Amazon Risks

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Amazon Marketplace Risks

Public sentiment seems to agree that solely relying on sales within Amazon Marketplace is risky. Amazon created the current rules, and can make changes to them at any time. Brands may have more success with Amazon Marketplace if they have built up a reputation prior to relying on the marketplace for the bulk of their sales. Business sustainability and growth may be hindered by selling on Amazon. Amazon's aim is to provide customers with products at the lowest prices, by doing this product prices may be under cut, forcing Marketplace sellers to lower prices as well. While Amazon brings a large customer database, the customer base is loyal to Amazon and not to brands on the Marketplace. Industry experts suggest that brands should not rely solely on Amazon Marketplace and should always have other e-commerce avenues or an exit plan in place. The risks associated with selling on Amazon Marketplace include account suspensions, Amazon algorithms, and inventory being deemed as unsellable or restricted.

RISK Findings

Account suspensions

RISK OF INVENTORY BEING DEEMED UNSellABLE OR RESTRICTED AT ANY POINT IN TIME

  •  Amazon works closely with large and established manufacturers and brands. If a manufacturer decides that they don't want third-party sellers listing their products on Amazon, they can have Amazon deem their products unsellable or restricted at any time.

BUILDING A POSITIVE FEEDBACK PROFILE ON AMAZON IS A TIME-CONSUMING PROCESS

  • Statistically, only one out of 30 buyers leave feedback on Amazon as compared to eBay where one out of every three buyers leave feedback. This means an Amazon seller needs to sell a lot of products to build up feedback which would help to increase their overall reputation.

Amazon Algorithms

  • Drew Kraemer, founder of an Amazon analytics consultancy, advises that brands are at the mercy of Amazon's algorithms. Any change to these algorithms can mean successful brands can lose sales overnight.

Pushing more businesses to the marketplace

  • In 2019, Amazon abruptly stopped ordering from suppliers and instead suggested that the suppliers start selling on the Marketplace.
  • This recent move is an example of how Amazon can make changes without warning.
  • Additionally, this move pushes more companies to the Marketplace, creating more competition.
  • The marketplace is becoming increasingly competitive with the emergence of many sellers using re-pricing software to automatically alter their prices to stay competitive.
  • The re-pricing software is designed in such a way that as soon as one seller out-prices another, it sets off all other sellers' re-pricers, and a downward pricing spiral starts.

Amazon customers

  • While Amazon has a large customer base, customers typically go to Amazon for the lowest possible prices rather than a brand or a supplier. This business model is not conducive to grow brand awareness or loyalty.
  • Experts, like Charles Dimov, VP of Marketing at OrderDynamics, suggest that brands may perform better on Amazon Marketplace if they have a recognized brand before listing products on the Marketplace.
  • If a brand can do this there are opportunities for business growth, but not from selling exclusively on Amazon Marketplace. Companies should always have an exit strategy if they notice sales are slowing or stop abruptly.

Research strategy

We began our research looking for what industry experts and experienced Amazon marketplace analysts say about businesses selling exclusively on Amazon Marketplace. We were able to find articles by industry experts, like Brian Edmondson, Charles Dimov, and James Thomson. For each expert we verified they are experts in e-commerce or Amazon specifically. To compliment the articles we consulted credible news outlets such as CNN, Bloomberg, and Forbes.
Sources
Sources

Quotes
  • "“If you’re heavily reliant on Amazon, which a lot of these vendors are, you’re in a lot of trouble,” said Dan Brownsher, Chief Executive Officer of Channel Key, a Las Vegas e-commerce consulting business with more than 50 clients that sell more than US$100 million of goods on Amazon annually. “If this goes on, it can put people out of business.”"
Quotes
  • ""Part of the seller relationship with Amazon is granting them very liberal powers over your money and over your inventory," McCabe says. "[Amazon] Prime is going to help you sell exponentially more than you might on Walmart or Jet or eBay, but you have to do it their way. You can't struggle and fight with them.""
  • ""For 99% of brands, their relationship is purely based on an algorithm," says Drew Kraemer, who founded an Amazon analytics consultancy that was recently acquired by the digital marketing firm SocialCode. "You could have a product driving millions of dollars in sales that CRAPs out overnight.""