Amazon is hands down the biggest fish in the sea when it comes to online retail. The ecommerce behemoth captured over 43 percent of US digital commerce revenue in 2017, a 5 percent increase in market share from 2016.
While the numbers may sound daunting for ecommerce brands looking to distinguish themselves in an increasingly competitive online marketplace, there are effective strategies you can take to work with – and against – Amazon to generate healthy profit margins.
There’s no one-size-fits-all solution when it comes to deciding how Amazon should fit into your ecommerce strategy. Before establishing your ecommerce scheme, it’s important to understand the Amazon marketplace, when you should sell on Amazon, when it makes sense to sell directly to consumers and take a 40,000-foot view of how Amazon fits into your long-term ecommerce game plan.
Pros and cons of selling on Amazon
One way Amazon is able to command such a large market share is by working with third party sellers. These third parties sell roughly half the merchandise on Amazon, reduce the company’s upfront costs and expand its product catalogue.
For small and large businesses alike, selling on Amazon presents some attractive benefits.
Pros of selling on Amazon:
- Access to shoppers with high purchase intent: A recent study found that over 50 percent of people start their online product search on Amazon, compared with less than 30 percent on search engines.
In other words, the majority of people look first to Amazon when shopping online, which can help you attract targeted traffic and expand your online reach.
- Consumer confidence: Although consumers are becoming increasingly comfortable purchasing goods and services online, a recent study found that 45 percent of American households refrained from buying something online because of cyber security concerns.
Amazon has built consumer trust, which you can take advantage of by selling via the platform.
- Payment processing: Amazon accepts most major credit cards and transfers all funds from shoppers to sellers. This also reduces the risk of fraud for merchants.
- Distribution & Returns: Amazon has a vast network of warehouses and offers third party sellers the option to utilize fulfillment by Amazon (FBA). FBA allows merchants to take advantage of Amazon Prime and reduces the hassle of shipping individual items and processing returns.
On the other hand, there are some drawbacks associated with selling on Amazon.
Cons of selling on Amazon:
- Minimal brand recognition: It can be difficult to distinguish your brand from the competition if you don’t already have brand recognition.
For example, If you search for “iphone x case” Amazon will produce search results similar to those found in the image below. While you can see the brand name underneath the product title, it is in small grey letters. Shoppers are exposed more exposed to the images and title related to specific products than the brands that sell them.
- Price competition: If you’re selling a product that many other merchants are also offering, you’ll have to constantly compete on price, which can seriously diminish profit margins.
Some vendors even sell at a loss to gain competitive placement and often fluctuate prices to keep a competitive edge. So, be sure to monitor competitors’ prices and compare them with your cost of doing business before getting stuck in a price war.
- Lack of control: Another challenge is that you don’t have full control over the shopping experience.
While Amazon does offer third party sellers that sign up for the Amazon Brand Registry more control of their listings with what they call A+ content, you don’t have direct access to customer email addresses or the freedom to guide shoppers through a unique user experience.
- Fees: Amazon charges various fees to sell on the platform, the most significant of which are called referral fees. Referral fees range from 6 percent to 45 percent of the sale price depending on the category, most product categories are charged 15 percent.
The key takeaways are that selling on Amazon puts you in front of a large number of purchase-ready shoppers and can help you gain consumer confidence, handle fulfillment, make easy returns, and process payment. However, it’s essential to understand that when selling on Amazon you are primarily promoting specific products, not your brand as a whole. What’s more, Amazon takes a significant cut out of topline revenue and price competition amongst sellers can be fierce.
When to sell on Amazon
There are certain situation when selling on Amazon makes good business sense. Here are several scenarios in which you should sell via Amazon.
- You lack digital and physical infrastructure to sell directly to consumers: If you haven’t established an ecommerce operation – meaning an online storefront, payment gateways, and fulfillment capabilities – Amazon can be an excellent distribution channel to reach internet shoppers.
As retail moves online and brick and mortars like Macy’s and J.C. Penney suffer from decreased foot traffic, Amazon is the go to outlet for brands looking to sell via a major online retailer.
- You see ample opportunity to capitalize on established demand: it would make good sense to sell on Amazon if you see substantial sales volume for similar products, and simultaneously see an opportunity to distinguish yourself from the competition.
For example, there are dozens of vendors that sell succulents on Amazon; however, seller Sommerland is able to distinguish itself from the competition by selling a three tiered vertical garden that differs from other items on the market. Essentially, merchants selling products that can rank for high volume keywords but differ from other vendors can gain first page placement and win customers who wouldn’t otherwise know about them.
It’s important to note that the more positive reviews a listing has, the more likely Amazon is to position it at the top of the search results. It will be difficult, although not impossible, to gain the top spot for a product that has high sales volume and thousands of 4 and 5 star reviews.
To identify hot selling items check out Amazon’s bestseller lists and assess the sales rank of various items. Keywordtool.io is a useful tool for Amazon-specific SEO, which can help you identify profitable niches. The Jungle Scout Sales Estimator is also a valuable resource for analyzing Amazon’s catalogue to identify products with high sales volume and few reviews.
- You want more exposure: As previously mentioned, Amazon is the juggernaut of online retail so it could make sense to sell some of your catalogue on Amazon to get your products in front of more consumers.
One strategy would be to sell an assortment of your core products and offer customization or limited edition items direct to consumer.
Nike – which is the number one brand on Amazon – sells a limited selection on Amazon, while offering tailored customization and exclusive products on its own website.
How to build an ecommerce business without Amazon
While selling on Amazon has its perks, selling to consumers directly gives you more control over your business, allowing you to design the entire user experience, build mailing lists and take home all the profit.
Here are a some ways win customers outside of Amazon.
- Attract high volume targeted website traffic: By alluring consumers who would likely benefit from your products or services to your website, you can connect with your target demographic and turn visitors into buyers.
Digital marketing tactics such as search engine optimization (SEO), pay per click (PPC) advertising, social media marketing and content marketing can help you build awareness amongst your target audience and win customers.
An example of a brand doing a great job funnelling targeted traffic to its site is REI. According to SimilarWeb, over 41 percent of the outdoor retailer’s traffic comes from search. While the brand optimizes for keywords and runs product specific PPC campaigns, it also attracts visitors with affiliates, films and blogs about outdoor adventures and lifestyle.
- Established a reputation as an expert: An excellent way to distinguish your brand and entice consumers to purchase your products is to establish authority in your niche market.
A direct to consumer (DTC) brand that’s done impressive work carving out a competitive advantage by building a reputation as an expert is Casper.
The mattress company launched an online publication called Van Winkle’s that discusses all things related to sleep. This allowed the brand to publish data driven reports, feature expert commentary, promote its products with authority and write articles based on search queries.
Casper has recently launched Woolly Magazine, which focuses on wellness in general, which allows the brand to build authority in a wider array of topic areas.
- Offer exclusive products and services: By selling items that aren’t available anywhere else on the web, you can lure in online shoppers to purchase from your ecommerce store instead of on Amazon. This also eliminates bidding wars against competitors, allowing you to set your own prices.
An example of a brand successfully alluring customers with exclusive products is Sephora. The cosmetics company has a wide variety of products sold only at Sephora as well as limited edition merchandise.
- Promote loyalty programs: While it’s essential to reel in consumers at the tip of the sales funnel, repeat customers build value over time. According to Business Insider, returning shoppers are nearly twice as likely to make a purchase than new site visitors. What’s more, repeat customers make up nearly two thirds of revenue for the world’s top ecommerce brands.
The quintessential example of an ecommerce brand that disrupted a market and built an enviable business with a loyalty program is the Dollar Shave Club. The razors and bathroom accoutrements brand boasts over 2 million monthly subscribers and was acquired by Unilever for $1 billion in 2016.
Other types of loyalty programs include member discounts, shopping rewards and exclusive contests or prizes.
Remember, it’s difficult for Amazon sellers to establish a strong brand image. Online merchants can carve out a competitive advantage over Amazon sellers by generating targeted traffic with SEO, PPC and content marketing campaigns, building authority as an expert, offering unique products and gaining repeat customers with loyalty programs.
Know your Business & Map Out Your Game Plan
As you can see, there’s no one ecommerce strategy that works for every brand. Therefore, it’s important to assess your current ecommerce strategy and design an action plan to help you reach your short and long-term goals.
Think about whether you’re prepared to sell directly to consumers. Specifically, assess your digital and physical infrastructure to determine whether you can not only meet current sales volume but also fulfill increased demand as your business grows.
Analyze competitors search traffic. How much more business could you capture if you sold on Amazon? By analyzing sales volume from rival sellers on Amazon, conducting platform-specific keyword research and spying on competitors websites with tools like Quantcast Measure, Alexa (which is ironically owned by Amazon) and SimilarWeb, you can get data-driven insights on where your target consumers are shopping.
Align marketing with long-term growth strategy: Regardless of how Amazon fits into your ecommerce strategy, it’s essential to craft your digital marketing plan in a way the best suits your business goals.
Technically speaking, if you’re going to sell on Amazon, work on building authority within the platform with quality reviews and optimized listings. If you are going to sell direct to consumers or via different online retailers run SEO, PPC, programmatic and social media campaigns that will strengthen your online presence in the long run.
Ultimately, it’s essential to understand when it makes sense to sell on Amazon, when to sell directly to consumers or via other online outlets and when you should be doing both.
If you need help with your ecommerce strategies or just want to ask a question about digital marketing reach out today. We’d love to hear from you.