eTailers have to decide whether to sell on a marketplace like Amazon or make the investment in their own branded web store. It can be a tough decision. Both of these go-to-market eCommerce strategies have their advantages and disadvantages.
This guide walks you through the differences of selling on Amazon and your own web store and why the answer is probably that you should be selling on both.
Why Consumers Shop on Amazon
When evaluating your eCommerce go-to-market strategy, it’s important to first identify the habits of today’s consumers. See how often and why shoppers prefer to shop on Amazon.
- Nearly half (46.7%) of U.S. internet users started product searches on Amazon compared with 34.6% who went to Google first, according to a May 2018 Adeptmind survey.
- The most important factors driving U.S. buyer decisions on Amazon are fast, free shipping (79.8%), broad selection (68.9%), and being a Prime member (65.7%).
- According to a Convey survey of 2,000 consumers, 47% do at least a quarter of their shopping on Amazon, and 23% buy more than half of all their goods on the site.
- In 2018, Amazon was set to make up 49.1% of all online retail spend in the U.S., and 5% of all retail sales.
Why Online Brands Should Sell on Amazon
Most sellers start their business on Amazon because that’s where online shoppers already are. As mentioned above, research indicates that consumers turn to marketplaces to search and find products they want. They also value the experience Amazon offers such as low prices, fast shipping, and easy returns.
Other important advantages of selling on Amazon for your business are:
Low Barrier to Entry
As a marketplace, Amazon represents a relatively low barrier to entry. It’s a well-established marketplace with one of the biggest audiences across the globe. Any merchant can be up and selling on Amazon in a short period of time. To start, sellers only need to worry about their product listings, account management, pricing, and fulfillment. If you want to test out the eCommerce waters, Amazon is a good way to start.
A main reason to sell on a marketplace is the feasible upfront costs it takes to get started. You don’t need to invest in the design and development of a website. Strong branding and messaging isn’t crucial to initial success. It’s free to set up an account on Amazon and sellers only need to consider Amazon’s selling fees and fulfillment costs. Otherwise, sellers get to piggyback off Amazon’s industry-leading site experience.
As mentioned above, most consumers are already researching and buying on Amazon. A built-in audience means you don’t have to spend as much time and resources on advertising and brand awareness to drive traffic to your site. Instead, your focus will be on enriching your product listings and winning the Amazon Buy Box to get in front of as many people as possible.
Overall, Amazon is a “relatively easy” way to start selling online. It overcomes some of the toughest challenges for new online sellers like driving traffic, developing an online storefront, and executing a favorable online shopping experience.
Why Amazon Isn’t a Long-Term eCommerce Strategy
Despite its obvious advantages, most sellers find out that Amazon isn’t always the best path to success. Sellers must consider some of the drawbacks of relying on a marketplace to grow revenue, establish a brand, and build lasting customer relationships.
You Don’t Own Buyer’s Data or Relationships
A big benefit to online selling is the ability to gather data on your customers. You can track everything from what links they click to the lifetime of their purchase history. In turn, you can improve and personalize the buying experience at every step. The better you know your customers, the better you can provide for their needs.
When selling on a marketplace like Amazon, you don’t have access to rich data about your buyers. At least, not in the same way as you would by selling directly to buyers from your own web store. Amazon owns that data, and they don’t share most of it with its sellers. They know what products are ranking, what actions users are taking on their site, and more. Amazon uses that data to their advantage. If you rely on Amazon to gather important data about your users, you’ll miss out on important insights, making it hard to make the right decisions later.
Third-party sellers on Amazon also don’t own the customer relationship. You’re one vendor out of millions on the platform. When buyers receive their products, it’s in a box from Amazon and not your brand. All seller communication is done via Amazon’s platform and their service reps. In other words, buyers will be more used to doing business with Amazon, not your brand. This makes it hard to create and control your interactions with buyers.
Amazon has almost three million active third-party sellers on their marketplace. While it’s great to tap into their established audience, it’s also an extremely competitive space to sell on. You’ll be listed with hundreds of other direct or indirect competitors. Even if you’re the first of your category, you can tip off other manufacturers, distributors, or Amazon’s private label to try to market a similar product, and it’ll most likely be sold at a lower price.
While Amazon makes it easy for you to sell on their platform, it’s easy for everyone else too.
Dealing with Low Margins
Buyers turn to marketplaces for low prices and free or discounted shipping. Amazon provides the perfect space for buyers to compare sellers and review sellers by price. Selling on Amazon often turns into a pricing war that’s a race to the bottom. Not only must you continually lower your price, but you’re also paying Amazon fees for every purchase. It’s easy to see how your margins on products quickly become squeezed, deteriorating your opportunity for profit.
If your competition continues to sell lower, then your hand is forced to sell at the same price or risk losing the sale every time. It’s a harsh reality of selling on Amazon that sellers must consider.
It’s known that Amazon sellers have dealt with the problem of counterfeits. It’s perceived that Amazon isn’t doing enough to stop the issue either. In some cases, counterfeit items can even be sent in lieu of your own authentic products because of commingled inventory. Counterfeits can ultimately affect consumer trust and brand image.
While Amazon presents a quicker way to sell online, your opportunity can be limited by risks like these above. Instead, merchants realize that the real opportunity lies in investing in your own branded web store.
Building On Borrowed Land
Relying on Amazon is often referred to as “building on borrowed land.” This means that you truly don’t own your store on Amazon. At the end of the day, Amazon sets the rules and you’re subject to them. If Amazon decides to shut down your store or institute a new rule that impacts you negatively, there’s not much you can do about it. If you want full control of your brand and experiences, then you don’t want to build on land that’s not yours.
Use Amazon to Compliment Your Own Website
The point isn’t to forgo selling on Amazon (unless experience tells you otherwise). Selling on Amazon certainly has its strategic purposes. When first starting out, it can be a great way to acquire new customers that you didn’t have access to before.
However, Amazon, at the end of the day, is a marketplace. It presents serious challenges that can hinder your overall revenue and ability to build long standing relationships with customers. Therefore, merchants should consider Amazon as one part of your overall online market strategy.
Controlling the Buying Experience Online
While a buyer might first encounter your brand on Amazon, your ultimate goal should be to drive that customer to your own branded web store where you control the buying experience going forward.
A branded web store or selling direct to consumers gives you more control over your online experience than you’ll ever have with your Amazon account. You can leverage detailed product pages, social media, newsletters, emails, and more. Consumers want to invest in more than a product, they’re looking for a valuable experience that connects them with a brand.
2/3 of consumers expect direct brand connectivity.
To drive that experience, you need to collect first-hand data about how customers interact with your brand online. This data – such as where they click, when they abandon a cart, what products they buy, and more – drives effective strategy for the life of the business. You’ll know how to evolve for their needs and market to them. You’re in full control of customer interactions and you can keep them consistent at every touchpoint.
Overall, building a branded web store is a long-term investment in your brand. While Amazon might be a first step or one step in along the way, the ultimate goal should be to drive customers to your web store.
nChannel empowers retailers, wholesalers and technologists with integration tools to sync data and automate processes between their eCommerce, ERP, POS and 3PL systems from inventory synchronization and order fulfillment to supply chain management.
About the Author:
Jillian Hufford joined nChannel as their Marketing Analyst. Using both her writing and analytic skills, she assists the Marketing and Sales teams. Jillian performs competitor market research, provides analysis of key sales metrics, and writes informative posts on multichannel commerce trends.