Are you thinking about using Amazon to further you eCommerce aims?
The platform certainly has some great benefits, not least its position as the go-to online destination for almost any product. For this reason alone, selling on Amazon can offer sellers a huge opportunity to increase their sales.
But what are the costs of doing so?
1: Increased Competition
Amazon’s mission statement states:
“Our vision is to be the earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.”
And part of “customer-centric” is means lowest price – since consumers will always prefer a to pay less.
Amazon ensures that its customers receive a low price by attempting to attract as many sellers as possible. The company even has a department, Amazon Services, dedicated to enticing potential sellers.
So, even though Amazon can boast an incredible 244 million active users, it also has over two million sellers worldwide. In fact, sellers now account for over 40 percent of the total units sold on the platform. And this means that competition can be fierce.
Moreover, since Amazon is constantly seeking to attract more sellers, the level of competition is only going to increase. And this means that margins will come down.
How to avoid it:
In order to avoid seeing your margins coming down, focus on:
- Niche products: Use Amazon to sell niche products. Read our post 3 Great Niches to Start Your Ecommerce Store to learn more.
- Exclusive product sourcing: Develop relationship with manufacturers. Work on these relationships in order to gain exclusive rights to sell the product.
- Private label branding: Sell third-party products under your own brand. This will allow you to sell products you may not be able to produce yourself.
2: Decreased Traffic to Your Site
Amazon wants you to be successful.
Let’s rephrase that: Amazon wants you to be successful selling ON Amazon. Full Stop.
This means that, as soon as you set up as an Amazon seller, you are effectively in competition with your own site.
How does your Amazon store compete with your own site?
This is a problem because Amazon bids on Google keywords that it believes will push your Amazon operation to the top of Google. And this is a problem because these are probably the very same keywords that you’re bidding on yourself.
One of the upshots of this is that you may see a decrease in traffic to your own site. And, bearing the aforementioned problem of competition in mind, this may be where you’re able to sell your products with the highest markup.
You may also find yourself in a position whereby you’re paying more for the keywords that you were already bidding on. Not good.
Of course, stores which sell generic goods will not really notice the effect of this – since Amazon already bidding on keywords for generic items. But those selling specialist or niche goods may really feel the impact of this.
How to avoid it:
In order to avoid these problems, it may be worth trying to differentiate your own store from your Amazon one:
- Split the products: you sell between the two – with cheaper ones available on Amazon, and more expensive ones on your own site.
- Rename products: try to name your products differently, and use different product descriptions. This should allow you to minimise cannibalising your own traffic.
3: Difficulty Forging Lasting Customer Relations
If you are selling on amazon you are treated as a third-party seller. This means that any customers you make on Amazon will be treated as Amazon customers.
And you aren’t allowed to market to them after they’ve made a purchase, making building lasting relationships with your customers very difficult.
Moreover, even if you manage to impress a customer who’s come through Amazon, they aren’t likely to make a repeat purchase. This is because of the way the Amazon marketplace is set up. For one thing, they are likely to buy into the Amazon brand rather than your own. For another, they are likely to purchase from whichever seller is the “buy-box” winner at that moment.
However, competition for the “buy-box” only occurs when more than one seller offers the same product.
How to avoid it?
This reinforces the point made above – that selling niche products is your best bet on Amazon. And, if you’re the only (or one of a few) sellers offering a certain item, you may even be able to brand the product itself or its packaging. This may allow you to claw back some of the branding Amazon has taken from you.
4: Getting Trapped
You never want to become too dependent on any external marketplaces.
The most obvious reason is that, if that marketplace goes down, so do you. Granted, this is unlikely to happen to Amazon. Still, being too tied to the platform can lead to other problems.
As stated above, Amazon is a consumer-orientated. This means that they want to offer their customers the best possible experience. For companies that are overly-dependent on the platform, this means having to go along with all of Amazon’s plans and developments. And one of these is to promote healthy competition. But whilst this is good for consumers, it can mean lower profits for you.
How to avoid it:
There aren’t many platforms that offer sellers such a large potential customer base. Still, in order not to get too close to the company.
- Keep and maintain your own website;
- Diversify platforms you sell to. Read our Top 7 eCommerce Platforms for your Business to learn more.
What other problems do Amazon sellers face? If you can think of anything we’ve missed, let us know with a comment.