Is Amazon good or bad for small business?

AmazonAnicca’s PPC (Pay Per Click) Account Manager, Darren Wynn, takes a look at the positive and negatives of using Amazon as a small business.

Check out his top good and bad reasons below.

Amazon has managed to achieve its highest ever valuation this year. This comes despite major economic stagnation and uncertainty within financial markets. Amazons sales are up 50% compared to the previous year (Forbes.com), and looks to continue this growth in the following year.

With these impressive top line figures it is easy to forget how Amazon makes most of its money, through the sales of other company’s products. Through working with small and medium sized businesses, I often hear concerns from clients when considering Amazon to sell their products. Below, I have outlined some of the key points I find when discussing whether clients should embrace this ecommerce giant or not.

Positives

Exposure
Amazons reach is huge, and for many SME’s teaming with Amazon means reaching a larger number of customers than they could ever hope to achieve on their own.

By selling on Amazon you will automatically tap into a marketplace where thousands of potential customers shop every day. Not only this, but by banding yourself with other business offering the same products, competitors actually work together to be seen.

At this point it is a simple case of offering the best service/ price to win that custom.

Simplicity
Amazon, compared to some other shopping sites/marketplaces, is relatively simple to start. Simply add your product, state its condition and price and within 15 minutes your product is up for sale.

With software such as what is offered at Anicca Digital, it is even possible to upload thousands of products instantly. When this is compared to the set-up on similar auction based sites, the process is relatively uncomplicated.

Trust
Customers trust Amazon to sell them a product on time at a low price. In 2010, Amazon scored 86 out of 100 in customer satisfaction in relation to other ecommerce sites (www.startups.co.uk).

In addition to this, consumers are aware that a big brand such as Amazon will be secure and adhere to the law with regards to refunds and returns. Amazon is big on customer service too. This comes as a huge bonus from a customer perspective.

Negatives
Many clients worry that Amazon are constantly looking for products that it can sell itself, in order to make higher profits from products that sell well. It is true that Amazon have access to all sales data for all products it sells on Amazon.

Hence it is very easy for Amazon to see which products could potentially be sold direct by them, essentially using smaller businesses to test the market before making their business decisions.

Branding
Branding is the biggest sticking point for SME’s and one of the most difficult to justify when making decisions with clients on whether to sell on Amazon. When you tap into Amazon’s customer base, you are tapping into a massive amount of customers.

Unfortunately for you, these customers will never truly be yours. Generating sales is one thing within ecommerce, but it is customer retention and ongoing sales which bring true, long term profit.

This unfortunately is not an option when you sell on Amazon as they not only retain the goodwill from your on time delivery of the customers’ product, you will not be able to market to this customer in the future. Whilst many clients may be able to add some sort of flier in their package, even this is against Amazons rules.

Why? Because Amazon want customers to return to them, rather than your site. And since Amazon is such a large and memorable brand, with pricing mechanisms that ensure customers get a low price, there is little way to remarket to them.

Price Wars
Amazon states 90% of its sales go through the buy box, although this could be even higher. The buy box is the button on the product page, with all other sellers appearing below this. With such a percentage in favour of the buy box, it is arguably a case of be there, or not bother.

Amazon buy box

 

 

 

 

 

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I recently had a conversation with a service manager who worked at Amazon and asked how I could ensure smaller clients gain the buy box 100% of the time. Whilst she mentioned many factors, supply, sales history and seller rating, one option seemed the most obvious to get this position, price. With this in mind, you can often find margins being squeezed as you try to maintain positions in the Amazon market place.

This has become such an issue that many sellers are opting for automatic reprice models (something Anicca Digital Offers), to maintain low prices compared with competitors.

As a member of the PPC team I can help your business set-up the automatic reprice model and more so feel free to give me a call today (0116 26268359).

Conclusion
Amazon is a sales asset that for many SME’s, is impossible to ignore. However this mechanism will win you no long term gains, and relying too heavily on your revenue from Amazon is a sure fire way to ensure your business does not last long. As soon as this Amazon life support is switched off, the business will die.
That is not to say Amazon is not an important channel to tap into, but should be an addition to a healthy business model, rather than the business model itself.

By Darren Wynn


Written by

Operations Director