Americans love Amazon. A recent NPR/Marist poll found that nearly two-thirds of Americans say they’ve bought something on the marketplace. But for retail brands, the relationship with Amazon is more complicated. Price wars, counterfeits and other grey-market goods loom large, threatening the value and identity they’ve worked so hard to build.
As the CEO of a retail analytics firm, I can tell you selling on Amazon is a boon for some brands, and an all-out bust for others. It’s enticing to become an Amazon seller and gain access to 200 million new customers in under an hour, but it’s not for everyone.
So what types of brands should sell on the marketplace, and what challenges will they face? Here is your guide.
General Merchandise Reseller
A general merchandise reseller sources products from many manufacturers and distributors, aiming to make a profit by selling a wide range of products. While flexibility is king in this model, there are almost zero barriers to entry. This means anyone can copy you, source the same products, and compete with you on price.
If you’re a general merchandise reseller and choose to sell on Amazon, you’ll face fierce price wars on individual SKUs. The key to success is to be flexible with your inventory. We’ve seen far too many resellers get emotionally attached to certain brands of products, only to get frustrated when competition on those SKUs increases.
Retail Arbitrage Seller
Retail arbitrage sellers buy products at retail prices in one channel, and resell these items in another channel in hopes of making money. This business model also has few barriers to entry, but few have succeeded in scaling it to make the big bucks. While we can all buy an item at Walmart and sell it on Amazon, it’s cumbersome to do with 100,000 items at once.
If you’re a retail arbitrage seller and choose to sell on Amazon, you’ll undoubtedly face this scaling challenge. The key to success is sophisticated software and speed to acquire the right products at the right time, and turn them around quickly at a profit.
Exclusive resellers have sole rights to sell a particular brand or product. In theory, there should be no competition under this model. But in reality, the model often falls apart because a brand doesn’t have full control of its distribution.
If you’re an exclusive reseller and choose to sell on Amazon, you’ll face unauthorized sellers, counterfeits and other grey market goods that threaten your competitive advantage. The key to success is a Minimum Advertised Price (MAP) policy. A MAP policy sets the lowest price for which a specific product or service can be publicly displayed. Brands put these policies in place to not only protect themselves, but also any exclusive resellers they have an agreement with.
Heads of e-commerce and wholesale often describe policing grey market goods as pushing a rock up a hill. It’s difficult, time-consuming work – but if they let the rock go, it will definitely crush the house (their brand). Automation is key to making this critical process easier. Automated MAP compliance software can scan for infractions and help catch unauthorized sellers and goods before they damage a brand.
Private-label sellers set up their own brands, preferably with a U.S.-registered trademark, brand name and dedicated Universal Product Codes (UPCs), and find manufacturers to make items for them. This is quickly becoming the preferred model for many sellers, leading to intense competition. Unless the private-label product features a design patent or another hard-to-copy feature, it’s likely there will be perfectly good substitutes on Amazon.
If you’re a private-label seller and choose to sell on Amazon, you’ll face constant headaches from sellers offering counterfeit products on the same listings. The key to success is to constantly evolve your product category, and quickly launch and drive traffic to new product listings. With more than 400 million products in the Amazon catalog, it’s possible that some mom and pop shops don’t even know they’re selling counterfeits.
Selling on Amazon can sound great on paper, but it’s not for everyone. In choosing to join the marketplace, brands are committing to constant monitoring and maintenance of their pricing, inventory and competition. The situation is getting even more complicated, as Amazon diversifies its own business, creating new channels for growth and grief.
My advice in a soundbite? Choose wisely.
Wiser collects and analyzes online and offline data for brands, retailers and other organizations.