Amazon.com has created a great opportunity for some while also creating a major headache for others. Amazon’s disrupting many industries- but make sure to be aware what these disruptions can do so you can protect your company or even get ahead.
I’ve been selling on Amazon for a few years. I started from the very bottom and now I’m building software for my own Amazon business. Here are a few things that I have seen and learned about the platform.
what is Amazon.com?
Amazon is basically Google, that is a search engine, but for shopping. When people shop on Amazon.com, they tend to know exactly what they are looking for. They are usually Prime members- and there are over 100+ million Prime members in the United States. Considering that the United States has a population of ~300 million people, that means that almost one third of all Americans have a Prime membership. An Amazon Prime membership costs around $99 a year. Amazon also offers a discounted Prime membership for students but if we were to consider that they all paid full price- that means Amazon makes ~$9.9 billion from Prime memberships alone every year.
This is important for a couple reasons. The biggest is that the number of American Prime memberships have been increasing every year. Amazon supposedly makes up for almost half of American ecommerce sales (~44%) which is still only 6% of the American retail market. This means that Amazon still has a lot to grow. This also means that because Amazon has repeat customers, they don’t have to deal with fraud as much.
Why is shopping on Amazon so great?
The obvious is that Jeff Bezos began Amazon.com with a long-term vision focused on delighting customers. He says that customers are great because they have divine discontent- they always want more. So Bezos focused on things that would never change 10 years down the road, things that customers would always want- which included fast shipping and great customer service.
Shopping on Amazon tends to be a great experience because if you don’t like something you bought- you can usually easily return it, no questions asked. There are certain items that aren’t allowed to be returned like grocery products.
The second key is Amazon’s masterful fulfillment center network that makes Amazon’s two-day shipping economically possible. Amazon has over 70 fulfillment centers in the USA. They have more fulfillment centers than states. You can easily offer two-day shipping for your top products if they are strategically located in fulfillment centers across the country. Amazon’s fulfillment centers can be at capacity so they have started to implement Seller Fulfilled Prime, where sellers can fulfill products on their own- introducing us to another key strategy.
Who are Amazon’s third-party sellers?
Amazon third-party sellers make up for almost half of sales on Amazon.com. Amazon has over 140,000 sellers, people like me, that do over $100,000 in revenue a year. They include small shops like me as well as big shops that do millions every year. They could be big brands like Nike, major distributors like Pharmapacks, or Chinese manufacturers that produce and offload tons of products directly to customers on Amazon.com.
I have heard from an Amazonian that Amazon retail runs 3 big teams. They have one team that is dedicated to the top 20% of products on Amazon that make up for 80% of their sales- the 80/20 rule. They have another team dedicated to customer service and satisfaction. And last, a team to support third-party sellers.
There is no way that Amazon could offer their 5 billion product catalog on their own. It doesn’t make sense for them to hold onto “long-tail” inventory that doesn’t sell frequently. However, there are many third-party sellers that do sell this inventory. So their strategy is pretty ingenious in that they sell the top 20% products themselves, allow third-party sellers to sell everything else and grow their catalog, while profiting from every third-party sale through their service fees. Amazon’s third party seller service fees grew 44% last year.
This creates a flywheel effect: third-party sellers increase Amazon’s catalog, more customers can find what they’re looking for on Amazon.com instead of going somewhere else, more customers on Amazon lead to more third-party sellers, and so on.
Amazon profits at every stage- from their customers who pay yearly Prime memberships, to their own sales from the top 20% of products as well as their secret private label brands, and from their third-party seller services.
Why Should You sell on Amazon.com?
If you are a brand and you’re not selling on the biggest shopping website in the United States, it’s safe to assume you’re missing out on sales. If you’re a big brand, there might be people selling your product on Amazon.com without you even knowing it.
You can have a couple of issues when you neglect your Amazon.com presence.
The biggest could be a counterfeit problem with mystery sellers who are destroying the brand that your company worked so hard to build- but I’m going to focus on the data.
First, you’re missing out on great data, and second, is that there might be people who will use that data against you.
Amazon has built a great business analytics system for all their sellers. We can see how many unique people visit a product page and the conversion rate. We can gain more information from the in-house advertising system. We can also get direct feedback from customers. While Amazon has a huge problem with fake reviews, Amazon’s reviews are also a great way to get direct, quick feedback from your customers.
Many large brands like Anker as well as InstantPot built stellar products from the rapid product feedback loop that Amazon offers.
Not only can you analyze and take action on your own customer reviews- but you can take action on the negative reviews of your competitors.
It is against Amazon’s Term of Service but it is also possible to extract your customer data from Amazon.com. There’s a lot of things that you can do with Amazon customer data and that people are doing with Amazon customer data.
The problem is that if there are other people selling your products on Amazon.com- they have access to that data as well. Do you really want strangers or competitors accessing your customer data?
Create a Global Brand
Last but not least, Amazon offers multiple international marketplaces including North America (US, Canada, Mexico), Europe (UK, France, Spain, etc), Asia (China, Japan) and now Australia.
It is now easier than ever to build a global brand thanks to Amazon’s fulfillment centers and support services.
Do you need help selling on Amazon?
There’s a lot more to say about selling and building brands on Amazon.com but I hope this was a good intro. If you have questions about selling on Amazon, leave a comment or you can reach me here.