It’s a tricky question, to say the least.
On the business-to-consumer side, 55% of product searches begin on Amazon, according to research firm Survata Inc. Business purchasers are beginning to exhibit the same behavior, according the manufacturers and distributors my colleagues and I have been working with. In other words, Amazon is where a huge chunk of your customers head when they’re thinking about making a purchase. For that reason alone, you might think it’s a no-brainer to partner with Amazon.
But on the flipside, when you sell your products on Amazon, you give the company a significant percentage of every sale. Depending on the specific products you offer, you’re likely to end up paying Amazon anywhere between 8% and 15% on each transaction. Some product categories command even higher rates, up to 45%.
On top of that, sales on Amazon are “blind,” as shoppers complete their purchases directly on Amazon, not with you. So while you may generate some revenue, Amazon gets a customer.
Still, a large percentage of Amazon’s shipments are products that are owned and sold by others. Third-party merchants are responsible for many of the SKUs sold on the e-commerce platform, according to a study by financial management and research firm Robert W. Baird Co. Inc. Amazon’s business model is still highly reliant on merchant-provided assortment, and the company is constantly innovating to make it easier for sellers to manage orders through their platform.
When faced with their e-commerce options, sellers face a conundrum. Sell on Amazon, and you get access to the enormous (and growing) Amazon customer base, and drive brand awareness. But you can’t directly re-market to customers buying your products through Amazon. You don’t ”own” the customer.
Some companies choose not to sell on the platform due to fear they are teaching Amazon their business. By selling as a marketplace merchant, these companies believe they may be enabling Amazon to become a highly capable future competitor by providing sales, market, and customer data—all without Amazon needing to take any inventory risk.
Should your business hop onto Amazon to take advantage of the sheer number of customers there? Or are you better off sticking to other marketplaces and your own selling channels for fear of Amazon deciding to compete directly against you?
Defining the Beast
Amazon accounted for 60% of the online sales growth in the United States last year, according to Forrester Research Inc. Quite simply, Amazon is huge. The company also recently revealed it has shifted from targeting just consumers, and now has a strong B2B presence as well.
Should you join the party? As a business owner, manufacturer, or distributor, there is no single, right answer. The correct path for you will depend on your product and its strengths and weaknesses, your risk tolerance, and your willingness to invest resources into managing selling on Amazon. If you’re not sure if you should hop on board, here are some questions you’ll want to consider:
- Do you have a product that stands on its own? To be differentiated on Amazon (or any marketplace, for that matter), your products need to be strong enough, and have enough unique user benefits, so that customers understand they’re buying something that is yours—not Amazon’s. You don’t have an opportunity to differentiate based on service or experience when selling through Amazon, so the more your product and its benefits are clear on their own, the better positioned you are to take advantage of the brand building opportunities of selling through this channel. If you control the manufacturing of the product (and are, therefore, the “sole source”), this puts you further in the driver’s seat to leverage Amazon’s power to expand sales and brand recognition.
- How commoditized is your product? If you are selling something that is identical or very similar to products from other companies, including from Amazon itself, or your differentiation is something other than your product itself (e.g. service or support), you will have a harder time using Amazon to build long-term business value. This would also be the case if you differentiate from your competitors by focusing on things other than products, such as customer service or tech support. Instead, you may see a spike in near-term sales, likely at a lower profit margin than other channels, and risk becoming ”addicted” to revenue that doesn’t help to build value in your enterprise.
- Are you willing to risk becoming dependent on Amazon? If you sell on Amazon, you will quickly find out that you don’t control the channel. While you can control your visibility to some degree with best practices such as optimizing your product data feed and proactively managing your orders, you are still not in ultimate control. Is your product going to show up in the “Buy Box” or search results? Or will your competitors’ products end up there? You run the risk of becoming dependent on Amazon for significant portions of your revenue, which could increase overall risk to your business.
- Do you have enough resources? You need to understand and be ready to cover the expenses for managing product information, order flow, shipping updates, marketing activities, and other overhead to effectively sell on Amazon, and to meet their very strict performance guidelines for customer service.
These questions aside, there can be enormous growth potential on the revenue side when you work with Amazon. A well-managed presence on the marketplace is a proven channel that many brands have used to drive revenue and expand brand awareness.
Remember that nearly half of customers begin their product searches on Amazon: Many consumers simply expect great products to be on Amazon. It acts as a sort of brand validation. If your product is not found there, how serious of a merchant are you?
If it makes sense for your company, by all means hop on the Amazon bandwagon. But don’t expect with certainty that partnering with the e-commerce juggernaut will drive long-term company value. Do your due diligence and weigh your options, and consider Amazon as a component of a healthy overall marketing mix. Launch a trial run if you’re unsure
Don’t let Amazon scare you, but don’t think it’ll automatically save you either. Just know that if the ingredients add up for your business, a presence on Amazon may very well help your business reach the next level.
Brian Beck is senior vice president of e-commerce and omnichannel strategy at Guidance, an e-commerce design and development agency. Follow him on Twitter @briansalaubeck and on LinkedIn.Favorite