4 Drawbacks of Selling on Amazon (and How to Overcome Them)

Amazon Japan

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

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:

  1. Niche products: Use Amazon to sell niche products. Read our post 3 Great Niches to Start Your Ecommerce Store to learn more.
  2. Exclusive product sourcing: Develop relationship with manufacturers. Work on these relationships in order to gain exclusive rights to sell the product.
  3. 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

decreased_traffic

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

communication difficulties

 

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

wire trap

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.

What other problems do Amazon sellers face? If you can think of anything we’ve missed, let us know with a comment.

This Post Has 7 Comments

  1. Pingback: Guide to Customer Reviews for Ecommerce Sellers - ParcelBright Blog

  2. Somen Chatterjee

    Can you have a separate affiliate program for a product which you have already listed in Amazon? Do let me know. Thanks.

    1. Jimmy Kwok

      Yes, you can. You can simply build your own store front and redirect customer to Amazon to purchase your product and earn a commission from that. Hope this helps. Thanks 🙂

      1. Somen Chatterjee

        Thanks Jimmy. I guess I should be a bit clear about the query. As an affiliate, you do have an option to create your own store and direct customers to the amazon from your store to earn a commission. This is fine. What if, I as a product owner having my product listed on Amazon (say, US), use another affiliate program (self hosted) for promoting the same product. So, you will now offer 2 options to your affiliates – a) they can remain an Amazon affiliate and promote the product by sending them to the Amazon store, or, b) become your direct affiliate and send buyers to your own payment gateway. Does Amazon allow this? Let me know. Thanks.

        1. Jimmy Kwok

          There is no contradiction between if you would like to run your own affiliates program and offering Amazon affiliate program at the same time. However, like you said, if you are planning to run your own affiliate program, the checkout/ payment processing will have to be run by yourself as well. Otherwise, it is impossible to track sales as Amazon will not provide the necessary data for you to determine where the sales are coming from. Hope this helps.

          1. Somen Chatterjee

            Thanks Jimmy. It is absolutely correct. Amazon does not share data with its vendors. So you CAN have a self-managed program as well as list your product in Amazon. If this possible, then there is some light at the end of the tunnel :). Thanks.

          2. Somen Chatterjee

            Thanks Jimmy. I will review the service. Cheers!

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