Selling on Amazon can be a great way to introduce your product to new customers but you should also explore DTC eCommerce options that can build stronger customer relationships with your brand and deliver better margins.
How Much Are You Willing to Sacrifice for Your Amazon Revenue Stream?
With a base of more than 300 million active customer accounts and more than 170 million monthly unique visitors to the website resulting in over $100 billion in revenue, Amazon is the number 1 place to go for most shoppers. (DataFeed Watch)
It’s hard to argue the appeal of selling your product on Amazon’s marketplace. Once you successfully make it through the often arduous process of getting your product accepted by Amazon, you’re in business and can sit back and wait for the revenue stream to start flowing. If you’re using Fulfillment by Amazon to handle your back-end infrastructure, life as a seller is even easier.
And you will likely see sales. Many consumers have a positive image of shopping on Amazon, and by being listed on Amazon your products benefit by association. A customer who may never have heard of your brand buys your product anyway because they saw it on Amazon, and that’s all they need to know to feel comfortable in their purchasing decision.
But as in all good things, there’s a catch. There are drawbacks to being an Amazon seller, from fees to fierce competition to a lack of control over your brand image and access to customer data.
Amazon Alone Isn’t Right for Everyone
Many businesses are satisfied with the steady revenue stream they receive selling exclusively on Amazon. For hobbyists or part-time sellers with a day job, they may not have the time or inclination to expand their business.
But if your business is a full-time commitment or you’re interested in building a reliable customer base and a recognizable brand name, selling on Amazon alone won’t get you where you need to go.
This is not to say that if you are selling on Amazon that you should pull your products tomorrow. You can still enjoy the benefits of Amazon while also exploring additional avenues for selling your products.
Orderhouse COO, Jim Madaj, discusses the Amazon addiction and how to break it.
The Challenges of Selling Only on Amazon
Successful sellers on Amazon can start to over-rely on the online retail giant and become blind to its drawbacks. After all, with Amazon they’re getting product exposure and ready-made customers, right? What else could they ask for? At some sales conferences and in some seller circles, they have a name for this phenomenon: “Amazon addiction.”
If you think you suffer from “Amazon addiction, here are some reasons you might want to shake the habit.
1. To Amazon, Your Business is Just One of Many
Although becoming a seller on Amazon can make it EASIER to do business, that doesn’t mean exclusively selling on Amazon is GOOD for your business. Amazon wants to attract lots of sellers to their marketplace so they can offer a wide variety of products at competitive prices. Doing so keeps repeat customers coming back, and new customers clicking through. Once you are an Amazon seller, your product and your brand are subsumed by the Amazon brand. While this may be good for businesses that are just starting out, it doesn’t help companies that want to promote their brand name and build customer loyalty for their business.
Imagine you’re a seller of small leather goods on Amazon. An executive at a Fortune 500 company asks her assistant to purchase 20 leather presentation folios she can give as gifts. In this case price—often the first factor consumers consider when shopping on Amazon—is less of a concern to her than quality and color. The assistant immediately clicks over to Amazon to look for leather folios. The first product he looks at is featured in the coveted “Buy Box.” You want to be featured in the “Buy Box,” which Amazon reserves for the product they deem the best fit for the buyer, but you haven’t been able to figure out how because Amazon keeps changing the requirements.
Lucky for you, the item in the “Buy Box” only comes in one color, so the assistant keeps searching and ends up on your listing. He enters the quantity, but unfortunately they’re temporarily out of stock of your folios. However, Amazon is recommending other sellers for the product, and he ultimately buys 20 less impressive but serviceable folios from a competitor.
Unfortunately you have no idea that you just lost what would have been a lucrative sale. Although your folios were exactly what the executive wanted, Amazon automatically pointed the buyer to a list of your competitors. In the end Amazon is your competition, too.
The moral of this story is that Amazon wants to make the sale, but whether it’s your product or someone else’s is not a concern to them. And that’s a major fault of trying to use Amazon alone to build your business.
2. With Amazon, You Have Little Control Over Your Branding
If the traffic you’ve sent to…Amazon does happen to result in a sale, it’s the…Amazon “brand” that the customer associates with your product. When their friends ask, “Where did you buy that?” their answer will likely be, “I got it off…Amazon.” Your brand, which you’ve (hopefully) worked hard to create, is immediately diluted by a company that is already a household name. Huffington Post
Most business owners like to have at least a modicum of control over how their products are displayed and sold. They know that to keep customers coming back, they need to establish brand loyalty—through excellent customer service, quality products and often an appealing story that buyers associate with the brand.
When buyers shop on Amazon, they’re not thinking of your brand—they’re thinking of Amazon. There are also the built-in restrictions; you have to rely on just a few pictures and a description to tell your brand story.
In stores you might pay a little extra for your product to be featured in a high-traffic area or on an end cap. As we saw in the above example, you don’t have control over how your product is featured in the search results or what customer service will say about your product.
Amazon can also arbitrarily change their terms of service. “They can raise fees, decide to let cheaper, mass-manufactured products into the marketplace, etc. You have zero control over what happens to your store, your customers and your sales,” writes Shannon Whitehead in the Huffington Post.
3. As an Amazon-Only Seller, You Don’t Build Lasting Customer Relationships
If you use Amazon but also have other revenue streams such as Direct to Consumer (DTC), you can use your eCommerce site to start building relationships with your customers. You can offer them an email newsletter telling them about new products, offer loyalty discounts, points and other perks for buying direct from your online store. When they make a purchase you can capture their information and get to know their buying preferences—you can even see what they left behind in their cart. You can up-sell and cross-sell your products.
You can’t do any of these things with Amazon. If you exclusively use Fulfillment by Amazon, you’ll never know your customers at all. And they won’t know you.
4. Amazon's Fees Reduce Margins
It’s no secret that Amazon’s transaction fees cut into margins. And if you’re using Fulfillment by Amazon, profits suffer even more. One company calculated that after factoring in all Amazon fees, the cost for every dollar of revenue from that channel was 26% vs. 8-10% from their eCommerce site. CIO And now Amazon and Walmart are colliding head on in a price war and have suppliers in a stranglehold with demands to lower prices. Recode
Bottom Line: Make Amazon One, Not the Only Online Revenue Stream for Your Business
Amazon’s name, reputation and built-in customer base can be a reliable source of sales for your company. But if you want to build a viable and sustainable business with legs, the omni-channel approach is a better bet. When you add a DTC strategy with your own eCommerce site, customer support and fulfillment, you get to call the shots. You control your brand story, promotional efforts and your customer relationship. You’re not competing for attention on a site where the lowest price or the “Buy Box” product often wins.
So break your “Amazon addiction” and see what you can gain from having multiple revenue streams for your business.