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The Pros and Cons of Selling on Amazon
With many retailers, there is a debate as to whether they should or should not sell their products on the Amazon marketplace. Choosing to sell on Amazon is a complex decision that depends on various factors such as the type of product, target audience, business goals, how much time to dedicate to maintaining a store and many others. Some retailers argue that selling on Amazon can help them reach a wider audience and increase sales, while others believe that it can lead to increased competition, lower margins, and loss of control over their brand.
Amazon Is the World’s Largest Online Retailer
Amazon is the world’s largest online retailer, with over 300 million monthly active customers. This makes it a tempting market for retailers who want to sell on Amazon. However, it’s important to remember that there are also millions of other sellers competing for the same customers.
To stand out, sellers need to offer competitive prices, high-quality products, and excellent customer service. They also need to be aware of Amazon’s strict rules about branding and marketing, which can make it difficult for sellers to build customer loyalty and differentiate themselves from the competition.
There are multiple ways in which you can sell on Amazon. It’s important to understand the options, and determine which route makes the most sense for your retail business.
3 Ways to Sell on the Amazon Marketplace:
- Fulfillment by Merchant (FBM)
- Fulfillment by Amazon (FBA)
- Amazon Today
Let’s jump in and compare the differences between these 3 strategies.
Amazon: Fulfillment by Merchant (FBM)
When a product is ‘Fulfilled by Merchant’ (FBM) on an online marketplace, it means that the seller is responsible for storing, packing, and shipping the product to the customer. In other words, the seller is not using the marketplace’s fulfillment service to handle these tasks. This approach can be beneficial for sellers who want to maintain control over their inventory and shipping process. However, it also requires them to handle customer service and returns independently.
A downside to this approach, is that you can’t gain access to the many consumers who are looking to leverage Amazon’s ‘Prime’ shipping option. In order to have your products made available within searches for ‘Prime’, the products can’t be fulfilled by each individual merchant.
Amazon: Fulfillment by Amazon (FBA)
Another option that retailers can use is called ‘Fulfillment by Amazon’ (FBA). This is where retailers send the products that they are going to sell to the Amazon warehouse and Amazon then takes over the fulfillment tasks. The FBA option is a great way for retailers to save time and effort on order fulfillment. With FBA, Amazon stores your products in its warehouses, picks, packs, and ships them to customers, and handles customer service. This can be a huge relief for retailers, especially those who are short on time or resources.
However, it’s important to keep in mind that Amazon FBA also takes away some of the control that retailers have over their products. For example, Amazon sets the prices for products that are fulfilled by FBA, and it can also choose how to market and display your products. This means that retailers who use FBA to sell on Amazon need to be prepared to give up some control over their brand.
Another benefit of ‘Fulfillment by Amazon’, is that your products can be shown for consumers searching for ‘Prime’ products. When Amazon has the products in their warehouses, has control over the fulfillment and shipping process, that is what they can offer it within the ‘Prime’ option for their members who pay the annual subscription for Prime, which includes their shipping costs for the year.
Overall, FBA can be a great way for retailers to save time and effort, but it’s important to weigh the pros and cons before deciding if it’s the right solution for your business.
Leverage Amazon’s Fulfillment Structure to Get the Most out of it
The best way to take advantage of Amazon’s fulfillment structure is to understand the best way to leverage it. For example, a good strategy is to let Amazon handle excess inventory, merchandise that is difficult to store or ship, or SKUs that you want to sell but not necessarily stock. This frees up time and resources to focus on other aspects of your business.
For merchandise that is also sold in a retailer’s store or eCommerce site, it can make more sense to sell on Amazon but fulfill yourself. This gives you more control over the customer experience and allows you to build your own brand.
How is FBA Different than Drop Shipping?
FBA works similarly to drop shipping directly from suppliers. Amazon holds inventory in its warehouse, markets it on its website, and then fills orders. The main difference is that the retailer purchases the merchandise before it goes to Amazon’s warehouse. This make it important to use the same intelligence that dictates how much inventory is purchased for store sales. Amazon works with multiple retailers on every SKU, so it’s immaterial to them whether the order is fulfilled using your stock or someone else’s. Not supplying enough inventory results in missed sales, while purchasing too much means unsold stock.
The same technologies that integrate with Amazon marketplace can be used when working with fulfillment by Amazon. Listing the product works the same way, the only difference is alerting Amazon that the merchandise will arrive in its warehouse and directing your vendors to send it there instead of to you directly. Retailers can also send merchandise from their inventory to Amazon if they want to free up space.
Amazon Today Program
Amazon Today is a newer option for retailers to sell on the Amazon marketplace and make their products available for same-day in-store pickup and/or same-day delivery to customers’ doors. This approach is different from Amazon’s traditional model, as it helps retailers gain more customers and repeat customers who are local to their business and looking for same-day, local options. The products are delivered to the customer in the retailer’s branded shopping bags (not an Amazon box) and delivered right to the doorstep.
To use Amazon Today, retailers need to integrate their point of sale software with Amazon, which provides visibility into not only their products but also their available, on-hand stock. Customers on Amazon can then select the ‘Amazon Today’ option and choose between same-day in-store pickup or same-day delivery before completing the sale on the marketplace. For those who select same-day delivery, an Amazon driver comes to the store, picks up the shopping bag, and delivers it to the customer’s doorstep.
Big Opportunity for Small Merchants
Look at the top retailers on Amazon marketplace and it’s unlikely to have heard of many of them. This offers smaller retailers the opportunity to take advantage of a highly sophisticated marketing machine and expose it to enormous traffic. It’s like giving tiny boutiques the ability to display their merchandise in a picture window on 5th Avenue. Any retailer can, and should, find success integrating with Amazon. These days, Amazon provides multiple options for independently owned retailers to get started and chose which approach works best for their business.
Success Virtually Any Retailer Can Achieve
The definition of success is relative depending on the type of retail business. Those interested in becoming top sellers can compete on a number of factors to try and win every box possible. For most retailers, becoming a top reseller is not necessary. Utilizing Amazon should be one piece in a larger omnichannel strategy. Retailers might consider expanding that strategy with additional online marketplaces such as Walmart or even eBay. It’s easy to integrate them in the same way without extra work. Looking at success through this lens, virtually any retailer can achieve it on certain SKUs that are priced and fulfilled properly.
Key Takeaways:
There are multiple ways in which you can sell on Amazon. It’s important to understand the options and determine which route makes the most sense for your retail business. The FBA route means Amazon does the heavy lifting for you and your products can be featured with the “Prime” label, but accepting that it won’t help to build your brand awareness or customer loyalty.
The FBM route is a solid choice for those sellers who want to retain control over their product, shipping options, and manage the purchase from Amazon’s website to the point when it arrives at the customer’s doorstep. However: if a customer is dissatisfied with your product, you are responsible for the returns process and products aren’t eligible to be listed under the “Prime” banner.
With the new Amazon Today Program, you can leverage your store’s physical location in the same day of them making the purchase. Customers can buy the product via Amazon, see that your store stocks it and can then choose to pick it up or have it delivered, all in the same day.
Sellers considering utilizing Amazon should view it as a part of larger omnichannel selling opportunity instead of a be-all solution. It only works if you approach it correctly and understand that instead of going against the flow, see how the flow operates and adjust your strategy accordingly.
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