Should You Sell on Amazon?
When you think about large marketplaces, the first site that comes to mind is Amazon. Selling on Amazon has its benefits; being most dominant site in the B2C space, 74% of U.S. consumers begin their product searches on the large marketplace platform. Plus, they have a global network of sites, like Amazon.ca and Amazon.ae.
Aside from selling on Amazon, your other options are to use your own ecommerce site, or your own marketplace. Let’s explore the pros and cons of all the options and determine the right choice for you.
Challenges of selling on large marketplaces
On large marketplaces like Amazon, you don’t own the customer. Even if you get the email address of the customer as part of the order, you cannot use it to market to them. Make sure you read the terms and conditions of the seller agreement in detail. Amazon enforces this by making orders randomly on seller sites to test your responsiveness, but also to ensure that you never use that customer information in any marketing. Not owning the customer is the first big negative.
Another huge obstacle is that 82% of the sales on Amazon go to the seller that is in the Buy Box. Remember, multiple sellers sell the same product as you. This brings up the next disadvantage: you are selling only on price. You can’t develop your brand, and there is little to no information about you on the ‘storefront’ other than your seller name.
The next drawback is that if you are not using Fulfillment by Amazon (FBA) — their warehousing and shipping service — and another seller is, they will be in the Buy Box, and you will get almost no sales. Amazon takes a commission of up to 17% depending on the category of goods you sell, and FBA can add another 35% once all fees are added. We spoke to a seller of hair care products, and he reported that sales of his $9 shampoo returned him $4.50 after commission and FBA — and this was a very large company with large volumes.
The last negative is that Amazon can compete with you by creating the same product. If you’ve spotted a trend, and determined what features make your product sell, Amazon can easily replicate your product. There is nothing in the seller agreement that says they won’t compete with you — and, of course, their product will be in the Buy Box.
When large marketplaces are beneficial?
Despite the risks of selling on Amazon, it can be a great tool when you’re just starting out. You can put a card in your shipping box to encourage customers to purchase from you directly. For those direct sales, you would not have to pay high commissions. However, unless you offer unique extensions to your product that are not on Amazon, not all customers will want to buy from you. The convenience of purchasing from Amazon is a strong incentive to buyers.
We believe an omnichannel strategy is the best solution. This involves offering a limited selection of goods on large marketplaces, and keeping the bulk of your goods on your site. Never putting your hottest products on Amazon is the safest choice.