Third-Party Selling On Amazon: Are You Cannibalizing Your Own Traffic?
For e-commerce sellers, today’s digital landscape is an endless sea of options and opportunity, quite literally. With Amazon’s tried and tested understanding of consumer culture and diehard fan base, selling on Amazon is an absolute necessity for most e-commerce businesses. Bottom line: If you aren’t doing it, you are putting yourself at a significant disadvantage. With that said, by selling with Amazon, you may be sacrificing higher margins through direct sales, and even the long-term growth of your brand.
In the fourth quarter of 2016, nearly 60% of all e-commerce sales were initiated through Amazon, an astounding number. What makes Amazon such an appealing option for buyers?
Amazon stores payment information, addresses and personal information, making it exceptionally convenient and accessible for returning users. On a more subliminal level, Amazon has perfected the user experience of the website based on years of effective market research. Users often resist learning new website formats, so Amazon has become a convenient, easy-to-navigate solution.
While Amazon’s pricing system is quite controversial, the general consensus is that the prices are better on Amazon, thus making it an attractive option for users.
Instead of visiting three separate sites for home goods, books, and electronics, users can quickly find everything they need from one trusted location.
Amazon caught on early to the exponential power of loyalty programs, launching Amazon Prime in 2005. We live in an impulse-buying culture where two-day shipping, video streaming and free trials are easy sells. Amazon even offers a “Buy online and pick-up in-store” option, which accounts for 20% of sales in the online adult population.
By weighing the pros and cons of selling with Amazon, sellers can make better long-term decisions and establish growth opportunities for the brand.
The obvious benefit of selling on Amazon is that your product gains major exposure to its 300 million subscribers. As a third-party seller, your products will be listed and recommended for relevant search inquiries, thus resulting in higher sales.
Understanding of Marketplace
At the root of Amazon’s unprecedented success is their understanding of the motives behind the online buyer community at a fundamental level. As a seller, you are reap the benefits of the extensive marketing research Amazon has already effectuated. This could be a huge money-save for small low-margin sellers who don’t yet have the means to invest in marketing.
Ease of Management
Amazon offers options to take over a good share of product management, including packaging, shipping and customer services. This too could be hugely cost efficient for less capitalized companies.
Third party sales can be highly profitable for Amazon, depending on the listing category, taking anywhere between 8%-25% of profit, before fulfillment fees, fulfillment center costs and shipping costs. It is up to the seller to determine if margins are high enough to make this a worthwhile investment.
Lack of Audience Insights
Amazon sellers lose the ability to track and measure audience behavior, as they would via their own website. On a personal domain, sellers can learn relevant keyword behavior, on-site page visit frequency, user demographics, interest groups and much more. As a third-party seller, Amazon gets all of this information and uses it to grow the Amazon Empire, as opposed to enlightening and enriching your understanding of your demographic.
Long-Term Brand Development
At the end of the day, even if products are selling like hotcakes through Amazon, these buyers are building loyalty and trust with Amazon, not the seller. As a result, sellers can easily get stuck in a vicious cycle where they are doing little to ensure the lifespan of the brand itself and, as a result, become completely reliant on Amazon for sales.
As a third-party seller, identifying core business objectives will help in deciding whether or not using Amazon is beneficial. The benefits of using Amazon include tremendous audience reach and an effective UX infrastructure; but it comes with a heavy price tag. All-in-all, long-term brand growth versus quick profit is a choice that the seller needs to make.
If brand growth is at the core of your business values, Amazon may impede on success by winning sales and brand loyalty. This doesn’t mean Amazon shouldn’t be utilized, but your site needs to offer a unique user experience that provides value past the product being sold. In this scenario, the ultimate solution would be to use Amazon as a tactic to gain foothold in the market while steadily building the infrastructure to do it yourself in time. You can learn a bit more about objectives and tactics here.
What is an example of a company creating a unique user experience on their own website?
A skincare website that curates products onto one platform may decide to offer a service on the site as a means to push products, thus increasing usability of the site and ultimately developing brand loyalty. Perhaps the brand offers one-on-one customer consulting via Live Chat on the site with a skincare specialist who can curate a customized package of products based on the consumer’s needs. In this way, you are no longer competing directly with Amazon, but you are offering completely unique value, past the product that you are selling. Not to mention, it opens opportunity for internal up-selling in a way that Amazon cannot.
On the contrary, a low-margin seller offering a very niche product may care less about brand development, and more about ease of sales. In this scenario, utilizing Amazon’s selling services will be way more cost-effective solution.
Step one will be to identify business goals and decide what value, if any, Amazon offers. From there, it will but up to the seller to take a deep dive into the finances and decide if it is a sustainable route to fulfill long-term goals.