At first glance, it is clear that Amazon and other online marketplaces have a mutually beneficial partnership. E-commerce store owners can greatly benefit from increased exposure, while marketplaces can expand their product offerings without the need to manage additional inventory.
However, it’s important to consider some potential drawbacks that sellers may encounter. These include limited branding opportunities, the absence of direct access to customer data, and the possibility of incurring additional fees when selling on Amazon.
Read More: Exploring the Amazon Opportunity: Is Selling on Amazon Right for Your Small Business?
Exploring the Amazon Opportunity: Is Selling on Amazon Right for Your Small Business?
Amazon, being a publicly traded company, discloses its total sales figures on a quarterly basis. From June 2022 to 2023, it reported a sales revenue of $538.046 billion. But did you know that Amazon isn’t the only one benefiting from all that money?
1999 marked the beginning of third-party vendors’ participation in Amazon’s marketplace. They now make up more than 60% of Amazon’s sales. The platform collaborates with approximately 2.5 million third-party sellers as of 2023. These third-party resellers collectively share the generated revenue.
Imagine Amazon as a big department store operating online, where individuals and businesses can lease virtual spaces to sell their merchandise. In 2022, Amazon’s monthly active site visitors went beyond 3.4 billion, making it one of the most heavily frequented virtual malls worldwide.
So, should you start selling products on Amazon in addition to your online store?
A lot rides on the specifics. Some retailers may do better with a marketplace approach than others, while some may not. As with any other type of business venture, there are pros and cons that everyone must consider before taking the leap toward selling on Amazon.
Let’s look at the pros and cons of selling on Amazon, especially for a small business, to help you decide if being an Amazon Seller is right for you:
Pros of Selling on Amazon for Small Businesses:
Let’s first look at the summary of the benefits of being an Amazon reseller:
| Pros | Description |
| Vast Customer Reach | Access to a massive global customer base, reaching millions of potential buyers. |
| Fulfillment by Amazon (FBA) | Amazon’s fulfillment service streamlines storage, packaging, and shipping, saving time and resources for small businesses. |
| Trust and Credibility | Leveraging Amazon’s reputation for reliability and excellent customer service can enhance a small business’s credibility. |
| Marketing Tools | Robust marketing and advertising tools are available to promote products effectively and boost visibility. |
| Global Expansion | Amazon’s global reach facilitates international expansion, enabling access to new markets without the complexities of physical stores abroad. |
Vast Customer Reach
Amazon provides small businesses with an unparalleled platform to reach a massive and diverse customer base. According to statistics, Amazon had over 300 million active customers in the United States alone as of 2021.
Remember that those figures happened within the pandemic when businesses shifted online to thrive amidst COVID-19 social distancing restrictions. Because people could not go out and had to minimize social interaction and activities, people started to rely on e-commerce sites more and more.
In fact, Amazon’s monthly site visitors exceeded exponentially as mentioned above—by 3.4 billion just in 2022.
Amazon’s level of exposure is definitely hard to replicate through other online channels.
Let’s look further into Amazon’s benefits in terms of its vast customer reach:
- Global Customer Base: Amazon’s reach extends far beyond national borders. It operates in over 200 countries and regions, allowing small businesses to access a diverse and international customer base.
- Prime Membership Impact: As of 2023, there are over 220 million Amazon Prime members worldwide. Prime members tend to shop more frequently and spend more on average than non-Prime members, making them a valuable target for small businesses.
- Mobile Shopping Dominance: Amazon’s mobile app is one of the most popular shopping apps in the world. According to Statista, the app was downloaded more than 1 billion times, showcasing the platform’s dominance in mobile e-commerce. In fact, the Amazon app had over 40 million downloads just in the United States alone in 2022.
Clearly, the Amazon app is the most popular shopping app in the world. It allows businesses to reach a large audience of potential customers, track their sales performance, and manage their inventory.
Fulfillment by Amazon (FBA)
Amazon’s FBA program is a game-changer for small businesses. In a 2021 survey, over 73% of Amazon sellers reported using FBA services. This service not only streamlines the logistics of storing, packaging, and shipping products but also offers the benefits of Amazon Prime eligibility, which can significantly boost sales.
No wonder that by 2022, Statista reported that 64% of merchants had adopted the FBA model, while 22% opted for a hybrid approach, combining FBA with their own storage, shipping, and customer service processes. This means that approximately 96% of Amazon sellers are using FBA or a hybrid model this 2023.
FBA is a popular fulfillment method because it allows sellers to outsource the storage, shipping, and customer service of their products to Amazon. This can save sellers time and money, and it can also help them to improve their customer satisfaction rates.
Here are some of the benefits of using FBA:
- Convenience: Amazon handles all of the fulfillment, so sellers don’t have to worry about storing, packing, or shipping their products.
- Prime Eligibility: Products fulfilled by Amazon are often eligible for Amazon Prime, which boasts over 200 million members worldwide. Prime-eligible products enjoy preferential placement and are more likely to be chosen by Prime customers.
- Scalability: FBA can be easily scaled up or down as needed, making it a good option for businesses of all sizes.
- Shipping Efficiency: FBA offers quick and reliable shipping options, including Prime’s two-day and same-day delivery services. This attracts customers seeking convenience and fast delivery, driving sales for FBA sellers.
- Cost-effectiveness: FBA can be more cost-effective than traditional fulfillment methods, especially for businesses that sell high-volume items.
- Improved Customer Satisfaction: FBA can help sellers to improve their customer satisfaction rates by providing a fast and convenient shipping experience.
- Customer Service: FBA handles customer inquiries and returns, relieving small businesses of customer service burdens and providing buyers with a consistent and positive shopping experience.
If you are considering selling on Amazon, FBA is a good option to consider.
Trust and Credibility
Amazon’s commitment to customer satisfaction has earned it a reputation for trustworthiness. A 2021 survey revealed that 89% of consumers trust Amazon for online shopping, making it an attractive platform for small businesses looking to establish credibility quickly.
Building trust and credibility on Amazon is essential for success. Positive customer reviews, winning the Buy Box, and offering a clear and easy-to-understand return policy are all important factors that can help you build trust with customers. Providing excellent customer service is also essential for building trust and loyalty.
Here are some specific things you can do to build trust and credibility on Amazon:
- Customer Reviews: Positive customer reviews are critical on Amazon, and they contribute to building trust in your products. A study by SaleCycle found that products with 4-star or 5-star ratings are 31% more likely to be purchased than products with 3-star ratings.
Amazon also displays the number of reviews and the average star rating for each product, so customers can easily see which products have the best reviews.
Sellers can encourage customers to leave reviews by sending them automated emails or by offering incentives, such as a discount on their next purchase. - Buy-Box Advantage: The Amazon Buy Box is a highlighted box that appears at the top of the product listing page. It shows the price, shipping options, and seller information for the product.
Only one seller can win the Buy Box for a particular product at a time. FBA sellers often have a competitive advantage in winning the Buy Box because they offer fast and reliable shipping.
Amazon also factors in other factors when determining who wins the Buy Box, such as price, seller rating, and inventory availability.
In addition to customer reviews and the Buy Box, there are other factors that can contribute to trust and credibility on Amazon, such as:
- Seller Rating: Amazon displays the seller rating for each product, which is based on customer feedback. A high seller rating can help to build trust in your business.
- Return Policy: A clear and easy-to-understand return policy can help to build trust with customers.
- Customer Service: Providing excellent customer service can help to build trust and loyalty with customers.
By focusing on these factors, you can build trust and credibility on Amazon, which can lead to increased sales and customer satisfaction.
Marketing Tools
Amazon provides a robust suite of marketing and advertising tools for sellers. In 2020, Amazon reported that over 50% of its ad revenue came from small and medium-sized businesses (SMBs).
These tools empower small businesses to create targeted ad campaigns, optimize product listings, and enhance visibility within the Amazon marketplace. These tools include the following:
- Sponsored Products: These are text ads that appear at the top of search results pages. They are cost-per-click (CPC) advertising, which means that sellers only pay when a customer clicks on their ad.
- Sponsored Brands: These are display ads that appear at the top of search results pages and on product detail pages. They can include images, videos, and text. Sponsored Brands are cost-per-impression (CPM) advertising, which means that sellers only pay when a customer sees their ad.
- Amazon DSP: This is a self-service advertising platform that allows sellers to create and manage display, video, and audio ads across Amazon’s websites and apps.
- Brand Stores: These are online storefronts that sellers can create to showcase their products and brands. Brand Stores can be a great way to increase brand awareness and drive traffic to your Amazon listings.
- Amazon Attribution: This tool helps sellers track the effectiveness of their marketing campaigns across different channels, including Amazon, Google, and Facebook.
In 2023, Amazon reported that over 60% of its ad revenue came from small and medium-sized businesses (SMBs). This shows that Amazon’s marketing tools are effective for businesses of all sizes.
- Customization: Amazon’s advertising tools allow sellers to tailor campaigns to specific audiences, helping them reach their ideal customers more effectively. For example, sellers can target their ads by keywords, demographics, interests, and even purchase history.
- Reporting: Amazon provides detailed reporting on the performance of marketing campaigns, so sellers can track their results and make necessary adjustments. This reporting data can be used to optimize campaigns and improve results.
- Pricing: Amazon’s advertising prices are competitive, and there are a variety of pricing options available to sellers. This makes it easy for sellers to find a pricing plan that fits their budget and goals.
Overall, Amazon’s marketing tools are a valuable resource for sellers who want to reach a wider audience and increase sales. By using these tools effectively, sellers can improve their visibility on Amazon and boost their bottom line.
Global Expansion
For small businesses with aspirations of international expansion, Amazon’s global reach offers a significant advantage. Amazon operates in more than 200 countries, making it one of the world’s largest e-commerce platforms. In 2020, nearly 28% of Amazon sellers reported selling internationally, leveraging Amazon’s infrastructure to access new markets and a broader customer base.
By capitalizing on Amazon’s vast customer reach, FBA services, trustworthiness, marketing tools, and global presence, small businesses can tap into a wealth of opportunities for growth and profitability in the e-commerce space. However, it’s essential to balance these advantages with the potential challenges outlined in the cons section to make an informed decision about selling on Amazon.
- Cross-Border Sales: Selling on Amazon provides a straightforward way for small businesses to engage in cross-border e-commerce. In 2020, Amazon sellers based in the United States exported products to customers in more than 180 countries.
- Local Marketplaces: Amazon operates multiple local marketplaces, such as Amazon.co.uk, Amazon.de, and Amazon.jp, allowing small businesses to tailor their offerings to different regions and languages.
These expanded insights highlight the extensive opportunities that selling on Amazon presents for small businesses. From tapping into a global customer base to leveraging Prime benefits, FBA services, trust-building tools, and advertising capabilities, Amazon offers a multifaceted platform for growth and success in the e-commerce landscape.
However, it’s crucial for small businesses to navigate the platform strategically, considering both the pros and cons, to optimize their Amazon selling experience.
Let’s dive into the cons that sellers have encountered in Amazon:
Cons of Selling on Amazon for Small Businesses
As awesome as being an Amazon reseller is, selling on Amazon does have its own drawbacks. Let’s first look at the summary of the cons Amazon resellers encounter:
| Cons | Description |
| Increased Competition | Intense competition among numerous sellers can make it challenging for small businesses to stand out. |
| Limited Branding Opportunities | Amazon prioritizes its branding over individual sellers, limiting the establishment of a distinct brand identity. |
| Fees and Costs | Sellers must bear various fees, including referral fees, fulfillment fees (if using FBA), and advertising fees, which can impact profits. |
| Lack of Customer Data | Amazon guards customer data, limiting a seller’s direct access to customer information and making it difficult to build a loyal customer base outside the Amazon ecosystem. |
| Rule Adherence | Strict Amazon policies and regulations must be followed; violations can result in account suspensions or bans, potentially harming small businesses reliant on the platform. |
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Increased Competition
The Amazon marketplace can be fiercely competitive, and small businesses often find themselves in crowded product categories, facing several challenges.
- Saturation in Some Categories: Certain product categories on Amazon are oversaturated, making it difficult for new or small businesses to stand out. For instance, electronics and clothing categories often have intense competition.
- Price Wars: To gain a competitive edge, sellers might engage in price wars, leading to lower profit margins. Small businesses may find it difficult to sustain these price-cutting strategies.
- Counterfeit Products: The marketplace’s vastness also attracts counterfeit sellers, which can negatively affect legitimate small businesses by eroding consumer trust and devaluing authentic products.
Limited Branding Opportunities
Establishing a unique brand identity can be a challenge on Amazon, where the platform prioritizes its own branding over individual seller branding.
- Amazon-Centric Branding: Amazon’s emphasis on its brand and customer experience can result in a lack of control over how customers perceive your brand.
- Difficulty Building Loyalty: Because customers primarily associate products with Amazon, small businesses may find it challenging to build customer loyalty outside the Amazon ecosystem, making reaching buyers outside the platform more difficult.
Fees and Costs
While Amazon offers access to a massive customer base, it comes at a cost, and sellers must navigate various fees that can impact profit margins.
- Referral Fees: Amazon charges referral fees, a percentage of the product’s sale price. These fees vary by category and can affect profit margins, especially for low-margin items.
- Fulfillment Fees: If utilizing Amazon’s FBA service, sellers incur storage and fulfillment fees, which can accumulate, particularly for products with slow turnover or long-term storage needs.
- Advertising Costs: While Amazon’s advertising can be effective, it also involves costs. Small businesses must budget for advertising expenses to effectively promote their products.
Lack of Customer Data
Amazon closely guards customer data, limiting sellers’ access to valuable information that could help build customer databases for future marketing efforts.
- Customer Data Control: Small businesses have limited control over customer data, including email addresses. This hampers efforts to establish direct relationships with customers outside of the Amazon platform.
- Dependency on Amazon’s Audience: Relying heavily on Amazon’s audience can hinder a small business’s ability to reach customers through its own channels, creating dependency on the platform.
Rule Adherence
Amazon enforces strict policies and regulations that sellers must adhere to, and violations can have severe consequences for small businesses.
- Strict Policies: Amazon’s rules are stringent, and sellers must be diligent in compliance. Violations, whether intentional or inadvertent, can result in account suspensions or bans.
- Appeal Process: While Amazon has an appeals process, it can be challenging and time-consuming. Small businesses may experience disruptions in their operations if their accounts are suspended.
- Algorithm Changes: Amazon’s search and ranking algorithms are continually evolving. Sudden algorithm changes can impact a small business’s visibility and sales, requiring adaptability and ongoing optimization efforts.
Understanding these deeper nuances of the cons associated with selling on Amazon is crucial for small businesses to make informed decisions. While Amazon offers numerous advantages, it’s essential to navigate the challenges effectively, developing strategies to mitigate competition, manage costs, and maintain brand identity both within and beyond the Amazon marketplace.
Navigating the Amazon Marketplace for Small Businesses
Amazon is a land of opportunity and challenges for small businesses. Careful consideration of the pros and cons is crucial.
Amazon offers access to a global audience, marketing tools, and international expansion opportunities. But, it comes with intense competition, limited branding, fees, data restrictions, and strict policies.
Success as an Amazon Seller requires a well-defined strategy and adaptability to e-commerce trends. It should align with your business goals and be part of a broader strategy. Diversifying sales channels is key.
Small businesses that navigate Amazon wisely can thrive in the world’s largest online marketplace. Success is achievable with the right approach and a focus on the bigger picture.
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