Snapshot : This week we share why selling with Amazon is a challenge. We look at the consequences of their customer obsession. Then, we take a look at their website shopping experience. And finally, we look at their business approach with suppliers, which is tough and divisive. You need to include them in your online retailer strategy, but prepare carefully for how and when you start selling with Amazon.
We’ve all got that job we keep putting off.
Taking your old clothes to the charity shop. Cleaning behind the fridge. Filling in your tax return.
The things you know you need to do. But you need to dig deep for the energy to start, because you know they’re not going to be pleasant.
In the world of e-Commerce, we put selling with Amazon on that to-do list.
For all their undoubted success as an online retailer, selling with Amazon isn’t easy.
Amazon’s customer obsession
Let’s start with Amazon’s customer obsession.
It’s widely reported that Jeff Bezos claims this as the ‘secret sauce’ behind Amazon’s success.
They relentlessly focus on the needs of the customer.
Everything’s for the customer. They want to know everything about them.
That makes absolute sense as a way to grow your online sales, right?
And we understand that the widest range of products (the ‘everything store’ Amazon aspires to) and access to quick and or free deliveries can make a huge difference to the decision of whether to buy or not.
Great for customers.
But how do they manage to deliver on the range and their order to delivery service?
Selling with Amazon as a bigger business
For bigger, well-established business interested in selling with Amazon, be prepared for a long and drawn-out negotiation process.
We’ve worked with a couple of major Australian businesses who were in the negotiation phase with Amazon for over a year.
Part of the challenge is that Amazon see their huge US scale as a great starting point in the negotiation. But if you’re not planning to sell your goods in the US, you have to point out the US business isn’t relevant.
All the costs you pay selling with Amazon
Then there’s all the extra ‘services’ they offer. Which all come at a cost that consistently chips away at the margin you make selling with them.
Want to have a dedicated account manager at Amazon? YOU pay for that.
Want access to the data behind your sales, so you can make informed judgements about future activity? Yes, that’s an additional cost.
When you add in all the operational costs (freight charges, damages and returns) and advertising and innovation costs (display advertising, promotions, A+ content, events, paid search) you suddenly find that Amazon’s customer obsession is partly funded by you, as the supplier.
Amazon loves to squeeze every last cent out of their suppliers. That’s not good for your profit and loss.
It makes selling with Amazon more challenging for big businesses who want to protect their margins.
Selling with Amazon as a smaller business
What if you are a smaller business though, and want to start selling with Amazon?
That’s even more of a challenge.
They have a fixed fee structure with zero negotiation.
You pay a selling fee. Plus a referral fee. And sometimes also a closing fee.
Plus if you use Amazon for fulfilment (creatively called Fulfilment by Amazon – FBA), you have to pay an additional fulfilment fee.
And all these fees come out of your margin.
They do a great job of making Selling on Amazon sound reasonably priced. You can start with a flat $1 per unit sold fee (or a $50 monthly subscription). That’s your seller fee just to get your name on to the site as a seller.
But you are then adding anywhere from 7% to 15% referral fee depending on the category you operate in. Your closing fee if you operate in certain categories is another $1. And if you are using their fulfilment service, you need to cover anything from $1.32 (for say a mobile phone case) up to $14.57 for a large oversize item (like a computer monitor) per unit sold.
You also need to pay for the storage space your items use in their warehouse which can be between $19.40 and $26.50 per cubic metre.
And we haven’t even talked about the cost of advertising and media to get your products found on the Amazon website. Or the many strict clauses you’ll have to sign up to in their seller agreement.
Head starting to spin?
Now you can start to see why selling with Amazon is challenging.
Solid grasp of your business commercials
Don’t get us wrong, there are people who make a good living selling with Amazon. But you do have to have a solid grasp of your e-Commerce forecast and profit and loss to make sure you sell profitably if you work with them. You need to work out your online business model very carefully, when you’re selling with Amazon.
And for the same business which introduced the simplicity of the 1 click buy button and in fact, who owned the exclusive patent on it until as recently as 2017, setting up a commercial agreement with Amazon that suits you rather than suits them is quite the opposite in terms of a customer experience.
Amazon’s shopping experience
Amazon’s shopping experience when you visit the site as a shopper has clearly been optimised to maximise conversions.
That’s no secret.
They have such huge amount of data, they are clearly putting things in front of you as a shopper that are most likely to make you spend money.
But, if you spend time clicking around on Amazon, it’s not a particularly enjoyable experience.
There’s something quite soulless and clinical about the whole experience.
And we do wonder, if many people put off visiting Amazon unless there is something specific they want, just because of the overwhelming nature of the Amazon online shopping experience.
Look at Amazon’s bewildering array of options for customers. Prime, Prime Now, Pantry, Go, Family, Fresh, Subscribe and Save, Whole Foods, Kindle, Alexa and Echo. (full range of services not available in all markets, but surely on the way everywhere?).
It’s choice overload for consumers. It’s not great design. You see everything at once.
There’s not a lot of progressive disclosure or chunking goes on with the Amazon website. (see our article on design psychology for more on these design terms).
One of Amazon’s core principles is a passion for innovation. We understand each of these innovative services tries to solve a need for the customer. And, we understand that for every service a customer signs up to, they spend more with Amazon and become a more valuable customer.
But, when you as a customer go on to the Amazon site, isn’t there a lot of information to process?
So many categories. So many menu options. And, so much cross-selling. Audible. The Amazon Echo. Amazon business services.
It’s an overwhelming online shopping experience.
If you know what you want, it’s a great place to get in and out of. But as an online shopping experience, urgh. It can be really frustrating.
It’s not really where you as a shopper would want to spend any more time than you had to.
And we can’t help wonder if many online shoppers will stay away because of that. Though, to be fair, Jeff Bezos probably isn’t losing too much sleep about it.
So, finally, we come to their actual working style when you interact with the people there
There is something in their culture and approach that really brings out why selling with Amazon is a challenge. They are relentless in what they do. And ruthlessly efficient.
In terms of e-Commerce personality style, they’re consistently competitive Extrovert Thinkers.
When you deal with them, there is just something quite cold and humourless about their whole operation. They are machine-like in the way they go about their business.
They hate to lose at anything.
Amazon news coverage
Then you see the frequent stories in the press about how poorly they treat their warehouse staff. And even amongst the more skilled parts of their team, you don’t have to search far to find stories about how they have a toxic work culture where there is little empathy for staff.
And infamously, when it comes to being competitive, when they can’t beat someone, they buy them out.
Like this list of over 100 acquisitions by Amazon since they launched.
Conclusion - Selling with Amazon
They’re a really interesting company to observe. We love their aversion to Powerpoint. The story of how they got their supply chain set-up is fascinating.
If you haven’t read The Everything Store biography of Jeff Bezos, by Brad Stone, we recommend a read*
Because of their scale and innovation, it’s impossible to avoid having Amazon in e-commerce.
We haven’t even talked about their web and data hosting side Amazon Web Services who are huge.
But like that job that has to be done, there’s a time when you need to knuckle down and just do it. And you’ll feel better once it’s over and done with.
* As an Amazon Affiliate, we earn from qualifying purchases (yes, we recognise the irony in the context of this article).