Practical Ecommerce

Selling on Amazon: Pros and Cons

The Harry Potter franchise of ebooks will not be depending on Amazon. Author J.K. Rowling has teamed up with Sony to launch a direct outlet, called Pottermore.

If you’re in the ecommerce business, and have ambition, then perhaps like J.K. Rowling, you shouldn’t rely on Amazon. But if your ecommerce business is funding your lifestyle, and you have no great ambition to change the world, then Amazon could be an important channel for you.

This distinction is important: It’s essentially asking the age old question about your business, “Who do you want to be when you grow up?” If your ambition is large, then Amazon is not for you. If you merely want to make enough money to pay the bills each month, then it could be good. But go into it with your eyes open because you’re hitching a ride on the back of a 90-pound gorilla.

Amazon’s strategy is to focus on three core values: selection, price and convenience. It strives to offer the widest possible selection, at the best price, with the easiest repeat shopping experience. Other merchants fit into this strategy only so far as they help Amazon to offer a wider selection of products.

Every customer on Amazon has registered; you can’t buy without first registering. It views the merchant almost as an affiliate — a source of new customers — based on product selection. So a search by a new visitor for a product that Amazon doesn’t sell — which results in a sale through the merchant — means that Amazon has acquired a new customer. But having captured the customer, Amazon’s model is to drive to repeat sales, and it will relentlessly sell the whole range of its products, not yours.

Recognizing there are valid reasons to sell on Amazon, here are the three reasons that you should not sell there.

  1. Brand. Profitability in ecommerce has its roots in repeat purchases and in selling more than one product to customers. When you sell on Amazon, you are tapping into a massive potential source of traffic, but your brand is nowhere. The traffic isn’t coming to your site. You have no opportunity to upsell the visitor; that opportunity is Amazon’s.

    The trust that comes from satisfying a customer need goes to Amazon, and your brand benefits hardly at all. Customers know that a purchase on Amazon will be hassle free, and if the purchase does need to be returned, Amazon’s robust customer service process will be there to help out. Even though you might be the seller of the goods, and shipping them to the customer, the customer mindshare is Amazon’s.

  2. Customer relationship. Two thirds of Amazon’s orders come from repeat customers. Amazon is a master at building and maintaining customer relationships to get its customers to come back and buy Amazon products. Only when a customer is searching for a product that Amazon doesn’t stock will they find, or even consider, your offer because Amazon owns the customer relationship. You are specifically prohibited in the Amazon terms of service from contacting the customer if they were first acquired on Amazon.

    If you use Fulfillment by Amazon — in which Amazon does the shipping — you know nothing about the customer at all. All you see is a revenue stream. They own the data and the customer relationship.

    Amazon will compete with you, if you are successful. Amazon uses third party merchants to provide low volume specialty items it doesn’t want to hold in stock so that it can deliver maximum selection. But if your product line starts selling well, then you’ve just told Amazon which product it should stock next. That’s part of its strategy; merchants help Amazon to identify new niches and categories to enter which can be profitable. Every year Amazon has expanded into new categories — this isn’t going to change.

  3. Pricing. It’s also not cheap, and the pricing structure means that it will not work for low margin products. You’ll have to pay a subscription equivalent to approx $480 per year, plus per-transaction fees based on a share of your revenue. The per-transaction fees are typically 15 percent referral fee, which is calculated based on your selling price (excluding shipping). Fees for media products are higher with a closing fee per item as well (typically $1.35).

    So in practical terms, you need to be making 40 percent margin on products that you consider listing on Amazon. Because of this — and its scale — if Amazon decides to stock your product category, you will not be able to compete on either price or service.

Summary

Merchants that sell through Amazon complain that it’s very hard to kick the habit. If Amazon accounts for 50 percent of your business, then it is very difficult to turn off a significant revenue-producing channel. To be sure, Amazon is a good strategy for some merchants. It represents 30 percent of the ecommerce market, so listing your product on Amazon’s marketplace will get your product in front of a huge potential volume of traffic. But you need to recognize that you are merely the supplier of the product, and while it may generate a significant revenue stream, it’s not for everyone, and it’s not building your business in a sustainable way.

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Charles Nicholls
Charles Nicholls
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Comments ( 24 )

  1. Rishi Rawat August 2, 2011 Reply

    Great article. I didn’t know much about Amazon merchants. I do now.

  2. Sarco111 August 4, 2011 Reply

    There is also a labyrinth of people who interact with merchants at any given time, and they don’t all know what the other is doing. Often it seems the IT people are making the front-end decisions as well, for example, they now list a product one time, displaying some of the sellers who offer that product on the product page. They grandfathered this policy in order to co-opt the photography and copy of the most prolific and professional merchants. So the merchant who invested in professional photos and copywriters now essentially "donates" that material to help sell the product for all the other merchants, who are not obliged to do any work except upload a price.

    How to win the critical "buy box" is explained differently by each AZ employee. While it is supposed to be a combination of price and merchant feedback ratings, that does not often prove to be the case empirically. Feedback ratings were mixed up also, so that a consumer might click on Merchant XYZ’s feedback rating and wind up reading Merchant ABC’s feedback. Consumers do get confused, because as drop-shippers, service speed and quality does vary by merchant. Many consumers like the convenience of shopping at AZ but have favorite merchants within the AZ store. When a less attentive merchant ends up shipping to them, more slowly, or with more mistakes, than they expect – they will often complain to the merchant they THOUGHT they ordered from, only to find out much later that in effect a "bait and switch" occurred. AZ may believe that treating its merchants like commodities is a profitable strategy, but long term it will not.

    Microsoft is paying the price for earlier years of abuse to its channels. Once a viable alternative comes along, the migration happens quickly.

  3. 3djoe August 4, 2011 Reply

    Great story. We sell on Amazon (both seller-filled and FBA) and we’ve tried to compete against Amazon to win the "Buy Box" and we can’t do it. They undercut you every time. Selling on Amazon is challenging and you should not do it if you have low margin items OR if you sell items Amazon sells. You will end up losing money on the deal and Amazon is the only one that wins. Amazon also owns the customer data so we aren’t even allowed to market to our self-filled customers (it is against Amazon’s policy). They do generate business for you so the key is to sell items that Amazon does not sell on the site. We send smaller products to Amazon to capture all the Prime members. I know of many friends that only shop on Amazon because of the free 2-day shipping w/Prime membership. This is especially important during the holiday shopping period when folks wait until the last minute to buy gifts.

    That said, Amazon does have a product called Amazon product ads which drives traffic directly to your site. It’s way better than Google Adwords (much less expensive) and we’ve had great luck with conversions from it. That way, YOU capture the customer and can market to them since you own the data and user experience. Again, this is better for products that Amazon does not sell or if they run out then you can capture the sale.

  4. Global Hemp August 4, 2011 Reply

    After a few years of saying much the same, I’m glad to see someone else come out and tell it like it is!

    Three Additional Points:

    1. Affiliates will soon be phased out due to requirements set forth by states to force Amazon to pay state sales taxes. Amazon will put-up a big fight, but its mainly a PR move.

    2. Third-party ecommerce software providers such as our current provider, Volusion, still do not allow for Amazon-like checkout. For example, when you visit Amazon you are already logged in. Even if its been months since your last visit. Since visitors are already logged in, Amazon can make suggestions based on past product views and purchases. When you check out, all you have to do it click on "Checkout with Secure Server" button. No need to enter username (email address) and password. Most ecommerce providers still have NOT caught-up with Amazon’s use of cookies… even 10 years after their introduction! Shoppers are strangers until they login to checkout.

    3. With all the PhD’s the work at Google, I still don’t understand why they allow Amazon to OWN the 1st page of search results. My bachelor degree in Business Administration from University of Washington — non-PhD — logic is simple:

    IF all product searches performed on Google lead visitor to Amazon.

    THEN visitor will eventually cut-out middleman (Google) and perform product searched on Amazon.

    ELSE visitors will continue to visit Google to search for products, but for how much longer?

  5. frank65l August 4, 2011 Reply

    Amazon may be ok for lower cost items, but when it comes to items like i sell at 400 – 500 dollars, their rate is totally ridiculous. Taking 65 -75 percent of someones profit is just, well you know. Having to sell 3 – 4 times as many items to make up the cost of your normal profit is not smart business. Working on getting your website high in the search ranking is well worth your time. I out rate Amazon on all my high profit items and it was not that hard to do.

  6. raidx259 August 5, 2011 Reply

    Ditto on all the comments. A couple of items of interest:

    - Actually the 15% commission does apply to shipping costs as well as the cost of the item sold. Amazon knows that vendors will charge higher than normal shipping costs to escape the commissions and so they hit the entire sale with the 15%.

    - When it comes to customer service, Amazon will side with their customers almost every time. You can for example publish your policy that opened/ used items that can’t be resold are non returnable. Customers will not read your policies and want to return something you can no longer sell as new or used. You tell the customer no and they will file a claim with Amazon which will turn around and pull the money from your account. It’s your word against the customer and the Amazon values the customer more than the merchant.

    - Customer feedback is brutal. For example you sell something and charge $x for shipping. Customer apparently accepts the fully disclosed shipping fee by pressing the buy button. A couple weeks later you get a poor review fomr the customer saying your shipping fees are a rip off. You complaint to Amazon since there is an agreement between you and the customer as a result of a purchase that had all costs clearly disclosed. Amazon will deny your request to have the comment removed. They only remove customer comments when they involve 1) obscenities, 2) the entire review is a product review and 3) when they say something bad about Amazon.

    - Each product you list in Amazon has an ID number know as an ASIN. (Amazon Standard Identification Number). You might list a box of M&Ms for sale for example, but there are a dozen ASINs out there for the same box of M&Ms. Or in other words if you search for a box of M&Ms, the search will give you a dozen results, one for each ASIN. You as a merchant can list your box of M&Ms in one ASIN or in all 12. The problem is that ASINs change often. One day you’ll have your 6oz box of M&M listed in ASIN 1234, the next day Amazon for reasons that are not clear to me will delete ASIN 1234 and move your product to ASIN 5555 without notifying you. Problem comes when your 6oz box of M&M now shows as a 1lb box of M&M because that is the description of ASIN 5555. Customer makes a purchase for a 1lb box, but you really meant to list a 6oz box. You have then to either 1) explain to the customer what happened and that you can’t ship what they thought they bought or 2) ship a 1lb box and collect a sale for a 6oz box eating the loss. Might not seem like a big deal, but imagine having 10,000 products listed for sale and every day Amazon is switching 20 or 30 ASINs and not telling you what they are doing.

    Amazon is a tough venue. It requires a lot of customer service and time investment to keep your ratings up and somehow squeeze a profit at the end of the day.

  7. Sarco111 August 6, 2011 Reply

    @raidx – all said is accurate. FYI Buy.com is producing nice results of late, due to 3rd party vendors who make it easier to automate the product feed and downloads. As is the beauty of capitalism and free markets, it behooves merchants to work aggressively with alternatives to AZ, and even help emerging outlets develop more successful policies and shopping features.

    Sears.com may not be an ideal channel for some, and it could certainly use some help when it comes to ease of navigation, search, etc. but their ability to draw traffic is strong and merchants should help them capitalize on it. Sears, Buy.com and others should take advantage of this timing and reach out to merchants, asking them for input on how to build a better mousetrap. There is room for everyone in the marketplace, and more than one serious competitor (Apple v. Microsoft, anyone?) forces every player to pay attention to its own flaws.

  8. David McLean October 27, 2011 Reply

    If you are a brand or product owner, the better route will be to pursue a direct vendor-retailer relationship with Amazon. This can be incredibly daunting strategically and technically to support them, but you will significantly more successful. This strategy will fit in with a merchant strategy as well as your own store.

  9. Benjo Mujanovic March 6, 2012 Reply

    If you are a seller don’t even try to sell on Amazon. they will threat you as a trash. I am selling on Amazon from 2006, and that’s was just the 5 years of nightmare. You can’t ask questions, you can’t complain of anything. There is no support for the sellers. When you call the people from India will answer you questions

  10. josjab April 8, 2013 Reply

    Selling on amazon is good for small occasional sellers, If you have a serious business, you will end up loosing your Amazon online business and reputation. The reason is that Amazon will support only Buyers, though they survive based on the profit they earn from sellers. Out of 100 buyers, at least few will give you negative feedback or will file A-Z claim even before communicating to Sellers.

    Amazon’s Seller-Performance Team will not review anything to find out the reasons for such feedback or A-Z claim and remove your selling privilege(even if they reviewed it, they will support only Buyers),which will result closing of your business.My suggestion is read lot of reviews and articles before thinking of starting a serious business of selling via amazon. Ebay has a better policy to protect sellers than Amazon.

  11. wyatt August 28, 2013 Reply

    What are you guys talking about? Amazon is a great why to make $500-$1000 a month part time.

  12. Thuy September 8, 2013 Reply

    You can use Amasuite.
    amasuite-reviews.com

  13. Stephanie Eddy October 9, 2013 Reply

    Very interesting! And timely for me as I’ve been considering selling on Amazon. Right now we do product ads on amazon and it drives alot of traffic to our site.

  14. Gary December 12, 2013 Reply

    I am a niche manufacturer of our own brand of modest clothing with good margins on our retail sales. Besides making some money, I thought the Amazon relationship could help me grow brand awareness (through our label and hangtags) and attract buyers to shop directly on our site. Is this realistic?

    Also although suggested, do I need to sell on Amazon for the same prices that I sell on my own site?

    TIA

    • Jeremy January 2, 2014 Reply

      TIA,

      First off, it’s a definite plus having your own product, not reselling someone else’s product. While it is true, Amazon could potentially help you grow your brand, make sure you consider the costs associated with doing that. They take a pretty good cut of your profits. Not sure where your margins are, but you will lose 10-15% right off the top, aside from their monthly selling fees.

      If you package your items carefully so that people get to know your company, Amazon could be a win. One problem I have seen in the past is that people typically remember that they got their product off Amazon, not the actual manufacturer/distributor/retailer. Just remember…Amazon comes first, the actual retailer is secondary.

  15. Bill January 6, 2014 Reply

    90 lb. gorilla?

    • Charles Goin January 7, 2014 Reply

      You lose your brand and identity and if you have items that are high dollar but low margin.. then its simply not worth it.

  16. Charles Goin January 7, 2014 Reply

    I tried for 3 months, due to monthly fees, referral fees, and the fact you have to ship before your paid.. and the time between shipping and payment is over a week. It wasn’t worth it.. Add to that customer expect everything now as they THINK they are buying direct from Amazon.. But due to all that there is NO way you can compete on price, and because of the firewall they put between you and customer, customer service suffers too. Long story short not worth it for anyone with a tight margin and trying to compete on price. Same goes for eBay..

  17. Rachael Boggs February 11, 2014 Reply

    We buy and sell on Amazon and believe me, buying is much better than selling. We have had Amazon refund money for: an item the customer trashed, an item that the customer took parts from, an item that the customer “rented” and returned, etc. You get the picture. Amazon keeps your money for at least 14 days, and you may not even get what is owed you, they keep a very loose set of books and inventory. Better to go with eBay, who are not that hot but are, at least simpler. With Amazon it’s “seller beware”, Amazon will climb on your back to prove they will keep their A-Z guaranteed refund.
    Rachael

  18. July June 1, 2014 Reply

    I tried amazon before, but they don’t let you contact your costumers for future sales. I’m now using shopify http://bit.ly/EasyOnlineStor

  19. Mike June 10, 2014 Reply

    You say “If your ambition is large , then Amazon is not for you. ”

    What do you consider large?

    Thank you

  20. Amey Thakoor August 1, 2014 Reply

    Hi, I’m a Seller on Amazon. As a small seller, I was excited about Amazon Launch in India. However, Amazon for Sellers is a Nightmare.

    To tell my what happened to me. ” A customer had small issue with the product, which we said him that we would give a replacement. However, the Buyer Abhinav Anand (from Walmart labs) claimed an A-Z claim request on Amazon. The Amazon Seller panel is very confusing and we had not received any training on how to operate it.
    We get calls from Amazon Support team, if there is any unread message. But in this case, they simply refunded the amount of Rs. 13000 to the buyer deducting this amount from my account, without making a single call to us and informing about it. Now, the customer is not willing to return the product. He has got both the Rs. 13000 product also the PRODUCT, and using it for more than a month.

    Amazon surely have huge Funding in kitty, but they should not take Selllers for granted…Rs. 13000 is huge amount for sellers like us, we can’t afford to loose it.

    I want to Spread this to all sellers in India. We sell on many other portals, like ebay,etc but none have shown such Irresponsibility towards seller.

    Rs. 13000 is huge amount for sellers like us, we can’t afford to loose it. PLEASE SHARE…

  21. Tom Benken September 4, 2014 Reply

    I will be looking for selling alternatives to Amazon FBA in the future. Too many horror stories from sellers to suit me. I totally agree with your analysis.

  22. David October 29, 2014 Reply

    So this is funny really, because I just recently had to “air the dirty laundry” on whether or not it was worth it. So many people would ask me. I have gone into further detail here https://davidscarpitta.com/is-worth-it-selling-on-amazon/

    Overall it has power, but with power comes great danger and responsibility.

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