Amazon has grown into a massive entity over the years, and has recently achieved record rates of profitability. By the end of 2019, Amazon's net worth reached a staggering $160.4 billion, with the company generating over $10 billion in profits in the 2018 fiscal year alone.
With such numbers in mind, it's no wonder that many eCommerce sellers are more than willing to sign up with this tech and retail giant, and conduct business on Amazon's platform. While there are many advantages to doing so, there are also serious drawbacks. Many business owners are discovering the truth in the age-old warning: "Don't put all of your eggs in one basket," and are beginning to diversify their sales channels, instead of relying on Amazon alone.
The following information will discuss three benefits to selling on Amazon, and three disadvantages that any seller should carefully consider.
The Pros of Selling on Amazon
There are several benefits that a partnership with Amazon can yield. Three of the main advantages are:
1. Leveraging the Amazon Brand
When sellers use the Amazon platform to conduct business and interact with customers, they are in effect piggybacking off of Amazon's brand reputation. In other words, there is a certain level of trust that consumers share with big brand names, and Amazon is no exception.
This is an especially important advantage for startup eCommerce businesses, and other companies that are relatively new to the field and have a small consumer base with which to start. Amazon can provide some extra capability to such operations, and thus help them to expand their following.
2. Access to a Huge Pool of Customers
As of December 2018, some 20.6 million unique users visit Amazon's websites per month. That's a huge pool of prospective customers from which to draw for any business. When eCommerce businesses use Amazon as one of their sales channels, they immediately gain access to a wider segment of the general consumer base than they would be able to reach on their own.
3. No Need for Extensive Back-End Work
One of the beauties of using another company's digital platform is the lack of stress associated with managing technical issues. Amazon, of course, generally provides a reliable and robust eCommerce forum for independent sellers; and if anything does go wrong, Amazon has a 24/7 tech support team on hand to troubleshoot the problem. That can mean less headaches for a small eCommerce seller with limited technical resources.
The Cons of Selling on Amazon
While there are many benefits to selling on Amazon, there are significant drawbacks that sellers should consider when developing or refining their retail fulfillment strategy. Three of the big disadvantages are...
1. Lack of Control Over Brand Experience
More and more customers engage in so-called "hedonic shopping," in which they enjoy browsing for inspiration rather than targeting specific items. As part of this trend, an increasing number of consumers (57%, according to one study) are buying direct from brands, instead of from mainstream retailers.
Of course, Amazon hardly lends itself to this D2C trend, as it provides more of a rigid template for online shopping than an immersive experience. Thus, for forward-thinking eCommerce companies that want to attract a loyal following, a dedicated website with immersive retail capabilities would be a much more impactful sales and marketing tool than any service from Amazon.
2. Competition from Other Sellers (And Amazon)
Another major drawback of selling on Amazon is the sheer level of competition: from other sellers, and even from Amazon itself. Individual sellers have trouble differentiating their brand or products from similar offerings that are quite literally a click away.
Moreover, there is an increasing preponderance of sellers that deal in counterfeit products on Amazon's platform. Of course, these fraudulent sellers can offer extremely low prices for their goods; another factor which makes it hard for legitimate sellers to successfully compete in the market.
3. Fees for Use of Amazon's Platform
Any seller that utilizes Amazon's platform must of necessity pay fees to the company: monthly subscription fees, referral fees, and variable closing fees. While most sellers would consider such fees to be reasonable in light of the advantages that Amazon offers, the fact remains that these extra expenses can quickly add up, and eat into any seller's profit margin. With that in mind, many businesses that have the necessary infrastructure in place are encouraging customers to buy directly from their website, instead of going through Amazon.
Amazon is a giant in the world of retail, and its dominance shows no sign of a letdown in the near future. Ecommerce companies can gain many benefits from selling on Amazon's platform. On the other hand, there are compelling reasons for sellers to diversify their sales channels in order to attract the widest range of customers, differentiate themselves from the competition, and maximize profits. By thus "putting their eggs in many baskets," these sellers are positioned for exceptional growth in the future.