Amazon offers companies of all sizes an opportunity to increase sales and grow their audience on a global scale. The e-commerce giant can easily be considered the pinnacle of today’s business success stories, holding more than 40 % market share of all U.S. e-commerce sales since 2018.
Part of the credit, of course, belongs to companies, entrepreneurs, and brands selling on Amazon. As online shopping continues to grow more and more popular, Amazon has become an increasingly attractive platform for many resellers as well. However, simply opening a sales account and selling the same products together with thousands of other companies, might not be an effective business model long-term.
Before rushing to Amazon, it is a good idea for prospective sellers to form a realistic picture of the probability a company or brand has to succeed in global e-commerce. Instead of diving in headfirst, begin by determining the suitability of your products by getting to know the standards of the marketplace and identifying your business model and its potential.
Identify your business model and its potential
1. The Reseller
Almost anyone can set up a sales account on Amazon, which means there are plenty of competitors as well. Defining your business model is an important starting point for Amazon sales, as different business models thrive, sell, and compete differently on the platform.
As an example, if you are a reseller and sell the same products with nine other competing companies, you can expect a maximum share of 10 % on product sales. If you are willing to drop your prices, you can certainly increase your share of sales, but lowering your prices will also reduce your profit from those sales. As profit margins narrow, the chances of success in e-commerce in the long run may fall short.
If you own the exclusive rights to sell a brand on Amazon as a reseller, your chances of success increase by manyfold, because only you can sell the products on Amazon.
However, few brands understand the dynamics of the Amazon marketplace well enough to be willing to restrict who is allowed to sell their products online. Lack of understanding this can result in resellers getting fewer products to sell in a shorter period of time, which is one of the risks of selling on Amazon.
In that case, resellers should be prepared to represent brands on Amazon by improving the content of their listings, ensuring that MAP / MSRP (minimum advertised price / manufacturer’s suggested retail price) prices are in place, and storing enough products for the potential demand.
2. The Private Label Seller
Over the past five years, Amazon has grown its popularity among sellers who build their brands from cheap products purchased abroad. Such vendors seek to identify product and price gaps by combining Amazon Product Reviews and sales value data for national brands, thus filling that niche market with their own new private labels.
Typically, these kinds of vendors succeed on Amazon for about six months before the products do well enough and other similar vendors start comparing them to versions of their own. This means that competing sellers sell the exact same looking product, with a different brand and possibly with a cheaper price, stealing your potential customers.
If the sellers are able to develop their product lists quickly and take advantage of products launched in the short term, they can most likely succeed reasonably well on Amazon even in the longer term. Another important factor is to keep your stock levels active, making sure you get your share from the manufacturer before competing private label sellers do.
3. The National Brand
For brands that are already well-known and have gained a national reputation, it is a good option to evaluate Amazon as a sales channel. In that case, it is very likely that customers have already tried to search for the particular brand on Amazon. If the brand is not available however, the potential buyers will quickly proceed to competitor’s site.
With the help of Amazon tools like Brand pages and Amazon advertising, national brands have an even better chance of success. The more a well-known brand gets visibility, the better the results will be. Customers are more likely to choose a well-known brand that they already trust.
4. The Brand Owners
Registering a brand on Amazon guarantees the customers a more reliable and high-class shopping experience. After a successful registration, you can also contact the Amazon Brand Registry team to report any abuse of your brand. These claims cannot be made if the brand is not registered in Amazon the brand registry.
Selling as a brand on Amazon comes with more responsibility for brand content and therefore client satisfaction. Make sure your brand is recognisable on Amazon, and invest in content as you would on other sale or marketing channels.
Note that Amazon will not directly remove illegal resellers from the online store if the product itself is legal and no harm is inflicted on the Amazon customer.
Amazon has its own internal working groups that check the legality of retailers’ products and detect counterfeit or inauthentic products. To ensure customer satisfaction, an investigation can be started based on a complaint or customer feedback.
If your brand is well known with several resellers, you should consider taking your stock out from the commingled inventory plan (which is default setting at Amazon), and sell your stock by using separate product codes.
Who will succeed and why?
If you own the brand or have negotiated exclusive sourcing relationships with control of the distribution, you have a better chance to succeed because you will not compete with other resellers in the “Buy Box”. The Buy Box is a mechanism that determines to which seller the sale will be assigned to when the ‘Add to Cart’ button is clicked.
The e-commerce giant has its own ways to guarantee sales profits, also against the Buy Box. Amazon collects data on customer search and purchase data, and only a small portion of this data ends up in the hands of sellers. This huge database gives Amazon Retail products or its private labels a leading edge when targeting the best-selling and most sought-after products that should be sold on the marketplace.
When a seller is competing head-to-head with Amazon Retail products, success is less likely because Amazon Retail products have a Buy Box advantage.
In addition, Amazon has its own pricing software that lowers the prices of its own products to match prices already lowered by competing sellers. Competing directly on the same product listings that Amazon Retail offers is unlikely to be an effective business model in the long run.
Does your sales model support your business model?
The two main options for selling products online are Vendor (wholesale) and selling directly to consumers as 3P Seller. Direct selling offers two different models for selling products: FBM (Fulfillment by Merchant) and FBA (Fulfillment by Amazon). By choosing the FBM, the seller takes control of the entire shipping, storing and handling process. By using the FBA model, all the products automatically become Amazon Prime products.
The FBA program makes it easy for brands to sell directly to customers through their own Amazon sales accounts, cutting out resellers. While Amazon allows companies to offer Hazmat products to customers, selling these products may not be profitable on Amazon due to FBA restrictions and high costs.
Hazmat products are products containing hazardous substances and materials that may present a hazard during storage, handling, or transportation because they contain flammable, pressurized, corrosive, or otherwise harmful substances. To prevent potential health and safety risks, Amazon collects information about hazardous substances from products sold on Amazon.
Can you meet the standards set by Amazon?
Amazon sets its sellers the highest standards in the industry in terms of customer satisfaction, delivery times, confirmation messages, order cancellations, and a myriad of other criteria. For example, each seller must respond to customer inquiries within 24 hours of each day of the year.
In addition, all brands are required to register the brand in the Amazon Brand Registry. Brands should also have Global Standards One-sourced Universal Product Code codes and branding for both the packaging and the physical product itself.
For many new brands selling on Amazon, it may come as a surprise that Amazon does not always respect a brand’s efforts to legitimize itself as a brand unless it has verified these product and legal characteristics.
For many businesses new to Amazon, these standards may well exceed their capacity and therefore, the marketplace may seem challenging or impossible for business. In that case, it is better to turn to the professionals: If you would like to start selling on Amazon but are unsure about the profitability or potential of your own business model, do not hesitate to contact Retime.
Retime’s experts have years of experience in Amazon sales and business. Their expert services will help you build a winning marketplace strategy that enables effective sales of your products.