What to Do When You Decide to Sell on Amazon

Virtually no retail sector has escaped Amazon’s encroachments. From Kohl’s to RadioShack to Staples to Walmart, retailers are hemorrhaging market share and closing stores at record rates.

But it’s not just lost revenue that has retailers afraid of Amazon. By selling directly instead of through Amazon, brands and retailers deepen customer relationships while gaining valuable data to inform marketing, sales, and merchandising. When retailers and brands sell on Amazon, they forfeit their rights to leverage that customer information and build loyalty.

And without data and direct customer access, retailers lose control. If retailers choose to sell on Amazon, they become subject to the e-commerce giant’s seller policies. By acquiescing to Amazon, retailers effectively limit their long-term ability to strengthen their products and fine-tune their marketing strategies.
Then, with Amazon in control and with competing merchants in the marketplace, retailers are pressured to drop their prices. If they refuse, others swoop in to undercut those prices, leading to an eventual race to the bottom. Other times, Amazon itself enters the space and beats everyone’s prices with AmazonBasics.

The Gamble: Lose Control, but Gain Audience

While business leaders want to keep Amazon’s fingers away from their profits and data, they’re tempted by something every company craves: an incomparably large audience.

Across the world, the online retailer has approximately 310 million active users — roughly the population of the United States — all with their pocketbooks out and ready to spend. Many of those users start product searches on Amazon now, too, rather than Google. According to a recent survey of 1,000 U.S. consumers, 38 percent of people first turn to Amazon compared to 35 percent who navigate first to Google when shopping online.

That audience, especially for small businesses that lack the financial muscle or marketing infrastructure to build their own, makes Amazon an enticing option. On the other end of the spectrum, established companies seeking to get their products to the greatest number of customers might also decide to capitalize on Amazon’s audience.

With Amazon, industry matters, too. Traditional merchants in its top verticals — toys and games, books, and consumer electronics, to name a few — may be unable to compete without selling on Amazon. Retailers selling seasonal products might also find Amazon advantageous because it enables them to list products for short periods of time and then pull them off the site when it makes sense.

Regardless of industry, however, retailers need to build high-quality products at the right price. Success on Amazon hinges on customer ratings, feedback, and sales velocity. Retailers that stand out in those categories become eligible for Fulfillment by Amazon (FBA), which enables them to focus on the products while Amazon packs and ships their orders. Because of its massive, globe-spanning infrastructure, access to FBA is, for many retailers and brands, a major perk of selling on Amazon.

Don’t Just Survive; Thrive on Amazon

You’ll have to decide for yourself whether the pros of selling on Amazon outweigh the cons. But millions of merchants have already ducked under Amazon’s umbrella. If you decide to join them, you’ll need to learn how to succeed in Amazon’s world:

Create a product with a clear value proposition.

Amazon products rise and fall with their customer reviews. The first step toward great reviews and enviable sales figures, then, is having a rave-worthy product.

As you develop your product, focus on the problem you’re trying to solve for your target market. Then, test whether your product addresses that problem better than incumbents by putting it in the hands of real users. If it doesn’t — especially if it’s in an overcommoditized category such as consumer tech — keep iterating until customers have a clear reason to choose it over competitors.

Set an unbeatable price.

Believe it or not, there is a method to Amazon’s pricing madness. To increase sales without gutting profits, don’t attempt to set your prices by the overall market, brick-and-mortar pricing, or your instincts.

Instead, keep a sharp eye on competitors’ prices, and don’t be fooled by Amazon’s pricing games. To make shoppers think everything is cheap, the e-commerce giant temporarily slashes prices on its most popular items. Then, after customers have been lured in, it recoups profits by increasing prices on numerous less popular items.

Win the Buy Box battle.

Amazon grants the Buy Box to sellers who meet its performance-based standards, such as order defect rate, time on Amazon, and seller feedback ratings.

Products with the Buy Box represent 90 percent of sales on Amazon, meaning that earning it greatly and immediately enhances your exposure and your bottom line. Focus on keeping pricing competitive, improving sales performance, and decreasing order defect rate to bring your product into the box.

Let Amazon fulfill for you.

Before you opt for FBA, you should know upfront that it can cut per-item profits, depending on your existing infrastructure. But this is counterbalanced, Amazon is quick to point out, by better product exposure and the increased likelihood of winning the Buy Box.

Run the numbers with Amazon’s revenue calculator, and know the fees going in. Amazon, of course, charges merchants a percentage of total sales. Retailers that opt for FBA incur additional costs based on factors such as item weight and storage costs.

If, after going through the calculations, you decide that FBA is best for your product, the program is fairly simple to set up. If you struggle, Amazon’s Business Customer Service center can walk you through it.

There are risks inherent to selling on Amazon. It’s constantly collecting data about your product and customers, which it may use to carve out your market for itself. Even if it doesn’t, it’ll mercilessly take a cut of your profits.

But millions of merchants and brands have decided that selling on Amazon makes sense. “If you can’t beat ’em, join ’em,” these retailers reason. And with no end in sight to Amazon’s invasion, joining ’em might be your best option after all.

Gene Ku is the founder and chairman of Mobovida