Occitane

L’Occitane offers an excellent example of the benefits and challenges of selling on a DTC website. Founded in 1976 by Olivier Baussan, it was named for the women of Occitania – a region that existed in the Middle Ages in the south of France and whose language still survives today. 

They have a beautiful website built with Shopify, and in fact it’s doing quite well – their online sales grew 69.2% YoY for the fiscal year ending in March ‘21, and they compensated for most, but not all of physical sales lost from stores closed due to COVID.

While strong, their results could be even better. Indeed, we like this case study because it underscores that even strong online sellers fall prey to marketplaces.

If Amazon and Walmart weren’t undercutting them on price and beating them on shipping speed, could online sales growth have completely offset store sales declines?

Benefits of Selling on a Shopify Site

L’Occitane’s success online is no mystery – they do most things right. 

Right off the bat, they provide an appealing offer in exchange for a visitor’s email address. Think back to the huge value of repeat customers – they know that the single most important thing that they can do is get an email so that they can build loyalty.

Source: loccitane.com, 12/6/21

They build on this with an excellent home page that ticks off many best practices for webstore design. Their hero steers customers towards what they’re most likely looking for (in this case, holiday gifts). They have value-added visuals that help the visitor envision the products and what they’ll be buying. Last but not least, they have the all-important “Cookie bar” at the bottom of the page, which prompts the visitor to accept tracking cookies.

Source: loccitane.com, 12/6/21

Thanks to changes in web privacy laws, sites now have to ask for opt-ins for users to allow their behavior on the site to be tracked by a cookie. You might be surprised by how often this works; one study in Europe, which implemented the practice before America, found that 95% of users express consent, versus just 5% who refuse cookies. Together with an email address, this enables L’Occitane to follow up with the visitor and build customer lifetime value.

L’Occitane also aggressively pursues upsells and cross sells with special offers.

Source: loccitane.com, 12/6/21

The above offers are a perfect case study in upsell and cross sell. On the left, the “Little Wonders” kit induces customers to increase the size of their cart in exchange for a “free” gift. On the right, the “Holiday Shea Butter Duo Set” encourages customers to buy an extra product along with their existing cart.

Amidst these best practices, though, lies one glaring fault: shoppers can get a better deal for L’Occitane products on marketplaces. As we noted before, nine out of ten online shoppers check DTC store prices on marketplaces before they buy. So before the email capture and before the upsell, customers will see that they can save money and get the product faster by buying elsewhere. How many online shoppers does L’Occitane lose to this very dynamic?

How Amazon and Walmart Still Win

It’s simple – marketplaces beat L’Occitane on price and shipping.

We’ve checked L’Occitane’s offer for its 8.4 Oz Verbena Body Lotion consistently over 2H 2021 against the same product listing on Walmart and Amazon, and it consistently falls short. 

Up front, L’Occitane’s list price of $29.50 matches that of Amazon, while it trails Walmart’s $55.50 for a 2-pack (or $27.75 each). That doesn’t seem so bad on the surface – after all, it matches Amazon’s price and is only beaten by Walmart’s price because Walmart is offering a volume discount.

Move on to checkout, though, and things change. On loccitane.com, the shopper is hit by a whopping $4.95 shipping fee, while of course on Walmart and Amazon shipping is free. So L’Occitane’s Shopify store price is 16% higher than Amazon’s.

Source: loccitane.com, 12/6/21

Adding onto the price woes, shipping is also faster on the marketplaces than it is on L’Occitane’s site. L’Occitane offers standard shipping, with delivery estimates usually between 5-8 days. Walmart’s shipping estimates three-day delivery, while Amazon Prime promises next-day delivery. If you’re a loyal customer, and you want it faster from L’Occitane’s site, you’ll have to pay a huge $27.99 for expedited 2-3 day shipping. So, you can nearly double the price of the item, and it will still show up slower than Amazon’s free shipping.

Source: amazon.com, 12/6/21

Better price, faster shipping – how many customers have made this exact same calculation and bounced away from L’Occitane’s site in favor of a marketplace?

How Brands Can Fight Back

Brands can’t keep up because for them, fast shipping means expensive shipping.

The only way a merchant can affordably power fast shipping for their products is to adopt a distributed fulfillment model, like that of Amazon. Their famed distribution network now has close to 100 locations across the United States, and they strategically place inventory in multiple locations across the country. No matter where a customer is, Amazon has the product nearby.

Historically, merchants simply haven’t been able to adopt Amazon-like distributed fulfillment short of using Fulfilled by Amazon. If a merchant wants to do it themselves, then they need 4-5 locations to cover the whole country with 2-day shipping, and 10+ for 1-day shipping. That’s out of reach for all but the largest enterprises – and even large merchants are struggling to find warehouse space and labor to power their delivery networks today.

On the other hand, most 3PLs weren’t designed with eCommerce in mind, and so they struggle to provide affordable fast shipping for their clients. 66% of 3PLs in the United States have fewer than 3 warehouses, which isn’t enough even for 2-day shipping. So if a merchant signs up with one 3PL, they’ll have to expedite orders to cover the country with fast shipping. Alternatively, they might sign up with multiple 3PLs and try to stitch them together with complex OMS integrations. This overhead-intensive solution puts a band-aid on the issue, and it comes with high complexity, high failure rates, and high costs.

To level the playing field with Amazon, merchants need a modern fulfillment network that was designed for the rigors of fast & free eCommerce. The best modern networks will have 10 or more locations across the country, user-friendly software, native integrations with major eCommerce platforms and marketplaces, and more. They’ve been designed purposefully to power merchants’ growth with affordable fast shipping across all channels.

If you’d like to learn more about what to look for in a fulfillment provider, here’s a primer on how to choose the right 3PL for your Shopify store. And when you’re ready to evaluate competitors, here’s a 3PL RFP template that will help you make the right choice.

Cahoot’s fulfillment network is built for eCommerce. We’ll level the playing field with Amazon with affordable 1- and 2-day shipping – right on your DTC store. 

Our innovative peer-to-peer model offers low-cost, fast fulfillment by design. We’re changing the industry by empowering merchants with excess warehouse space and resources to provide high-quality order fulfillment to other merchants. As a result, our pricing is typically lower than that of other top providers listed above, but we can beat them on fulfillment speed and reliability.

If you’d like to find out how Cahoot can help your business, please get in touch with us. We can’t wait for you to join our community and fight back against the big marketplaces.