Why relying on Amazon for e-commerce sales can burn you long-term

Shoe posting why working with amazon is risky resized 600Amazon’s an amazing place for niche retailers to promote their wares. It seems a win win for all – both the shopper and the seller – but that’s a myth. Here why selling through Amazon can hurt you over the long haul.

Like building a house on sand

A retail business – clicks or bricks – needs feedback from customers to adapt and stay relevant. Selling through Amazon means that the seller does not get any access to customer data. Several downsides to that.

Amazon owns the customer relationship and all the associated information on who purchases the products, at what price points and in what sizes. The seller knows nothing. Unless the seller has an exclusive license or it’s a manufacturer, it is just an easily replaced conduit in the ecosystem.

Here are a couple of case studies to illustrate why it’s important to take the long view. One took the short-term gain and lost its market. The other played for the long haul and flourished.

Case study 1: The Distributor’s Folly

This distributor supplies small retailers around the country. It had a sizable nation-wide network. That should be position of strength but it made a strategic mistake a few years ago. It got offered a tidy cash amount by a consumer products manufacturer to install POS devices to capture sales data on the category purchases. Over three years the manufacturer compiled insights on who was purchasing what skus and in what volumes. Then it decided to cut out the distributor completely and went directly to the retailers. The manufacturer gained an extra 1/2 percentage point and the distributor lost over 30% of its category sales.

 Case study 2: The Toy Retailer’s Long Play

I will share this case study I heard from Matt Hansen at Fat Brain Toys at the eTail East Conference. He freely acknowledges that Amazon was critical to their business several years ago. Thanks to Amazon the business enjoyed 100% growth for successive years. At one point Amazon sales were well over 80% of their sales. And then the bumps appeared. So here’s where they made some tough decisions and a concerted effort to cut down their Amazon relationship. Now they have Amazon at about 40% of their gross sales and are going from strength to strength.

Matt was very open about their strategy in his chat. Their success boils down to a keen awareness of the toys they want to sell (not the screen-themed kind) and the way they want to sell, with personal interactions at every level. It has led to a decidedly contrarian path. They got into print catalogs and retail stores when other retailers were bailing. Their web site is also as unlike Amazon as I can imagine. I loved the toy-bot and the way they categorize their best-sellers.

My main point is that Fat Brain Toys had the foresight a few years ago to own the customer relationship and the distributor did not. Their trajectories have been very different and that’s why I suggest caution if getting into a relationship with Amazon.

Find the shoe that fits

I have to put in a good word for Amazon after all the gloom and doom. It’s a great marketplace for niche retailers and finicky shoppers (like myself) to connect. I am a big fan of a shoe model called Precision from Mizuno the shoe company. Unfortunately this company killed that particular model this year. My last pair was worn through and I couldn’t find a replacement locally that fit me the way the Precisions did. I turned to Amazon and sure enough someone somewhere had Mizuno Precisions to sell – maybe last year’s inventory. It’s a transaction that worked for both of us.

In summary, if Amazon fits your business goals right now that’s fantastic but be aware that the customer’s loyalty in this model is to Amazon – so have a plan B.

Map the revenue impact of digital marketing

One other recommendation. If you’re a multi-channel shopper it is important to ensure you can map the revenue impact of each tactic. When several campaigns are on concurrently it can be difficult to figure out what’s working best. There are some suggestions in the downloadable white paper below.

5-Tactics to Map the Impact ofDigital Marketing 

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