E-commerce is vital to today’s economy. With COVID-19, more and more sellers are looking to generate revenue via e-commerce channels. What comes to mind as a great platform to use? Amazon. Everyone wants to be on Amazon because it’s easy to sell your product through the site and the consumers are already there. Seems like an easy and obvious win. However, we want to warn you of the danger or relying too much on Amazon as your e-commerce platform. Although we would be unlikely to advise you against using Amazon altogether to sell your product, you should be extremely wary of depending on Amazon to drive sales. Why?
To answer this question, it is critical to understand how consumers find products on Amazon via the Buy Box. The Buy Box refers to the white box on the right side of the Amazon product detail page, which includes an Add to Cart button. Amazon portions the Buy Box to sellers based on an algorithm that considers price and metrics. This means that the lower the price and the higher the rating, the more Buy Box time a seller gets. This is great for consumers. A consumer can get the lowest price from the best rated seller.
Additionally, it is important to understand that in addition to the Buy Box, consumers do look at product reviews and questions. Product information, including questions and answers, are tied to the product, not to the seller. If you and other sellers are selling a product and a consumer asks a question about it, you and any other seller can answer that question. That leaves very little room, if any, outside of pricing and seller ratings to differentiate yourself and be competitive.
Why is this bad? Shouldn’t sellers compete for a share of the Buy Box? Of course. However, this is not necessarily the best situation for a seller. Amazon’s core focus is on the consumer; the Buy Box is designed only for them.
Let’s say you have started selling through Amazon and you are crushing it. Sales are high, your price is the best, your ratings are great. You are consistently being given a large portion of time on the Buy Box. You make the decision to ramp up production to meet the growing demand. However, another seller comes along with the same product for $0.50 less, also with great ratings. You lose the Buy Box and experience a sudden drop in sales. What do you do with all the new product you have to sell? Your only option is to drop the price low enough to gain back time in the Buy Box. Eventually, you could end up in a situation that is no longer profitable for you.
What if there are no other products on Amazon like yours? Keep in mind that selling through Amazon means that Amazon has data not only on you and your product, but your customers as well. It is very easy for Amazon to identify and copy a successful product, produce and sell it at a cheaper rate, and successfully market it to customers, your customers.
So, should you try to sell on Amazon? Of course. It is, after all, a popular platform. However, don’t rely too heavily on it to drive the bulk of your sales. For those interested in managing their own site and own marketing automation tools, we wrote about that here too.