The Good, The Bad, and The Ugly of Amazon Marketplace
While Amazon Marketplace seems like a good idea when taken at face value, there have been widespread gripes from private and commercial sellers using the program. With that in mind, let’s look at what Amazon is doing well, what third-party sellers are complaining about, and what can possibly be done to alleviate the problems that exist.
When many businesses sell their goods through Amazon, they do so playing by Amazon’s rules: businesses sell their goods, often in bulk at wholesale prices, to Amazon, who pays the agreed-upon price and stores those goods in a warehouse. That’s the end of the businesses’ involvement in the process, and the rest is between the consumer and Amazon. This works really well for popular and reliable brands that can be sold in larger amounts.
Amazon Marketplace works a little differently. Mainly, you’re selling on Amazon’s platform instead of selling to them. It operates in a way that’s closer to eBay’s business model, where sales are made directly between businesses and consumers, with Amazon grabbing a small fee on each transaction. As far as logistics go, businesses and private sellers have the option to ship their goods themselves, or utilize Amazon’s Fulfillment By Amazon (FBA) service.
The FBA allows sellers to send items to an Amazon fulfillment center and to reap a variety o additional program benefits. It makes goods eligible for Amazon Prime, and enables access to Amazon’s customer service and returns, which makes for a much more hands-free experience for the seller.
The Marketplace is extremely popular; last year third-party sellers broke records, and it’s estimated that about half of Amazon’s sales come from these businesses. However, despite the clear advantages of selling through Amazon, it’s far from a perfect system. Still, it’s bad form to start off with doom and gloom, so let’s first look at why Amazon Marketplace works to help make you money and grow your business.
Image source: Amazon (via So Long Mediocrity)
The Good
The first and most significant advantage it offers is sheer visibility. A corporation that makes up half of all U.S. online sales growth doesn’t get there without massive exposure. They are growing rapidly, and have a huge market share.
When you use your own website as your main point of sales, the onus is entirely on you to draw people in and make them see your product. The fact that they’re already well-established means that you don’t have to create your own infrastructure. If you need to grow a brand and reach more customers than you otherwise would, Amazon is quite possibly the single best place to do it. By utilizing Amazon’s pre-existing network, you vastly reduce this early part of the process and can grow your business that much faster because of it.
It also makes it extremely easy for consumers old and new to access and purchase your products. By browsing an enormous one-stop-shop, they’re now able to buy from you while they peruse everything else they’re looking for. It’s familiar, too — most people have a grasp on the Amazon website and ordering process, and selling through the Marketplace means that they don’t have to learn anything new. The faster and simpler the ordering process, the easier it is for a buyer to pull the trigger on your items.
Together, these separate advantages combine into a single big one: increased sales. For new businesses, the exposure and initial revenue boost provided by the Amazon Marketplace can mean the difference between obscurity and a quick start. When you’re starting a company, the most important thing is getting your product on as many screens and in front of as many eyes as possible — and all else aside, the Marketplace does just that.
The Bad
There’s a cloud for every silver lining, and Amazon’s exposure and ease of access doesn’t exactly come free. Every transaction made through Amazon Marketplace is subject to fees, and they aren’t nominal. As a basic seller, you’re charged $0.99 per transaction, and must also pay a referral fee, among others, that ranges anywhere from 8% to 25% depending on the item category.
The alternative is paying $39.99 per month to be a Professional Seller, which waives the transaction fee. If you sell more than 40 items in a given month, it’s a good choice to become a Professional Seller, but it can still eat into your profits and it doesn’t affect the larger referral fee.
Amazon’s Fee Structure | Image source: CPC Strategy
Another downside to the Marketplace is that you give yourself much less room to establish your unique brand. When you sell from your own website, you’re free to design it in a way that allows boundless creativity and representation of your goods. If you go solely through Amazon, you’ve got much less room to send a personal message to your customers. More important still, the people buying your product on Amazon are Amazon customers, and not necessarily yours. They may not pay as much attention to your brand identity, making it harder to establish long-term loyalty.
The Ugly
The worst case scenario of the Amazon Marketplace involves data, and it has a lot of potential sellers concerned. They worry that Amazon could start using information from Marketplace sales to leverage its own products and compete directly with sellers. Digital Commerce 360 provides an excellent (though worrisome) example, courtesy of Chris Brubaker, chief marketing officer of SLI Systems:
“Amazon could notice a trend with shoppers or with a particular marketplace seller and decide to compete directly against the seller […]. For example, Rain Design has been selling an aluminum laptop stand on Amazon for more than a decade, and it was a best-seller in its category. The $43 product has a 5-star rating and 2,460 customer reviews. Last year, AmazonBasics started selling a similar product at half the price, and sales of the Rain Design original have slipped.”
It raises questions about just how much of a friend Amazon really is. Although it’s a great way to boost your business, get views, and increase sales, who’s to say you won’t find a cheaper, Amazon brand product in the Marketplace next year?
That sweet deal may end up looking like a deal with the devil.
The Competition
Image source: eBay (via Wikimedia Commons)
In the world of third-party sales, the traditional king of the hill is eBay. However, Amazon’s knack for data use and ease of access is providing some stiff competition for what was once the obvious go-to for customer-to-customer (C2C) sales.
A big difference between the two has always been eBay’s auction system for payment, where customers place bids on a product over a period of time, and the highest bidder gets the sale. However, they’ve actually moved away from this recently, opting to encourage instant purchases instead. Even five years ago, less than 15 percent of eBay’s sales were made through its auction-style format.
EBay charges sellers a fee of 10 percent of your total sale, which can be significant but still isn’t as much as Amazon. The real difference between the two is Amazon’s efficiency and security — most of which is provided through their FBA system. EBay is less expensive, but you have to figure out your own shipping, and the seller security isn’t as comprehensive.
Amazon’s broad categories offer advantages for those sellers that want to sell established products in large quantities, while eBay is a little more supportive of the sale of unique items that might not fit into a given niche, like heirlooms. CPC Strategy has a great breakdown of further differences between the two if you’re interested in delving a little deeper.
Another major competitor in this arena is Craigslist. Craigslist offers free listing, and is by far the cheapest option when trying to sell. However, the main drawback here is that it’s local sales only, so publicity is limited to customers in your area — not to mention the difficulty of operating through anonymity.
Which avenue you choose to market your product in is largely dependent on the type of business you run, and your goals. If you’re just trying to clear out your attic, eBay’s low fees and many categories will likely be your best fit. For bulk goods and peace of mind, paying a little more for Amazon’s impressive fulfillment capabilities can be extremely beneficial.
Whether you lend credence to fears that Amazon will use your data to leverage a similar product against you may make you want to avoid them altogether, and those fears are very valid. It’s up to you whether to take the risk in favor of the advantages offered by the service, or simply continue to operate on your own.
That isn’t to say that you can’t have the best of both worlds — there may be validity in maintaining your own website to keep your brand identity strong, and simultaneously selling via Amazon Marketplace to still get a taste of that sweet publicity. Like all things relevant to the Internet and ecommerce, sometimes it takes a little experimentation to get your own formula right.