Today, we call it a “single point of failure,” but “don’t put all your eggs in one basket” has been solid advice ever since the expression was coined by Miguel de Cervantes in Don Quixote. Basically, if your entire system/business’s livelihood relies on a single point to function, you’ll be in serious trouble if that critical point ever breaks.
Amazon is a great place to sell in many ways, but every seller is aware, to some extent, of the danger posed if you keep all your eggs in Bezos’ basket for too long. Diversification is critical for any ecommerce seller, and Amazon sellers don’t get an exception.
There are a few options for diversifying within Amazon, of course. Amazon makes it easy for even small sellers to start selling internationally, so taking your merchandise overseas can be a great way of getting your product in front of new people and branching out a bit. However, international selling on Amazon is still selling on Amazon.
Amazon brings a number of great benefits to those who choose to sell on the platform, which explains why so many sellers have chosen it as their ecommerce home — and why it can be tough to give up those benefits when you diversify. However, as with any platform, overconcentrating your efforts on Amazon puts you at risk of losing everything in the case of a suspension or similar catastrophic event.
Furthermore, diversifying beyond Amazon poses unique challenges, more than the existing challenge of getting started with a new marketplace. That’s because of Amazon’s aggressive pricing goals, which we’ll go over in more depth later.
Amazon is the “natural” first choice for the vast majority of small or medium sellers looking to get started in the ecommerce business. If any marketplace is the “natural” choice among the many that exist, they must have a whole lot going for them. In Amazon’s case, the benefits and the draw are clear.
First of all, Amazon is clearly dominating the retail industry. It’s hard to get any clear numbers on their yearly customers, since Bezos is reluctant to give exact numbers, but we know that Amazon clearly dominates the online ecommerce world. Estimates from July 2017 show that they have around 85 million Prime subscribers, and if estimates that Prime subscribers make up about 60% of Amazon’s customer base are to be believed, that puts Amazon at somewhere around 133 million active customers. That’s a lot of potential customers seeing your products.
However, that doesn’t tell the whole story. Prime subscribers are worth much more than your average online customer. Because they want to get the most out of their subscription (and because they get free two-day shipping on every order), Prime subscribers spend around 50% more than an average Amazon customer. As a seller, that means making your products Prime-eligible gives you a huge boost in sales — sellers report that switching their products from FBM to FBA for the Prime eligibility doubled, tripled, or even quintupled their sales. This brings us to Amazon’s next big benefit: FBA.
Fulfillment by Amazon (FBA) is a pretty big feature of Amazon, and not just because it’s a fulfillment method. Plenty of other online marketplaces provide or aid with fulfillment services, but FBA stands out from the crowd because of its relationship to Amazon Prime. FBA makes your products automatically eligible for Prime free two-day shipping, which can multiply your sales as we explained earlier. Prime subscribers who come to Amazon specifically for the free two-day shipping are often unwilling to buy a product that does not offer Prime shipping — that’s why making your products eligible through FBA helps so much.
Of course, FBA also makes it much easier for smaller sellers who don’t want to make huge investments in their own logistics and fulfillment systems to get started. At that point, the other benefits are just icing on the cake.
So, the appeal of Amazon to new and upcoming sellers is evident. However, the downsides will start to pile up after you get settled on the marketplace.
With Amazon offering so many benefits, there must be some downsides as well. Even after new sellers have pushed past the cold-start problem (a problem not unique no Amazon, to be fair) and started selling a comfortable amount, they’ll run into even more limiting factors that may push them towards diversification.
First of all, FBA fees eat away at your margins. FBA incurs a litany of charges, from storage costs to handling costs to pick-and-pack fees to long-term storage costs in the case of slow movers… Often, the increased sales from the Prime eligibility will outweigh the reduction in profits from the increased fees, and you can sometimes get away with pricing your items higher, since your Prime customers may be willing to pay a premium on the item for free two-day shipping. However, with more and more competing sellers using FBA, it can still feel like a game of inches getting your pricing right.
Speaking of competing sellers, we also have the natural corollary to Amazon’s popularity among customers: its popularity among sellers. The more popular a marketplace becomes, the more competitive it becomes. That also means that the biggest sellers are extremely well-established, pulling in the vast majority of sales in many major categories and forcing everyone else to fight for scraps. This is why niche exploration and product selection are so important to get right before you start on Amazon, but that’s beyond the scope of this article.
So, Amazon is a tough marketplace to sell on successfully, but that’s to be expected from any large marketplace. However, by limiting your business exclusively to Amazon, you’re putting yourself at a far greater risk than any amount of fees or competition could pose: the threat of suspension.
Amazon has complete control over your business and its products as they exist on the platform, and they have their finger on the button, so to speak. At any point, you could find your products — or even your entire account — suspended.
Now, in general, if you ‘play by the rules,’ you shouldn’t be in too much danger of being suspended. The vast majority of suspensions are placed on accounts in clear violation of Amazon’s Terms of Service, whether their Prohibited seller activities and actions page or otherwise.
Additionally, most of Amazon’s suspensions are statistics-based. This means that a long-term period of poor performance or slumping seller metrics will put you in danger of suspension, but small blips in performance with quick recoveries should pose no risk.
At least, that’s what we would hope to be the case.
We’ve already written about andon cord suspensions, a form of FBA offer suspension that can be triggered at any time, by any support agent, if they receive as few as two customer complaints about the product not working. It doesn’t matter if the majority of these complaints come from customers not plugging the product in — your offer will get suspended just like that.
It seems that Amazon is starting to take a more “suspend first, ask questions later” approach to suspension, which could be extremely perilous to sellers. It makes sense from their extremely customer-oriented position: if a seller or product is showing the slightest signs of malfunction or misrepresentation, better to suspend it immediately so that no customer accidentally purchases it and becomes dissatisfied.
However, this approach could massively hurt sellers if it’s expanded. Many sellers have already experienced competitors buying their products to report them with baseless “used sold as new” or “item not as described,” and this underhanded strategy could become even more effective if Amazon support agents get itchier trigger fingers.
Of course, getting your account or product reinstated is always possible, but it’s time-consuming, expensive, and you’re losing money over the entire duration of the suspension.
Having your entire business rest in the hands of an all-powerful company is something we generally seek to avoid as sellers, which is why diversification is the natural impulse many sellers have.
Spreading your merchandise and your brand across multiple platforms means more exposure, as well as more flexibility in case anything goes wrong in one sector. Of course, getting started on each new platform brings its own challenges, but if you’re a private label seller, you can rely on some of the brand identity you built at Amazon to make diversification easier.
However, Amazon is unique in many ways. With its extraordinary features and market share also comes an extra-ordinary difficulty in diversifying away from it. The company’s priorities make it even harder for established Amazon sellers to diversify beyond the marketplace than you might think.
Diversification after getting established on any one platform is hard, but it can’t be any harder diversifying beyond Amazon than it can from any other platform, right?
Allow me to preface this a bit. Amazon is known for their innovative, risk-embracing strategies, and they’re constantly pushing for more and more market share, presumably only stopping once world domination is achieved. Part of this aggressive pushing is their pricing goals. Namely, Amazon wants to offer the lowest prices out of any marketplace, retail or online, for any products they sell.
To some extent, this makes sense — or, at least, it’s consistent with Amazon’s overall philosophy. However, this strategy leads to some unforeseen consequences for sellers trying to diversify beyond the ecommerce giant.
If you’re a private label seller who wants to expand beyond Amazon, you’ll naturally list your products on other marketplaces. The problem is that Amazon will quickly start watching those listings. If your listing price on any other marketplace drops below the price you have set on Amazon, Amazon will take the buy box away from you, even if you’re the only Amazon seller selling your product.
When this happens, your product is only available through the “Available from these sellers” field. Even though there’s still functionally only one seller, the lack of a bright orange “Add to Cart” button can still significantly hurt your sales, and opens up opportunities for resellers to very easily hijack your listing.
Once this has happened, the only way to get the buy box back it to raise the price on whatever marketplace caused the problem, or to lower your price on Amazon.
We’ve spoken to a number of sellers who have experienced this (they wished to be kept anonymous), and no one has found another way around it. It seems that this pricing restriction is yet another obstacle to successful diversification beyond Amazon. While it doesn’t stop you, per se, it does severely limit your control over your pricing on other marketplaces. It seems that Amazon’s influence knows no bounds…
The bottom line is: diversification is still a very good idea. It’s unfortunate that Amazon makes it even more difficult to diversify than it already is, but the worst thing you can do as an ecommerce seller is bank everything on a single platform. Amazon isn’t going anywhere, of course, but once your business has sufficiently grown, suspension is too big a threat to take any risks.
As for Amazon’s implicit pricing restrictions, there’s no robust solution in sight as of right now. When Amazon has a vision — in this case, to maintain the lowest prices of any marketplace — they’ll stop at nothing to achieve it. There is some hope: with repeated pressure from sellers, they have been known to implement a few features to make sellers’ lives easier. These features have never been their top priority, however.
For now, Amazon sellers looking to diversify will have to grin and bear it, and keep their prices above the level that Amazon deems appropriate. We’ll update you if a solution ever presents itself.
Have you experienced this behavior while attempting to diversify? Tell us about it in the comments below.