Amazon Prime Day, billed as the “biggest shopping event ever,” has come and gone. Along with the reported 100 million products that were sold over the course of the 36-hour sales event that ended July 18, over $1 billion in sales were credited to small and medium-sized businesses listing products on Amazon Marketplace.
According to Jeff Bezo’s 2018 letter to Amazon shareholders more than 300,000 U.S.-based small and medium-sized businesses (SMBs) sell through its Marketplace service. Marketplace is how third-party companies can partner with Amazon to list and sell products there, with the option of using Amazon to fulfill customer orders as well. Bezos reported that in 2017 more than half of all units sold on Amazon worldwide were from its third-party Marketplace sellers.
With Amazon boasting 100 million thoroughly committed Prime customers, and numerous studies finding that more than half of all product searches start on Amazon.com, it is no wonder that so many small and mid-sized businesses have turned to it to find new customers. But is Amazon a good, reliable partner for SMBs to do business with, especially now that President Donald Trump is calling Amazon public enemy number one for small business?
I canvased a group of SMBs that are doing or have done business on Amazon Marketplace to get their expert opinion about the pros and cons of doing business with Amazon. Here’s what they shared:
Pro: It’s fairly easy to get started on Amazon Marketplace
Getting launched as a seller on Amazon is straight forward, but easier in some categories than others where prospective sellers must be approved and meet specific selling requirements. “Amazon makes it easy to reach a large consumer base at scale and gives you the tools and infrastructure needed to do so,” says David Heacock, CEO of FilterBuy which sells replacement air filters for heating and cooling systems. “Getting started is certainly easier than setting up your own website and warehousing infrastructure. Create your product listing, send inventory to an FBA (Fulfillment by Amazon) warehouse, and you are in business.”
That said, in some categories it may be too easy to get started selling, with newcomers pricing low to lure buyers away from established sellers. “It has gotten increasingly hard to be ‘found’ on Amazon, as it has been flooded with products from internet marketers and ‘me too’ products attempting to game the system,” Heacock adds. “It’s a constant battle to fight counterfeits and listing ‘hijackers’ have been growing,” referring to companies that try to sell substandard products using a reputable company’s listing.
Con: Unscrupulous sellers can steal your listings
This seller found out about hijacking the hard way, by losing sales but still getting the bad reviews. “Copycats ‘gamed the Amazon system’ with us to try to gain market share. They listed counterfeit products under our legit ASIN (item number) on Amazon, thus using all of our marketing to get attention to their product,” shares Peter Denbigh, co-creator of Watch Ya’ Mouth game. “It was a massive problem for us that we still feel the effects of due to poor customer reviews of these counterfeit products, but the reviews show up under our legit product.”
He goes on to share that Amazon is making progress handling counterfeits and hijacking through Brand Central registry but that it still isn’t doing enough to protect the authorized brand owner. “We are the owner and manufacturer, so I feel we should have approval rights when someone tries to sell our product. At minimum, have a strict limit on how many they can sell without out approval by us.”
Pro: Good for companies with unique product and adequate profit margins
For companies that have exclusive products, Amazon Marketplace can be a good partner. “Amazon helped grow our business exponentially,” says Joe Jaconi, cofounder and general manager of Tech Armor, a screen protector and mobile accessories brand. “The Amazon Marketplace is easy to use and empowers the small business to chart its own destiny. The FBA program has taken the heavy lifting of logistics off our shoulders, allowing us to focus on building great products and servicing our customers.”
Companies that make and market their own brands should have pricing control so that they can maintain adequate margins to give Amazon their hefty commission. “If you are selling products with relatively low mark-up, it makes no sense at all to list your products on Amazon. They charge anywhere from 15-20% of the sale price in addition to the listing fees. When your margins are low, you simply can’t afford to give it all to Amazon,” says Dave Hermansen, CEO Store Coach, which provides training and consulting on setting up an online store.
Companies with unique brands need to be alert to the possibility of their distribution partners recognizing the potential of Amazon’s reach. “If business owners refuse to sell themselves on Amazon and stick with traditional distribution, eventually someone else will buy the product wholesale and sell it on Amazon themselves, keeping the profit that would otherwise be yours,” says Jonathan Weber, Marathon Studios which consults with small business owners about selling on Amazon. “You’ll have no way to stop them, unless you control your own brand on Amazon from the beginning.”
Con: Amazon is greedy
This 12-year veteran selling on Amazon, Adam Watson of Hollywood Mirrors, who reported growing business to over $3 million a year there, has abandoned the site because its commissions are too high and the demands for free delivery cut into profit margins. In addition,rampant competition on Amazon itself were forcing sellers to mark down prices even further. “This resulted in our company being busy fools,” Watson says. “We were turning over a large amount, but there was next to no profit at the end of it all.”
“There is a reason Jeff Bezos is the richest man in the world. It’s from creating this perfect business model,” he adds with Amazon and company holding all the cards.
Con: Amazon owns the customer relationship
Amazon Marketplace may be a way for SMBs to sell more product to more people, but ultimately Amazon owns the customer relationship. “You can’t remarket to Amazon customers or actively sell to them in the future. They are Amazon customers,” Watson affirms.
Con: SMBs still responsible for customer care and feeding
Regardless of whether companies use Amazon’s FBA program or not, they are still ultimately responsible for customer satisfaction. “If any customer service issues arise, you have to resolve them quickly,” says Rick Lite, of Stress Free Book Marketing, that works with authors. “Sellers are rated by the customers, so if you aren’t ready to deal with customers, this is not the best option for you.”
Those customer reviews are the key that unlock success on Amazon Marketplace. “As a small company located in the center of Ohio, it took a solid three months of trial and error to find out which of our products would work on a national level,” says Michael Russell, of Ratchet Straps, selling tie down hardware.
“Overall, we found out reviews are key. Reply to your customers and if they have a problem with your products, you must work with them, whether it be shipping them a new product, returning the old product, or whatever it ultimately takes to have the customer feeling happy and coming back. In terms of SEO and sales, the most important thing is having good reviews.” He goes on to add that currently his company is doing six figures a month through Amazon.
Pro: Get with Amazon or get left behind
This personal care products company relies on Amazon for the bulk of its business and is doing quite nicely thanks to it. “Amazon has helped to grow our business immeasurably. Amazon is not only the dominant force behind e-commerce right now, but behind commerce in general,” says Nate Masterson, marketing manager for Maple Holistics. “While it’s important for every small business to build and maintain their own retail website, you simply can’t compete with the number of eyes that can find your product on Amazon.”
Masterson believes SMBs must get on board Amazon or get left behind. “Not only would I recommend becoming an Amazon Marketplace Partner to small businesses, I would argue that becoming established as an Amazon Marketplace Partner is imperative to the future success of any small business. Amazon only continues to grow and the propensity of global consumers to look to Amazon to make purchases only continues to grow. Amazon is the future (if not the present), and businesses will either adapt to it or get left behind.”
Con: Forewarned is forearmed
While Amazon offers customer reach that is unimaginable through any other marketplace, including the potential for global distribution, success isn’t easy or guaranteed. Along with many stories from small businesses that have done well on Amazon, there are just as many of businesses that have lost.
“I have worked with Amazon for 12+ year and have a love-hate relationship with them,” says Lite of Stress Free Marketing. “I have made a lot of money and enjoyed the convenience of their service, but how they treat their vendors is another issue,” he continues, referring to the difficulty of resolving problems if Amazon pulls the plug on a particular merchant account.
“Amazon can shut your selling account down if you infringe on their policies, so it is not a stable business. It can be difficult to reinstate your seller account, making it a fragile situation to base a business on and it is easy to get suspended,” Watson of Hollywood Mirrors warns.
For small and mid-sized businesses, selling through Amazon Marketplace is a gamble. It can offer unmatched potential for sales, if managed properly and the SMB seller can control costs to give Amazon its hefty cut. But at the end of the day, the house always wins.
Note: It is important that potential Marketplace vendors not violate Amazon Marketplace policy. To avoid violating Amazon policy, companies are advised to closely review the Amazon Terms of Service.
More about Pam Danziger: Pamela N. Danziger is an internationally recognized expert specializing in consumer insights for marketers targeting the affluent consumer segment. She is president of Unity Marketing, a boutique marketing consulting firm she founded in 1992 where she leads with research to provide brands with actionable insights into the minds of their most profitable customers.
She is also a founding partner in Retail Rescue, a firm that provides retailers with advice, mentoring and support in Marketing, Management, Merchandising, Operations, Service and Selling.
A prolific writers, she is the author of eight books including Shops that POP! 7 Steps to Extraordinary Retail Success, written about and for independent retailers. She is a contributor to The Robin Report and Forbes.com. Pam is frequently called on to share new insights with audiences and business leaders all over the world. Contact her at firstname.lastname@example.org.
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