Marketplace is the world’s biggest online retailer, with sales greater than the eCommerce sales of entire countries. Marketplace Pulse estimates that there are over five million sellers on the marketplace, with over two million on Amazon.com alone.
over $232.8 bn in 2018 just from its product sales, with over 50% of sales coming from third-party vendors. had enviable sales of
The Amazon-Seller ecosystem:
With multiple products being offered under all categories by different vendors at a range of price points, the customer can research products, compare prices, read reviews and purchase from a single platform.
Hence, it is critical for to have an exhaustive list of categories and vendors to bring in this variety.
On the other hand, it is very beneficial for sellers to list their products on as the default ‘product search engine’, it gets sellers heightened visibility and access to a large customer base. . With customers using
Listing on platform since takes care of traffic, order management, payment, and customer support. involves lower overhead costs than one’s own
This gives the added advantage of demand shaping since products from FBA sellers qualify for Two Day and Free Shipping for Prime customers, who on average spend twice as much as non-Prime customers, at no additional cost to the seller.
In exchange for services offered, charges a commission on each sale, called referral fee. The commission varies from 6% to 20%, depending on the category, with the average vendor paying around 15% referral fee on each sale.
If the product falls under the media category (books, music, software, etc.), there is an additional closing fee to be paid on top of the referral fee.
High volume sellers (>40 products sold/ month) on must pay a monthly fee to qualify as a Pro Merchant account and unlock further benefits. For FBA sellers, charges the cost of storage and shipping on products sold.
Risks with the Amazon Seller model:
With a vast number of sellers selling the same product, there is very low differentiation in some categories, and hence, the order in which products are listed on a page becomes a significant driver of sales.
While there are some obvious variables like number and kind of reviews, average rating, product description and quality of images that can influence the rank order, most of this algorithm is still a black box to sellers. Hence, a drop in listing position can lead to a sudden decline in order volumes.
With FBA sellers getting an edge over others, it becomes imperative for them to do accurate demand forecasting and stock the right number of units at fulfillment centers.
If demand is over-projected, the seller not only loses money on unsold inventory but also must pay for storage and shipping charges for getting the products returned.
Hence, it is best to list only products with predictable, long term demand and returning customers on . Seasonal products, have a short shelf life or are short-term fads like the fidget spinner would require accurate demand projections.
Good products to list are ones with consistent demand, large target customer base and reflective of market trends.
A backlash from new features:
One such example is Project Zero, which aims to root out counterfeit products on . This allows brands to directly remove counterfeit items from their stores without going through . Using this data in machine learning.
then auto-flags and removes any item that its algorithm identifies as counterfeit. With only big brands being given access to such new features.
There is a high likelihood of legitimate products from smaller vendors getting erroneously flagged as counterfeit and dropped from the platform. Such issues can result in enormous losses for sellers.
Lower prices tend to drive higher sales, and products/ sellers with higher sales rank higher on the listing. However, with eCommerce retail being a low-margin business, there is little scope for a price reduction.
This makes it especially difficult for small sellers with an undifferentiated product to compete with institutional sellers.
To counteract pricing pressure, sellers may make use of the following strategies:
Instead of being exclusively available on , sellers should invest in their own websites and create a brand presence outside as well. This will help create higher brand recall, and customers on will search not just for the product category but for the brand-category combination.
Such high intent customers are also less price sensitive, leading to good returns for the seller.
Customer Relationship Management:
There are simple ways to understand and measure LTV for any business. To acquire and retain high LTV customers, brands must work on offering subscription models which facilitate recurring purchases.
Also, it can also build an email list of valuable customers and proactively market their products, solicit feedback, etc. to engage outside of . These necessary measures can go a long way in improving the LTV of customers.
Other resources and case studies about Amazon:
- What Is the Receivables Turnover Ratio? How Amazon Receivables Management Helps Its Explosive Growth
- Amazon Case Study: Why from Product to Subscription You Need to “Swallow the Fish”
- What Is Cash Conversion Cycle? Amazon Cash Machine Business Model Explained
- Why Is AWS so Important for Amazon Future Business Growth?
- Amazon Flywheel: Amazon Virtuous Cycle In A Nutshell
- Amazon Value Proposition In A Nutshell
- Why Amazon Is Doubling Down On AWS
- The Economics Of The Amazon Seller Business In A Nutshell
- How Much Is Amazon Advertising Business Worth?
- What Is the Cost per First Stream Metric? Amazon Prime Video Revenue Model Explained
- Jeff Bezos Teaches You When Judgment Is Better Than Math And Data
- Alibaba vs. Amazon Compared in a Single Infographic
- Amazon Mission Statement and Vision Statement In A Nutshell
Key business resources
- What Is a Business Model? 30 Successful Types of Business Models You Need to Know
- Business Strategy: Definition, Examples, And Case Studies
- What Is a Business Model Canvas? Business Model Canvas Explained
- Blitzscaling Business Model Innovation Canvas In A Nutshell
- What Is a Value Proposition? Value Proposition Canvas Explained
- What Is a Lean Startup Canvas? Lean Startup Canvas Explained
- What Is Market Segmentation? the Ultimate Guide to Market Segmentation
- Marketing Strategy: Definition, Types, And Examples
- Marketing vs. Sales: How to Use Sales Processes to Grow Your Business