Amazon is an e-commerce site that has millions of members and billions in revenue every year. Partnering with this site to sell your own goods can be an easy way to grow the presence of your business. Price, convenience, and selection are the primary points of emphasis that Amazon focuses its strategy upon. If your business helps to diversify the site, then your products will be proudly offered. If not, then you could find yourself being treated like an unproductive affiliate.
If you’re thinking about putting your products online for sale, then here is a look at the pros and cons of selling on Amazon.
What Are the Pros of Selling on Amazon?
The primary benefit that is received by selling on Amazon is instant brand recognition. People know what Amazon is and know how the site works. This gives someone the chance to have access to a large amount of traffic without needing to build their own brand. Amazon does the promotion work and you do the fulfillment work, creating a system of mutual profitability.
1. A huge customer base is an understatement when it comes to Amazon access.
There are over 250 million people actively shopping on Amazon. There is no way for any small business to have access to that size of a customer base on any given day. Even if a small business has a solid global presence, they’ll be lucky to have 1% of the customer size that Amazon has. It’s an easy way to begin building a profitable business venture.
2. Amazon provides vendors with instant credibility.
Customers may not be comfortable purchasing something from a small business with whom they have no relationship. Because Amazon processes the payments and distributes the money to its vendors, consumers have more confidence to purchase items from someone new. The trust that someone has with Amazon gives a business instant credibility, which provides the chance for new business opportunities.
3. There is a tremendous level of infrastructure.
Amazon has built into their site numerous supports that businesses need today. This even includes the collection of sales taxes when appropriate. Tracking how much money came in from sales tax through an online transaction can be very difficult for vendors to do. Many states require taxes to be collected based on the zip code of the buyer. On Amazon’s platform, this is all taken care of for the vendor.
4. Customer service issues are handled internally.
You don’t have to worry about an irate customer calling you in the middle of the night if something happens to their order. Amazon handles any customer service issues that come in regarding your product, processes the returns, and handles order fulfillment. It even makes it easier for businesses to ship their products internationally.
5. There is a built-in system for referrals.
Amazon has a massive cache of data on their members based on their viewing histories, purchasing histories, and reviews that they leave. This system provides referrals to customers when they log into the site that allows for your products to be displayed even when they’re not initially shopping for it. Not only do your items get shown on the customer’s home page, but they are sometimes even displayed within other product listings.
6. You get to take advantage of Amazon’s affiliate program.
Affiliates of Amazon can link any product on the site to their own site. This allows affiliates to refer vendor products, which means you get all of the advantages of an affiliate program with none of the work. You’ll still end up paying a percentage of your sale to the affiliate, but you don’t have the headache of handling payments or customer service issues with the program.
7. There are very rarely any technical issues.
The uptime of Amazon is nothing short of phenomenal. No matter which country or region is being represented, the site is always there and always available. This means you won’t have to worry about downtime affecting your bottom line when trying to sell online. You don’t have to pay the high fees for the extra 9’s in the uptime percentages either, which could save you thousands of dollars per year if you were to represent your products on your own site.
What Are the Cons of Selling on Amazon?
The primary disadvantage of selling on Amazon is the fact that there is no real opportunity to upsell customers through the site. Amazon gets the opportunity to recommend other products and those products may not be your own. Since brand recognition and repetitive customers are the key to a profitable business, you don’t get as many options to expand revenue as you would if the products were on your own site.
1. It is difficult to build personal relationships.
Did you know that 2 out of every 3 sales that happens on Amazon every day comes from a repeat customer? When your business is selling items on Amazon, you might get to tap into the brand recognition of this e-commerce giant, but you’re not tapping into customer relationships. Customers are coming to Amazon to purchase from Amazon. They aren’t coming to purchase from you.
2. You become an Amazon market tester.
Amazon wants to have a large variety of products that can be offered. The site likes to have third party vendors stocking and shipping low priority items because it is cheaper for them to allow you to provide this service. If your products start selling well, however, you’ve just proven to Amazon that there’s a market for what you’ve got. If your item isn’t patented, then you’ll find this e-commerce giant directly competing with you and that often means going out of business.
3. It’s all about volume pricing.
It isn’t cheap to be on Amazon. It is about $500 per year to have a vendor subscription and you’ve got to pay transaction fees with every purchase. In the affiliate program, Amazon pays up to 7% for people to generate a sale for the site. In the vendor program, you may be asked to provide 15% of the sale as a fee, with a minimum that is often $1. Media product fees are even higher than this. This means your margins typically need to be above 40% for there to be any chance to make money, limiting what you can actually put onto the site.
4. You have no control of how other vendors act.
In a local marketplace, new businesses are encouraged to provide competitive pricing so that the quality of the product becomes the deciding factor. In the online marketplace, price tends to be the deciding factor. Vendors will often undercut pricing and take a lower commission just so they can get a sale. The problem with this is that it leads to a race to the bottom of a price scale where ultimately no one is making any money.
5. There is no way to capture consumer information.
You don’t gain access to your customer’s email address or any other personal information besides maybe a shipping address. This makes it difficult to approach customers with additional marketing efforts that may create extra sales opportunities. You could collect addresses for a direct mail approach, but because there are multiple zip codes and locations involved, bulk rates are difficult to obtain so the costs are often not worth the risk.
6. There is a lot of competition for similar products.
If you’re reselling something from a manufacturer, there’s a good chance that someone already has that product online at Amazon. Even if you’re selling used items, there will still be vendors likely representing the same product. Because there is so much competition and little individual brand awareness, it can be next to impossible to get your foot in the door. You get a name, the price, and whatever your shipping costs may be in a single line that a consumer is required to click in order to find.
7. There are no controls over product reviews.
Although many Amazon customers self-regulate the reviews that are left, there are many who will review items based on their perceptions or feelings rather than the facts. If the shipping company delays delivery by one day, outside of your control, you’ll still likely to be dinged a star or two [or three or 4] on the review. Negative reviews can influence product purchases and ultimately affect how well you sell and there’s no control over this. It is for this reason that some vendors attempt to purchase or encourage positive reviews.
The pros and cons of Amazon show that the opportunity presented can be a profitable one, but may not be suitable for large businesses. If you want to grow your own brand and want scalability, then becoming an Amazon vendor may not be right for you. If you’re looking for some extra cash to pay bills and have your needs met, however, then this e-commerce site may be just the opportunity you’ve been looking to find.