INTRODUCTION
There is no denying Amazon’s power, and for many, Amazon represents the online embodiment of the American dream – a free, comprehensive marketplace where people can sell their goods and make quick and easy money, and then go on to build an ever-growing eCommerce business. On the surface, selling on Amazon is very simple. All you have to do is find a niche with high margins and demand, list it on Amazon, and it will eventually sell due to Amazon’s massive audience and reach.
However, just as in a movie, things can start out looking good and quickly go wrong, so can selling on Amazon. Amazon should be approached with extreme caution. The most important thing to remember is that, while Amazon can be a fantastic place to make money and move merchandise, they are not your friend! They, like any good business, are concerned with their interests, and when a merchant’s interests conflict with those of Amazon, the latter will not hesitate to crush the little guy (that is most likely you).
Although Amazon has provided a plethora of options and a high level of convenience for consumers, its growing dominance poses several risks to sellers. In this blog, we will list and discuss some of the dangers of selling on amazon.
OWNERSHIP OF PLATFORM
The number one danger of selling on Amazon is making it your sole source of eCommerce income. This is because if you do not own the platform through which you sell, you have very little control over your business and limited rights. When you first sign up to sell on Amazon, you have the option of using Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM). You can choose to ship your products to each customer using your own logistics and operational processes with the latter. As a result, you have access to your customers’ postal addresses. In any case, you are not permitted to attempt to direct them to your website. The reason for this is straightforward. They are not your customers; they are Amazon’s. At the end of the day, Amazon wants to keep its customers loyal to them, not to you.
There have been numerous stories of people being kicked off Amazon for various reasons, both just and unjust. At the end of the day, it makes no difference – if you only sell on Amazon, you are essentially beholden to them and at their mercy.
NICHE ENCROACHMENT
Another danger of selling on Amazon is having your niche encroached. Amazon employs a strategy known as ‘niche encroachment,’ which means that if you do not own the rights to a brand or have a product patented, there is a good chance Amazon will steal your niche from under you. People who used to sell cables or SD cards on Amazon will understand exactly what we mean. Amazon has a program called ‘Amazon Basics,’ which has grown to over 60 Amazon manufactured brands in just six years, in which they use sellers as guinea pigs to determine whether a product is profitable. When they see that it is, they begin selling their own private-label version of that product at lower prices and with preferential rankings in their A9 search engine algorithm, which annihilates the competition.
AMAZON’S EVOLVING ALGORITHM (A9 ALGORITHM)
Another risk of selling on Amazon is the ever-changing algorithm. Amazon’s A9 Algorithm is the system that determines how products are ranked in search results. It is similar to Google’s search algorithm in that it considers keywords when determining which results are most relevant to the search and thus which will be displayed first.
A9, Amazon’s search engine algorithm is constantly evolving and changing. This means that your sales may be through the roof now due to great SEO which allows you to rank your products number one in Amazon search results or just by chance. Very often, a customer will search for a specific product such as ‘electric facial brush’ and not for a specific merchant, whatever comes up in the top results is what they will buy. If Amazon’s algorithm suddenly changes not in your favour then you are literally down the river without a paddle.
AMAZON CAN SUSPEND OR BAN YOU AT ANY TIME
As amazon’s systems become more automated, if you do not meet Amazon’s customer service standards or receive too much negative feedback, you may be suspended–or even banned–at any time without notice.
Additionally, sellers that supply Amazon wholesale stocks may also find out abruptly that their product listings have been dropped simply because the algorithm of Amazon (which determines strongly the relationship between almost all of its sellers) determined that they cannot achieve a profit.
PROFIT MARGINS
The profit margins are also another risk of selling on amazon. Let us talk a little about Amazon seller fees, which is an average of about 15 percent of the retail price of a product. Let us now assume that an average dealer’s profit margin for products amounts to 25 percent –meaning that Amazon has cut its profit margins by about 60 percent. This is quite horrible in itself but from a risk point of view, this is a high stake scenario. What if the costs of production rise by 5%? Or the cost of shipping is up 5 percent? Or perhaps the US government decides to levy a tax on all Chinese goods. If tides change the wrong way, your profit margins will be reduced and you can be thrown out of your business plan
UNFAIR COMPETITION WITH DISHONEST SELLERS AND AMAZON
One of the most serious dangers of selling on Amazon is dealing with a dishonest competitor.
Certain sellers get their stock from the same suppliers. And the commodity, whether generic, private label, or own brand, isn’t truly special. As a result, any Amazon seller risks walking on one too many toes from the moment they list.
Dishonest sellers frequently employ black hat SEO techniques, aggressive pricing strategies and unethical upselling tactics are also detrimental to the competition. Some even go so far as to hack accounts or hijack listings.
Sometimes sellers forget that Amazon is not a single entity; it’s a trinity. Amazon is the market, the seller, and the buyer all rolled into one. And it can pull the rug out from under you at any time. Not only by suspending you, but also by doing what you do more efficiently and cheaply.
Amazon has steadily increased its market share, taking up a huge part of the market. The AmazonBasics brand alone is famous for everything from Xbox controllers to pet beds. However, there are 26 Brands in total, as well as hundreds of Exclusive Brands.
CONCLUSION
Before entering into a selling relationship with Amazon, you should carefully consider the terms and potential ramifications. Know that you and your brand will not only have a lower profit margin on each sale, but you will also have a massive barrier between you and your actual customers.
If you decide to sell on Amazon or already do, consider using the direct selling method to regain control of your customer base.