Is Amazon Right for Your Business? A Comprehensive Guide for New Sellers

Amazon has made its marketplace welcoming for newcomers.

New sellers will find a platform where it takes only minutes to sign up, and a few more minutes beyond that to get product listings live on the site.

With Amazon’s intent to attract as much selection as possible to the marketplace, it makes sense that Amazon wants to make it functionally easy for anyone to start listing products on its site.

Yet, the decision to sell on Amazon should not be based just on ease of signup.

Sellers also need a clear understanding of what it takes to have a realistic chance of being successful on Amazon.

While Amazon still attracts general merchandise resellers that offer the same products as many other companies, the long-term success of those sorts of companies is very much in question.

In a battle of margins and trying to differentiate in a meaningful way, sellers may end up working harder and harder each year to generate the same top line sales, and possibly not the same bottom line revenue.

Before we dive in to discuss which types of businesses are most likely to be successful on Amazon, let’s first review a few fundamentals about the Amazon marketplace to help you determine product fit.

Things Sellers Need To Consider When Deciding To Sell On Amazon:

Almost anyone can list products for sale on Amazon.

Unless a brand has tight distribution controls over its product, it’s not unusual to find dozens – if not hundreds – of resellers offering the same products on Amazon.

This crowding creates price competition, as well as incentives to ignore Minimum Advertised Pricing/Manufacturer’s Suggested Retail Pricing policies or to divert products at low margins, just to get some margin out of holding a particular brand.

Amazon sets the rules of its own marketplace.

Amazon has the advantage of collecting massive amounts of customer search and customer purchase data which it shares only the minimum amounts with sellers.

This compendium of information gives Amazon’s first-party business – Amazon Retail, i.e. private label – a huge advantage of picking winners over and over when targeting products that it should sell on the marketplace.

Furthermore, Amazon Retail will almost always win the Buy Box, which is the mechanism through which sellers competing on the same product will get ranked to determine who gets the sale when the customer clicks the “Add to Cart” button.

If a seller is competing head-to-head with Amazon on a product, it’s not likely the seller will get many sales, given that Amazon Retail has the Buy Box advantage.

Amazon Retail also has sophisticated pricing software which allows it to lower prices to match prices already lowered by competing sellers. Amazon Retail is content not making any money (or even losing money) on a sale so it is not likely that a competing seller will either get the sale from Amazon Retail or make any margin from the sale.

Bottom Line: Competing directly on the same listings that Amazon Retail offers is not likely to be an effective business model long-term.

Amazon wants its sellers to use “Fulfillment by Amazon” (FBA).

FBA is Amazon’s fulfillment program that’s offered to all third-party sellers.

Sellers put their products into Amazon’s network of fulfillment centers, and when a customer places an order, Amazon does the individual order fulfillment, rather than the seller.

Such products in FBA are eligible for Amazon Prime / Amazon Super Saver Shipping, two programs that have consistently been found to improve most sellers’ customer conversion rates.

While a seller may have comparable fulfillment capabilities of its own, this FBA advantage is granted as part of Amazon’s efforts to ensure the highest quality, consistent shopping experience for Amazon customers.

When a seller on Amazon gets orders, it does not own the customer relationship.

Each sale is viewed as a one-time transaction, and sellers aren’t allowed to market or re-market to these customers after the sale.

So while sellers may have sophisticated CRM capabilities for their non-Amazon channels, almost all of that expertise and technology is irrelevant for customers generated through the Amazon marketplace.

It’s your responsibility to secure distribution.

Amazon makes clear that it is exclusively the responsibility of the brand to secure its distribution.

Namely, Amazon will rarely get involved in helping brands remove unauthorized resellers, thereby allowing anyone to sell any product on Amazon, as long as it is a legitimate product where no harm is inflicted on the Amazon customer.

Every seller on Amazon is required to answer customer inquiries within 24 hours.

This requirement applies to any day of the year.

Amazon holds every seller to the highest industry standards regarding shipping times, confirmation emails, order cancellation rates, and a myriad of other criteria.

For many businesses new to Amazon, these standards may well be beyond what they can handle, and hence the Amazon marketplace may be out of the realm of possibility to sell on.

With these conditions in place, let’s discuss how different kinds of businesses are likely to do on the Amazon marketplace.