In the last several years, Amazon aggregators raised more than $16 billion in funding, but with the current economic conditions these aggregators aren't as active as they were in 2021. Valuations for aggregators have dropped 30% on average - forcing them to get their houses in order. Which is no different than leading ecommerce sellers. An exit strategy with an aggregator isn't likely for most sellers right now...and many sellers are facing flat revenues coming out of a hugely profitable pandemic era. -- Diversifying your selling channels is a viable strategy to improve not only your sales, but your valuation as well.
There has long been evidence to support that even though Amazon is arguably the best place to sell online, it’s extremely risky to only sell on Amazon. Some businesses will last longer than others, but at some point, every brand that’s wholly reliant on Amazon will either fail or plateau. Here’s why.
Amazon Can Force You to Sell for a Lower Price
Retail used to be a seller’s market whereby brands could control the MSRP or MAP (minimum advertised price) of their products. But in today, marketplaces have the upper hand.
In fact, Amazon has already been known to strongarm merchants. PopSockets’ CEO David Barnett, for example, testified against Amazon for “bullying” his team into selling their products at a lower price. Amazon allegedly threatened to source lookalike products from the “gray market” if PopSockets failed to do so.
In another instance, Steve Chou—founder of the educational blog, My Wife Quit Her Job—highlights how Amazon’s buy box inherently forces the lowest possible price. And despite antitrust scrutiny, Amazon appears to still suppress listings that are sold at a higher price on competing marketplaces.
“If you’ve previously priced your goods at low prices during a lightning deal or a sale, Amazon may not let you raise your prices back up to where they were prior to the sale depending on their algorithm,” Chou writes in his blog. “One seller who I interviewed on my podcast had to lower his prices near break even on products that he’d heavily discounted in the past in order to retain the buy box.”
Brands Can Be Suspended for Things Outside of Their Control
In an ideal world, account suspension would only be dealt to those who deserve it: counterfeiters, hijackers, poor performers, or unscrupulous merchants. Unfortunately, the real world doesn’t work this way.
There have been a number of cases in which brands have faced suspension for situations outside their control. To name a few:
- A brand falls victim to return fraud, whereby buyers lie about the condition of a product that they receive in order to receive money back
- A brand falls victim to black hat strategies, such as when a competitor posts a string of negative feedback on their listings, which triggers a “false positive” in Amazon’s system
- There are multiple Amazon accounts supposedly associated with one seller, which is strictly prohibited by Amazon
- A brand is wrongfully accused of IP infringement or selling inauthentic items
To make matters worse, Amazon is notorious for serving suspension notifications overnight with little-to-no explanation of what went wrong. Appealing a suspension can take weeks, if not months. If appeals are denied, then the burden is on the business to cough up money to have inventory removed from FBA warehouses and/or replace it with new, sellable stock.
Your Money Can’t Protect You
Whether you’re a new or experienced seller, barely scraping by or making hundreds of millions through the platform—Amazon won’t hesitate to penalize merchants as it sees fit.
Amazon has historically purged popular brands from its marketplace when its rules were broken, and hasn’t backed down when it has been challenged in court. A single brand’s contribution to the marketplace is but a drop in the bucket when compared to Amazon’s fortunes - even though Amazon's marketplace revenue was flat for 2022.
Amazon Will Compete Directly Against You
If a product is selling exceptionally well on the marketplace, you scan expect Amazon to be lurking in the shadows. Not too long ago, The Wall Street Journal donned the headline, “Amazon Scooped Up Data From Its Own Sellers to Launch Competing Products.”
More than 20 former Amazon employees had spoken out against Amazon, according to the article, stating that the giant is guilty of using sellers’ proprietary information to develop its own competing products. In one instance, Amazon allegedly used data about a bestselling car-truck organizer—including total sales, vendor costs, and margins—to create its line of car-trunk organizers. Such information could help the behemoth manufacture products for a lower cost and enjoy more wiggle room in terms of pricing.
While this may appear similar to how a grocery store might launch its own products, Amazon has a particularly unfair advantage. In addition to being able to view much more valuable data, Amazon can manipulate its search result pages to list its products first or to suppress competitors. Third-party sellers are then forced to lower their prices and/or pay more for paid placements.
It’s Hard to Build a Brand that Sticks
Even though Amazon has been a revenue godsend for million-dollar businesses—including some that have gone public—the truth remains that a majority of marketplace shoppers aren’t tethered to a specific brand.
From the moment buyers search Amazon.com for a product, to the time that they receive Amazon-branded packages on their doorsteps, buyers are only conditioned to remember one brand name: Amazon. This inherently limits the growth of a third-party brand and its ability to attract repeat customers. Without investing into outside marketing and advertising channels, these brands are destined to fall into the sea of faceless, forgotten brands over time, or to get caught in a vicious cycle of adding new products to its catalog to stay profitable.
The Bottom Line: Amazon Calls the Shots
Try as you may, Amazon will always have the final word in terms of the fate of any brand selling on its marketplace. Should you resist, the ecommerce titan is well-prepared to square up and fight for custody over your brand’s rights.
Amazon essentially has the power to make or break the success of an FBA acquirer if all their eggs are in Amazon’s basket. This is why an increasing number of acquirers are looking beyond Amazon and adding multichannel strategies into the mix.
While Amazon is undoubtedly a lucrative channel, as we always say, it should never be the end-all-be-all.
How to Diversify Your Risks: A Quick Multichannel Checklist
- Define the value of other sales channels. While Amazon reigns in terms of sales volume and reach, channels like Walmart Marketplace and eBay attract unique (and loyal) buyer personas. If you’re going to test these channels, start by setting realistic expectations. Rather than aiming for Amazon-like sales, expect to play the long game and use these channels to grow brand visibility, test products, and gain insight or access to new audiences.
- Understand the quirks of each channel. Each marketplace has its own criteria for success, and while many channels share similarities (like a ranking algorithm, buy box and seller performance criteria) their differences take many Amazon sellers by surprise. Walmart, for instance, requires every seller to go through an approval process. Newegg has more than 20,000 product attributes. And all channels have their own unique taxonomies. Be prepared to handle these differences—or outsource to a partner who can help.
- Tap a multichannel software partner. Contrary to popular belief, going multichannel doesn’t have to mean hiring more employees or creating your own system for managing new channels. Rather, tap a trusted software, and assign one brand manager to pilot a brand’s journey across multiple platforms. Multichannel software offers the advantage of a centralized catalog and automation, letting you dramatically cut down the time it takes to list products, manage inventory, and route orders.
For more tips, check out our blog on How to Build a Winning Multichannel Ecommerce Strategy and 7 Ecommerce Marketplace Management Strategies.
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