If you don't already know, here are some pretty staggering facts about Amazon's market power:
- Amazon's sales exceeded $177.9 billion in 2017 and a market capitalization of $700 billion
- It has over 100 million Prime members worldwide
- More than half of all product searches start on Amazon.com.
Part of Amazon's success is driven by more than 300,000 US-based small- and medium-sized businesses that sell through Amazon's Marketplace as a third party, listing and selling products there with the option of using Amazon's powerful logistics capability to fulfill customer orders.
But is Amazon really a good partner for small- and medium-sized businesses? Ultimately, it's not a simple yes or no answer. There are major benefits of working with Amazon Marketplace and there are also drawbacks.
Here are Pros/Cons to consider as you're developing a strategy for building your business:
Pro: One of the biggest advantages of Amazon Marketplace is that it's easy to get started.
Getting launched as a seller on Amazon is straight forward; in many categories, you just create your product listing, send inventory to an FBA (Fulfillment by Amazon) warehouse, and you are in business. Amazon makes it relatively easy to reach a large consumer base and offers you the tools and infrastructure needed to do so.
However, with such easy entry, it's common for internet marketing companies to see your success, flood the marketplace with 'me too' products and simply price below you, luring customers away from established sellers.
Con: Unscrupulous sellers can steal your listings
When another firm hijacks your listing, you not only lose the sales, you also get the bad reviews associated with the sale. Copycats game the Amazon system; they list counterfeit products under another company's legitimate ASIN (item number) on Amazon, using all of the company's marketing to attract attention to their product. However, the terrible reviews are assigned to the legitimate company, effectively ruining its hard earned reputation.
There is no doubt that Amazon is making progress handling counterfeits and hijacking through their Brand Central registry but there's much more that needs to be done to protect the authorized brand owners.
Pro: Good for companies with unique product and adequate profit margins
For companies that have exclusive products with good margins from the start, Amazon Marketplace can be a very good partner. If you are selling products with relatively low mark-up, it makes little sense to list your products on Amazon. They charge anywhere from 15-20% of the sale price in addition to the listing fees. When your margins are low these costs become prohibitive.
Companies with unique brands also need to be aware of distribution partners they sell to selling on Amazon, even if the company itself refuses to sell on Amazon. It's difficult but not impossible to figure out how your products get onto Amazon but ultimately one of the best ways to stop this is to control your own brand on Amazon from the start.
Con: Amazon owns the customer relationship
Amazon Marketplace can be an outstanding channel for small- and medium-sized businesses to reach large audiences and sell, but ultimately Amazon owns the customer relationship. There are ways around this so that you are able to collect emails for example through product warranty or free e-books sign-up off of Amazon but it's an extra effort for your business to obtain contact information on your customers.
Amazon can also shut your selling account down if you infringe on their policies, so it is not a stable business. It can be difficult to reinstate your seller account, making it a fragile situation to base a business on and it is easy to get suspended.
Selling on Amazon Marketplace can offer unmatched potential for sales and there are numerous success stories of companies launching with a new product that grows into a multi-million dollar business in just a couple of years. Ultimately, to be successful, it's important to go in eyes wide open about all the benefits, the cost of doing business on Amazon and potential risks to the brand you are building.