If you are in retail, especially online retail, it can be tempting to put all your eggs in the Amazon basket. Thousands of companies do just that and for some of them, it works pretty well. After all, Amazon brings a lot to the table:
- The largest retail reach in the United States and many other countries around the world.
- A turnkey fulfillment system that can handle pretty much all the day-to-day operations of online retail including customer service, warehouse storage, fulfillment, and return processing. You don’t even need a merchant account if you exclusively work with Amazon. They collect the money for you.
No, it is not necessarily bad thinking for a company to decide to just focus on making great products while outsourcing all retail operations to the well-oiled machine of Amazon.
But don’t… Just don’t.
I am not saying that Amazon should not be part of your retail strategy. For most companies, I think it should. You simply cannot ignore their enormous customer base. But relying on Amazon exclusively is a bad idea for several reasons that I am going to go into below.
Amazon is too easy. Yes, that should concern you.
If you type “sell on Amazon” on Google, you will find dozens (if not hundreds) of gurus selling courses to help budding entrepreneurs learn how to make millions on Amazon. They all recommend the same basic strategies and while I don’t think those strategies are as easy as they are presented, there is one thing they all have in common: low barrier to entry.
The fact that about anyone that has (or can borrow) a few hundred dollars can sell on Amazon is a big problem. In case you have not looked in a while, Amazon is not exactly short of sellers. There are millions of small-time sellers that gum up the works and create problems that I will touch on in a second.
In other words, the fact that Amazon is too easy makes it very hard. It is increasingly hard for a new brand to fight through the hordes of sellers to launch anything new.
Amazon is a “gray” Wild West where the sheriff is not interested being fair to you.
If you engage in the Amazon marketplace as a seller, you play by their rules. Many of those rules live in gray areas that are not well defined. Some of their rules are flat out unfair to sellers.
So what is your recourse if Amazon decides that you have broken a “gray area” rule that they have not even defined well and refuses to release the money in your account? The short answer is pretty much nothing. Amazon lives by its own rules: the terms and conditions you agreed to (but probably did not read) when you signed up. They create the rules (tilted in their favor of course), interpret them, and enforce them. And to make matters worse, there is no real appeals process.
Selling on Amazon is like opening a business in a third world country in that you are suddenly playing by a different set of rules and those rules are almost certainly not fair. What do you really do when they decide you have broken their rules? I suppose you could sue them but who has the money to sue one of the largest companies in the world, especially when they have their terms and conditions to lean on?
Here are the sorts of things that can get you in trouble on Amazon:
- Complaints (real or fake) that your product is inauthentic or counterfeit.
- Complaints (real or fake) that your product is dangerous.
- Complaints (real or fake) that your product is defective.
- Suspicion (real or imagined) that you are manipulating the product review system.
- Complaints that you are not representing your products accurately.
- Complaints (real or fake) of copyright or trademark infringement.
Here is what I want you to understand. You can be a 100% legal, ethical company and end up with these kinds of problems on Amazon. Numerous companies learn this the hard way. I spoke to someone a few months ago that logged into his Amazon seller account only to learn that $100,000 had been confiscated. As it turns out, some of his customers had filed false complaints. He eventually got the money back but almost had to file bankruptcy in the meantime because of cashflow issues.
Amazon is a wasteland of bad characters that want to destroy you.
In Amazon’s defense, they work very hard to kick riffraff off their platform. However, they are fighting a never-ending battle where new bad actors multiply like rabbits. Here are just some of the things you can expect them to do:
- Counterfeit your products. This is very easy to do.
- Violate your intellectual property by stealing your sales copy and product images and by infringing on copyrights, trademarks and patents.
- Write fake negative reviews about your products.
- Acquire your products through diversion and sell them at a discount on Amazon without authorization.
- Engage in schemes to get you in trouble with Amazon such as claiming that your products are inauthentic or unsafe.
It is very true that all of these problems happen off Amazon too but Amazon just seems to breed that kind of activity. I believe that the low barrier of entry is the reason why. Large established companies cannot risk engaging in these kinds of frauds but the numerous small players (many of them international and immune from prosecution) can. If Amazon kicks them off, they often find another identity to get right back on.
There really is a retail world outside Amazon.
Yes, Amazon is huge. At the moment, almost half of all internet retail occurs there. However, 50% of internet retail and 95% of all retail takes place off Amazon. Why would you give up a legitimate chance to at least double your business by expanding off Amazon? It is not like Amazon gives you better deals for using them exclusively.
Your own ecommerce presence (off Amazon) gives you huge advantages.
Guess who owns the customers that buy your products on Amazon? Do I really need to answer that?
Outside of very narrow restraints, you can’t remarket to these customers. You really don’t even own any information about them. You can’t notify them of sales, you can’t run your own loyalty programs, you can’t provide your own customer service in the way you would want. In short, your hands are tied.
Internet retail is way more than just a transaction and shipping a package. You can grow fast by providing a great customer experience that starts with your website and the way you answer phone calls and includes dozens of little things including the inserts you put in shipments and the little perks you give. Your customers are not numbers; the relationship you nurture with them should be special. Suffice it to say that you cannot do this in the transactional world of Amazon. You can’t provide the kinds of specialized tools and information on the Amazon platform that you can provide on your own website either.
The reason I talk passionately about this particular point is because this is our bread and butter. As we close 2019, I am thinking of a company we work with that doubled this year after tripling the year before. Why? Simply because we focused on improving their customer experience.
In summary, I would never say that you should ignore Amazon. In general, I suggest to potential clients that they take advantage of that selling platform. They should go in with their eyes open, understanding the rules they are playing by, and doing everything they can to keep their business and products safe. But while they do the Amazon thing, they should also be involved in other ecommerce that is probably more valuable in the long run.