Selling on Amazon: The Pros and Cons Every Small Business Should Know

E-commerce remains as attractive as ever for both growing and established businesses looking to enhance sales.  As per e-commerce sales data released on 15 August 2013 by the US Department of Commerce, the value of retail e-commerce sales for the second quarter of 2013 was $64.76 billion, an increase of 18.4 percent over the last one year.

However the question confronting growing businesses venturing into e-commerce, is whether they should build an e-commerce store from scratch or should they capitalize on the services and capabilities of an existing e-commerce mammoth like Amazon? Let’s look at the pros and the cons of selling on Amazon.

The Pro’s

Potentially large existing customer base: With a customer base of more than 200 million customers across 10 countries, Amazon represents an important market for any growing business. Equally significant is the established credibility that Amazon enjoys with its customers which a growing business can leverage from.

Save on investing time and money in online marketing strategies: Amazon spends millions of dollars towards driving customer  traffic to its website. On the other hand, the cost of selling on Amazon includes a transaction fee of $0.99 and an additional fee that varies between 6 percent to 25 percent of the sale, depending on the product category. Businesses can also create customized Amazon webstores for $40 per month with 2% transaction fee. Considering the vast potential for additional business, the cost of selling through Amazon appears more than justified.

Improved delivery through Fulfillment by Amazon (FBA): Instead of sending products directly to customers, businesses can ship in bulk to Amazon, which then takes care of the storing, packing and shipping. The FBA service also includes handling product returns and customer inqueries.

The Con’s

Intense competition puts downward pressure on pricing – Most selling categories on Amazon are fiercely competitive in terms of pricing. Amazon also sells directly in some of the product categories making it difficult for smaller businesses to compete. With the added expenses of an Amazon transaction fee, smaller businesses have to be extremely cautious of how they price themselves or all the effort of selling online may prove futile.

Vulnerability to customer ratings – Greater competition necessitates that every business selling online has to be well prepared to deliver quality products within stipulated timeline. Poor customer ratings on the overall purchase experience, could translate to poor visibility on the Amazon product listings and lower business potential.

Limited scope for branding  –  Customizing the Amazon webstore is dictated by terms and conditions that offer little scope for creating an online brand identity.

The alternative to selling on Amazon directly is to create product ads that appear on Amazon.  These ads, which are created from product information you upload into a seller account file, will be targeted to shoppers searching for similar or related items on Amazon.com. When shoppers see your ads and click, they are taken to your website to purchase the product. You are charged a cost-per-click each time a user clicks on your ad and total amount you can be charged is determined by the budget you set. Amazon is currently running a special offering $75 in free clicks when you sign up.

A final option for any business is to create  an independent e-commerce store.  While doing so gives businesses the creative freedom to create an online brand, it would necessitate earmarking resources (both time and money) for an online marketing strategy.  In addition managing online orders and delivery fulfillment can prove to be a challenge for a growing business.

There are pros and cons to each e-commerce model. But common sense dictates that selling on Amazon could definitely a good place to start while exploring e-commerce as a sales channel.

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About Rhea Gaur

Based in India, Rhea Gaur is a former banking professional having worked over 14 years with global organizations such as Standard Chartered Bank and ABN AMRO Bank N.V. She has extensive experience across various facets of business such as service quality, market research, process development and corporate communications. She is currently working as a freelance writer with special interest in topics related to business and economics.