In my continuing efforts to prepare for the holidays, I’ve spent the last few weeks reviewing and improving our product listings in our Amazon Seller Central account. We sell on Amazon under the Tastefully Driven name. We list almost everything that’s up on the TD website, but the majority of what we actually sell is either fitness equipment or detailing supplies.
I automated a few of the mundane tasks, added new products (which involved building a bridge to easily migrate products from DI to TD and then to Amazon), and reviewed pricing. There’s one other thing I’m really excited about that will make a huge difference, but it’s not quite ready to roll yet so I’ll refrain from hyping it up.
The more time I spend working within their marketplace, the more I realize that the system is absolutely brilliant…for them. We pay $39.99/month plus 15% of each sale. They give us access to selling on the largest online shopping site. It sounds simple, and seems like an equal trade-off. But what Amazon does – and I can hardly blame them – is use the seller program to conduct market research on a massive scale, and then uses that data to obtain an even bigger advantage as a marketplace.
Let me explain.
Amazon.com has basically everything for sale. If you can buy it online, there’s a good chance it’s for sale on Amazon, but not necessarily sold by Amazon. There are thousands of sellers like us that list their products for sale, products that Amazon does not stock or sell. We make up the “long tail” of products in their marketplace.
Most items are for sale by multiple sellers, all competing for every sale. Amazon let’s us play a game of limbo with our competitors to see who can afford to lower their prices more. When you factor in the 15% fee, we’re barely making money on those listings. We do it because of the volume – we can steal sales directly from our competitors, gain access to new customers who buy our products, and get bigger discounts from our suppliers.
Eventually though, if the competition gets high and the sales volume becomes high, Amazon notices.
From my experiences, they do one of two things when they notice:
- They stock the product. They offer Amazon Prime and Free Super Saver Shipping, and the total cost to the customer (product + shipping) is impossible to compete with. Amazon gets all of the sales. Tough shit. Game over.
- They harass the crap out of you to let them fulfill your orders with their FBA (Fulfillment by Amazon) program. I’ve been contacted numerous times by several different reps trying to get us to let them fulfill our products. They are persistent. I generally say “thanks but no thanks” and they say “can we schedule a phone call for tomorrow?” or “how about sending us just one pallet of one item?” (the one item they list is inevitably always one of our best sellers). To which I respond, “no thanks, I’ll contact you if I’m interested”. And then a month later I’ll get contacted by a new rep. Rinse and repeat.
Think about this from their perspective. Why risk stocking a new product? Why try to pick which model or which brand will sell best? Just let other online retailers pay you to list all of the products on your site. Collect data on everything. If the numbers look good, swoop in and start selling the product. Use your size to get volume discounts on the product, warehouse space, and on shipping. Take all of the sales away from the seller. If not, let the retailer continue to pay you for a sale here and there. They actually get sellers to pay them to do their market research. The data couldn’t be more perfect – it’s in their own marketplace! It’s not just free data, we pay them the money for our sale and also give them the data. I wonder which they value more?
So basically, the moral of the story is that Amazon always wins. Sellers never really quite win, but also can’t afford not to participate on Amazon’s terms.
It’s damn near the most brilliant business model I’ve ever seen. Can’t fault them for that.