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.
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?
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.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.