With revenues of $30.4 billion in the second quarter of 2016, Amazon is by some margin the world’s largest online retailer. That’s great news for driven founder Jeff Bezos. But the field isn’t closed off: product-led businesses of all sizes can take a slice of the action by ‘reselling’ their products on the platform. Two million businesses currently sell via Amazon Marketplace, accounting for 40% of the site’s turnover. But while the Marketplace service offers massive e-commerce potential and easy-win benefits for a business’ bottom line, it’s not right for everyone. Luxury brands can suffer. Large product inventories can prove hard to handle, and retailers are at risk of copycat manufacturers on the site.
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Key facts about Amazon Marketplace
Amazon Marketplace allows anyone to set up shop and sell their products via the site. The brand offers both Basic and Pro packages; the former with a 75p per-item fee, the latter subject to a £25 per month subscription fee. Referral fees and closing fees, which vary by category, are charged on each sale, while sellers also have the choice of organising their own shipping or storing their stock in Amazon’s warehouses using their Fulfilment By Amazon service.
“Back in the day”, says Jason, “Amazon was like a shopping comparison store: you’d simply upload your product feed to be listed, and waited for the commission when a product sold. Now, though, it’s a very, very big machine.” With their own pay-per-click advertising platform, Google Shopping-style listings and fulfilment support services, Amazon offer plenty of tools for the online retailer. And the site is growing more powerful, with more than 50% of consumers turning to Amazon first when searching for products. Should all businesses be in the Marketplace?
When reselling works well
When distribution is key
“Online marketplaces such as Amazon, play.com and eBay are much of a muchness”, says Jason. And they all have one thing in common: they’re e-commerce channels that allow retailers to get their products out there quickly, and with relative ease. Amazon is the perfect channel for brands who care more about shifting product, and less about building a strong brand image. “It’s a fairly cost-effective way to get visibility - and quick visibility”, says Jason. “It’s like PPC - if you do it right, you can be up and running and getting ROI in just half a day.” Instead of building their own brand, manufacturers selling on the site benefit from association with Amazon’s brand. For the smallest retailer, this can be a benefit in itself.When bottom line beats brand
When considering any digital marketing activity, a business’ core focus must be their ROI. Amazon selling is perfect for those looking for macro conversion: conversions that will impact their bottom line – as opposed to micro conversion, which will include goals such as newsletter sign-ups, blog reads and social media follows. As Jason says: “Essentially, Amazon is a useful tool for those with a shorter sales cycle: those more focused on a purely financial ROI, and who aren’t too precious about building a longer term brand image.”When a business is already selling online – or is considering doing so
Businesses with existing online fulfilment and shipping arrangements should find working with Amazon Marketplace a natural extension of their existing e-commerce activity. For many retailers, engaging with the platform can be viewed in the same way as working with Google – as a high-value shopfront on the web. For businesses with exclusive distribution rights for their brand, the platform also offers a simple first step into e-commerce. Rather than setting up a dedicated online store, companies can use the site to get their products online, linking their website to their Marketplace store.When retailers should look elsewhere
When a brand has a premium focus
While some luxury brands appear in the Marketplace, products for the mass market are more common. This is all down to perception. Part of the appeal of luxury brands is in the retail experience delivered to the customer, from website design through to packaging. Selling via Amazon, a brand strips away these value-added elements. Businesses selling premium products must therefore consider how important these brand touchpoints are to their overall brand equity. “As a high-end luxury brand,” says Jason, “I need to ask myself: do I really want people to have the bulk-standard Amazon experience?”When product ranges are large
Brands with a huge product portfolio may see Amazon as an ideal sales channel because the platform offers exposure across their entire product range. When it comes to paperwork and calculating profitability, analysing Amazon sales can be a challenge, however.
Tricky calculations: Those with large SKUs may find it tough to work out profitability.
Amazon provides a great deal of information to its Marketplace sellers but gives no real indication as to total profitability. “After taking into consideration postage and packaging, the time spent uploading and changing the product feed and tweaking costings, it can be hard to judge how much a business is actually making”, says Jason. While Amazon will show the amount of sales made, it’s only after deducting VAT, cost of goods and Amazon’s own fees that ROI can be measured. Sellers with large product inventories will find this even more difficult.When price management is an issue
Businesses selling through Amazon must accept they may not be the only ones selling their products. Anyone can register to distribute via the platform at whatever price they choose. Price management by brands is not possible. Jason has worked with businesses experiencing this first-hand. “I worked with a salon brand”, he says; “one of their former salon customers had gone bust and sold their stock. One seller was buying the stock for £2.50 a bottle and selling it on for £2.75, while most others were selling for £3.75. This lack of control posed a challenge for us.” While the £2.75 trader will most likely bring in greater sales volumes, they’ll also be making far less of a margin. This suits Amazon, whose business model is built on the volume of sales, and not their cost.
“One of my clients had someone phone out of the blue to ask if they had any excess stock they wanted to get rid of”, says Jason: “they were offering to sell it on their behalf. I’d never come across this ‘barrow boy’ mentality before, but it does happen: it only takes a few days to set up an Amazon shop, populate it, and make a relatively easy few hundred pounds.” Innumerable case studies show how successful Amazon reselling can prove for small businesses.
For availability and rapid online sales, the platform is a power to be reckoned with. But for luxury brands, those with a large range of products and businesses concerned with price management, profits made on the platform may cost more than they’re worth.
Thanks go to Jason for his marketing insight. If you’ve found this article useful, take a look at our other digital marketing guides, covering everything from PPC to Twitter.
