The hidden truth about selling on Amazon

With the eCommerce sector mature and in full swing, with increasingly aggressive competition, we see how more and more online stores are considering selling on Amazon. Many put their eyes on this giant marketplace as a possible escape channel to which to take their sales (Amazon seller statistics).

However, all that glitters is not gold and, today, there are many sellers who have been scalded from the "shop of stores", the Amazon marketplace.

Cropped margins, meaningless product returns, and scary fine print are some of the reasons why you should read this article before you start selling on Amazon.

In this article, our teacher and expert give you a realistic and no-nonsense vision of what it means to sell on Amazon; the good and above all, the less good and less known.

Advantages and disadvantages of selling on Amazon

Making one of these lists of advantages and disadvantages is something very simple, but this basic exercise would have also helped many of those who have jumped headlong into this marketplace to check if there was a minimum viability for their offer. So let's do the exercise here, for all of you future Amazon sellers:

Advantages of selling on Amazon

At this point, it is not very necessary to expand in terms of advantages. So, we are going to list only 4 of them:

In India alone, Amazon had a turnover of INR1,300M last year.

Half of the online sales in India go through the Marketplace.

According to Statista, in July 2017, 2,640M people visited Amazon.es. This traffic is much higher than that of other Spanish e-commerce giants such as El Corte Inglés, eBay, Aliexpress, or PCComponentes.

Amazon offers us the possibility of internationalizing: 14 marketplaces around the world spread across North and South America, Europe, and Asia-Pacific.

Added to this is simplicity. Selling with Amazon, you don't even need a website but you don't need a warehouse either. You can take care of logistics and distribution or delegate all this to Amazon through the so-called FBA (Fulfilled by Amazon) through a simple monthly fee and fully variable costs. You make a single shipment to their logistics centers and they are in charge of storing, managing the orders, and delivering the orders.

This means that many Amazon sellers have opted for FBA to put their products up for sale, but also for a kind of business that did not exist as such before this modality. It is about making a very controlled investment in high-demand products, exporting them from competitive markets such as China, Pakistan, or India, and selling them directly on the Amazon marketplace.

It does not sound very revolutionary because, after all, it is what companies have been doing for decades, what is really powerful is that it is now available to almost anyone who is capable of detecting a profitable niche with "scouting" or search tools. products like Junglescout, AMZScout, Sellics, or AmazeOwl. As you can see, the structure of a large company is not necessary.

From this, other business models have emerged such as "retail arbitration" or "private label". In arbitration, we go to a large store like Walmart and, through barcode scanning applications (Profit Bandit, Spotify, ...), we can see in real-time:

How many sales does that product have on Amazon?

at what price is it sold

What average margin do we have per sale?

What will Amazon charge us if we sell it with FBA?

How many average reviews does the competition have?

The case of the "private label" is an evolution of looking for niches. Once you have a product that sells very well, why compete with other sellers in the same product file? You create the same or very similar product with your brand and you dedicate yourself to building that brand inside and outside of Amazon. Your own product, your own ASIN (Amazon Standard Identification Number), your own product file, and your rules.

 And, as expected, now come the drawbacks of selling on Amazon.

The other side of selling on Amazon

I have already counted the positive part, but before launching yourself to sell there, it is worth taking a look at the problems it poses.

For starters, the competition is insane, with Amazon cannibalizing its own sellers. It is estimated that more than half of the products sold come from non-Amazon sellers and this has been the case for several years.

This affects us as sellers in a variety of ways, but primarily from a price and margin perspective.

With this level of competition so marked for almost any product, they invented something that they decided to call the Buy Box. This is what we could call the default seller, which is the one linked to the purchase button itself. The rest of the alternatives are below or, in the worst case, hidden just a click away.

When there are multiple competitors trying to close the sale on the same item, Amazon puts its rules into play and decides who will get your precious buy box.

Amazon is governed by the following parameters to assign the Buy Box:

• Price: this is one of the key factors, since the lower the price, the more chances of winning the Buy Box, with which the rivalry can become fierce and the margins can be reduced to the minimum expression. When we talk about price, it is for the product + shipping costs (which, to go well, should be free).
• Sales regime: the products sold by them will always prevail or at least under the FBA regime.
• Reviews and ratings: Amazon seeks the best service and product for its customers, which is why it prioritizes those with the best reviews (and penalizes those that do not reach their minimum).

And this is where it makes sense to talk about another of the big drawbacks: Amazon's rules, which they can change at their convenience. They may seem more or less fair to you, and they may even be tyrannical on many occasions, but you cannot forget that they are the owners of the platform and that they decide unilaterally about what happens on it.

If you do not reach the minimum that they decide regarding the level of service (attention to this is included in the contract that we signed with them under the heading LSA) deliver after the deadline or you have too many returns... they reserve the right to cancel your bill.

It doesn't matter if you are outraged or if you try to make them see that you really need it, they have no obligation to review the case. We are talking about the fact that with more than 3% of negative reviews about you, they can close your seller's account.

If to this feeling of living on a tightrope, we add that Amazon, in addition to being a judge and party, is a competition, because it has its own products and brands. The thing means that, at any time, they can see business in our product and start producing and selling. This is more common than you might imagine because they also have every imaginable sales and performance data.

Today, Amazon has more than 100 private brands and, practically, there is no sector left in which it has not entered to kill. Among them, we can find products such as:

• clothing
• footwear
• tents
• alkaline batteries
• furniture
• dog poop bags
• balsamic vinegar
• Bluetooth speakers
• laptop sleeves
• dumbbells
• or paper shredders

Its best-known brand is Amazon Basics. A brand forged with a strategy as simple as it is ethically questionable:

• Seller, upload the entire catalog to Amazon, we have the highest transactional traffic in the world. Boost your sales and invoice everything you can. Do not forget to upload the information of your suppliers in the catalog.
• Now that I know what is being sold and to whom (the customers are from Amazon, not yours), I am going to make it myself with your suppliers or with cheaper ones.
• Let's not forget that if a product is sold by Amazon, it will always be first in search results and in the Buy Box.

But it is not only that we are at inferiority regarding the prices or competition of the products. We are also interested in the actions that we can do with customers to increase our sales and achieve the much-valued recurrence in eCommerce. As I just mentioned, Amazon customers are yours.

It is true that in terms of marketing, the possibilities are greatly improved with the A+ pages, Amazon Stores, and its advertising platform, but there is a point that is critical in any e-commerce that is largely beyond our control: loyalty.

First of all, this is because, for the vast majority of users, buying on Amazon is just that: buying on Amazon. There is not such a clear perception of buying from a brand through Amazon. On the other hand, the platform is fully aware that the business is in recurrence, which limits communication with the end customer as much as possible and makes everything happen under their control and supervision.

Finally, we will say that, whenever there is competition, you are limiting your chances of attracting people. Who is interested in carrying out a paid marketing campaign if nobody guarantees that you will have the Buy Box? It could be the case that you are investing in recruitment, but not yours, but rather that of a direct competitor.

So would we recommend selling on Amazon?

At this point, surely the reader of the post has his own answer. There is no single way to look at it because it depends on each vendor's business model, margins, and circumstances. So I refer back to the beginning of the article and recommend doing your research and carefully weighing the pros and cons of taking this step.

In addition, we should not only take into account the points mentioned but also at what point of maturity both we and our product and competition on Amazon. If the entry barrier is very high, it is better not to jump into the pool without water. The time to enter Amazon (for many of the products/sectors) was the day before yesterday and it could end up happening to us like El Corte Inglés, which has reacted late and badly.

As of October 2018, they are offering deliveries in 2-hour slots, when Amazon Prime is already more than consolidated.

·         In March 2018, they "stand up" to the fact that Amazon does not pay taxes.

·         But in May 2018 they were offered a strategic alliance.

·         If that happens to a company like El Corte Inglés, what can't happen to a small businessman?

To finish the article, what I would like to make clear is that we are talking about a platform in which the seller is the last step and the client is the first. Between these two actors, there is not a range of grays. There is only Amazon, acting as a store owner, advertiser, manufacturer, supplier, competition... and being able to access your catalog and your (non) customers.

It is up to you to decide if this scenario benefits you or not. The business possibilities of selling on Amazon are enormous; the potential market that you can reach through Amazon is magnificent. But the risks are high.

If you decide to be there, you will need to equip yourself with the best weapons, surround yourself with the best professionals, and be very clear about the rules of the game. And in that, we can help you from E-commerce University with our tactical, practical, and to-the-point business courses on Amazon.