Wondering If You Should Sell on Amazon? Consider These Pros and Cons
As a small business owner, you of course want to extend your reach to as many consumers as possible. Selling online is one of the first steps a brand could take towards building awareness on a global scale. Now, that may start with your own branded website but what about your other options? Do you sell on Etsy? eBay? Shopify?
For many business owners, the answer is a no-brainer: Amazon.
Last year, Amazon.com generated over $46.37 billion USD in e-commerce sales, beating out retail giants like Walmart and even Apple all while solidifying its position as one of the most valuable brands worldwide.
Regardless, you may be wondering whether Amazon is the right place for your products. To help you out, we’ve divvied up all the facts into two firm camps: the pros and the cons – and turned them into a handy infographic for you to refer back to!
Pro: You now have access to Amazon’s massive consumer base
Amazon boasts more than 310 million active customer accounts worldwide. During a survey conducted in April of last year, 79 percent of respondents who started their “online shopping journey” on Amazon stated they did so because of the variety of products offered on the shopping platform. This lets you know two things: that the vast majority of consumers are accessing the platform for their shopping needs (41 percent of internet users, in fact) and that those consumers probably include your target demographic.
We recently spoke to Greg Liberman, Co-founder of kitchenware brand, Shape+Store, to get his thoughts on the Amazon experience. He agreed that, as a new business owner, Amazon provides a very tempting proposal. “From the get go we were considering Amazon,” he explains. “Amazon carries massive weight as a retailer in the U.S.
“It’s a great way to get product into customers’ hands without a lot of the traditional time, resources, and effort involved. That’s very tempting, especially for startups who maybe don’t have a lot of connections in traditional brick and mortar retail, but do want to get their product out there and visible. Generally, it’s been a very positive experience for us, and we’ve found it a great way to expose the product to the buying public.”
Pro: Amazon comes with built-in consumer trust
We talk a lot about how trust has become a new form of currency for today’s consumers. Amazon customers – especially Prime members – have come to expect a level of (fast!) service from the e-tailer. As a new business, if you’re unsure you can promise that, it might be better to set yourself up with someone who can.
“I want my customers to like their experience and to keep coming back,” Greg states. “Amazon is a part of that strategy […] They’re consistent and always ship the product quickly. And then they follow up […] And that review process I can see. I know, based on those reviews, that the customers are very happy with their Amazon buying experience. Almost one hundred percent of all feedback is positive.”
Like many other business owners currently selling on Amazon, Greg takes solace in the fact that he can point consumers straight to Amazon, knowing the degree of confidence that they wouldn’t necessarily have from a website that they’ve never heard of before.
“That’s huge. And I think it’s a big reason for their success. Because they’re able to provide that consistent, highly competitive, huge breadth of service.”
Pro: The “Flywheel” Effect
“The number one [pro of selling on Amazon] is the exposure and the sheer volume of sales that you can gain by being successful on Amazon,” remarks Greg during our phone call. That coveted exposure is a direct result of Amazon’s core strategy: The “flywheel” effect.
At the center of Amazon’s flywheel is the customer’s experience. The e-commerce giant believes that if they provide a remarkable experience, the result will be an increase in traffic to their website, and ultimately, sales volume. This strategy, Greg points out, is built into Amazon’s algorithms and he urges sellers on amazon to position their products accordingly. “Getting your product on their flywheel means gaining momentum through sales. Sale volumes increase, you get eyeballs on your product, people start buying it, Amazon’s algorithm picks up on that and starts presenting it [to more people]. It’s like a snowball that starts to move. And once that happens, it just keeps going.”
Getting yourself on the flywheel may take some time and effort, but in the end, it’s all about the basics. “There’s the obvious stuff like setting up your page with your product on the site in a way that’s attractive to your audience. [There is also] keywords for [search engine optimization]. Amazon has resources as well, such as Amazon Marketing Services and they’re quite effective.”
Keep in mind that you’re setting up a page in a marketplace alongside hundreds of thousands of other businesses. You need to stand out to play the game.
One (perhaps surprising) benefit of selling on Amazon is that it may help get you in good with brick and mortar retailers. Amidst the somber prophecies harkening the so-called death of retail, retailers are seeking out new ways to attract customers and discovering new brands. “If you’re trying to get into brick and mortar or any other retail channel, the first thing those buyers are going to do is type your product name into Amazon and see what comes up,” warns Greg. “It’s important to make sure, if you do have a product that you’re trying to get onto store shelves, that it’s positioned well on Amazon. These retailers may have their own niche [and subsequently looking for craft brands to stock]. Yes, they may be worried about Amazon, but they may be able to compete just fine against them as well. So they want to see how a potential product does there.”
Con: Amazon is not always set up for small businesses
While the flywheel effect can provide a much needed boon in sales to an upstart brand, it can prove to be disastrous if the proper logistics aren’t sorted out beforehand. “Once that flywheel starts turning, it turns faster and faster and faster,” Greg describes. “You start selling more and more product until you runs out of inventory or some other event prevents you from [continuing to sell]. It’s an amazing eye opener when you’re selling at a certain rate over a period of a few months and all of the sudden you’ve burned all of your inventory within a twenty-four hour period.
“That cycle of fast burning momentum and then the crash [that comes with an] inventory stock out is, as it turns out, both a positive and a negative. We’ve been trying hard to avoid that kind of thing from happening, but it’s a different – there is no steady state.”
When running out of inventory isn’t a concern, there’s the issue of fulfilment and all that comes with it.
“If you’re set up on Amazon as a vendor directly, you have to be setup to ship to every individual customer in the entire country that places an order, and then deal with the customer service on those orders,” says Lauren Haimelin, E-Commerce Buyer at A.I. Friedman.
Lauren, who is an advocate for small business owners selling on Amazon via third-party retailers rather than going it alone also adds that, “Third-party sellers make up the majority of Amazon sellers and account for more than half of all Amazon sales. Amazon trusts us; we have a proven above-average seller rating and we are priority managers of listings, giving us a privilege to correct, maintain, fix and change listings at any time. If a vendor sells on Amazon as a professional seller through their own account, they put themselves in direct competition to us third-party sellers. Also, sales of product that have few sellers [meaning you’re the only one selling your items] are unattractive to Amazon customers anyway.”
Greg mitigates that risk by selling on the platform through a variety of channels. “I sell to Wayfair as well as directly to Amazon,” he explains. “They buy [my products] and resell it. And I’m also on FBA [Fulfilled by Amazon], so I’m competing against myself with my own product.”
Con: Sometimes the numbers just don’t add up
The time and resources needed to keep up with orders is one thing, but as Lauren points out, the costs associated with selling on Amazon can be off-putting as well. “If you’re shipping directly to customers across the country, you’re shipping from your business to a residential address and you’re paying your costs for the goods. You’re also paying a 15-20% (or greater) listing fee, depending on the item, and then you’re also going to have to pay the shipping, so it really cuts down on your margin.
“If your cost is $4, it’s going to cost $9 minimum to ship across to a residential address and then Amazon’s going to charge you 20% of the $20. You’re already at $16 and you’re making $4 on that order.”
There are additional costs to take into consideration as well. For example, if you choose to fulfill orders from your warehouse (rather than FBA), the shipping costs will make pricing unattractive to customers (who, as we’ve mentioned, have come to expect free and fast shipping), thereby diminishing your sales.
Con: Limited control of your own business at times
With so many different avenues available to sell on Amazon, it can be difficult to navigate which ones are best for your brand. Even successful sellers like Shape+Store come into problems. “We decided to go and become a vetted central seller. We made that decision just over a year ago,” explains Greg. However, since the change, he fears there may have been some pitfalls with that decision. Namely because, from his experience, Vendor Central and FBA compete for business. But that’s not all, “As far as I’ve come across so far, the algorithm will define what that price is. When we were making that decision and talking to [other business owners], it was with some trepidation.
“Let’s say a brand typically sells a product for $20. And maybe they have a 25 percent margin. Often times we were reading that Amazon would all of the sudden decide, ‘Nope. We’re going to sell this product below their cost.’ Now you have a product out there on Amazon, the biggest online marketplace in the United States, that’s selling below your cost. And of course, that would offend any other retailers you may be doing business with.”
It seems brands must be vigilant not to allow for things that may result in the dilution of their brand. Why might something like this even happen on Amazon?
It all goes back to the flywheel. If Customer Experience is at the core, that means all decisions begin with the consumer. And unfortunately for brand, that is sometimes to their detriment.
As CNBC reports, a deluge of Chinese merchants in the last few years has caused a swell in imitation products to the detriment of brands, both big and small. Back in 2013, Amazon saw the loss of health and wellness brand, Johnson & Johnson over similar complaints.
Illegitimate sellers are consistently usurping sales with below-the-belt tactics, like paying for reviews and taking advantage of unfortunate loopholes found within Amazon’s logistics system. This unregulated side of Amazon leaves little room for a brand’s growth as the line becomes blurred between what’s an authentic product and what’s not (in the eyes of the consumer).
While the marketplace infrastructure has many advantages, it’s important to remember that it can cut both ways. Marketplaces don’t exist to help you, but to help themselves. They want the focus to be on the products, not the sellers. And that means they might restrict the degree to which you can brand your presence, communicate with customers, dictate what items you can and cannot sell, and so on.
Additionally, there’s nothing to stop marketplace owners—in the case of Amazon, Sears, and so on—from going around third-party sellers, identifying popular products, and stocking them themselves.
TL;DR? Check out our infographic of the pros and cons below!
Follow her at @D_isforDayana