Between Amazon Retail and third-party Marketplace sellers, Amazon made about $120 billion in sales in the U.S. last year. The vast majority of those sales occurred through third-party sellers.
If you’re a brand executive, the idea of putting your products on Amazon is probably a little scary.
But the reality is that your products are going to get onto Amazon whether you want them to be there or not.
And your competitors are already selling there anyway.
Whether it’s selling or advertising on Amazon, you have to figure out your relationship with this 800-pound gorilla so you can:
Control your brand
Unfortunately, ignorance is not an option when it comes to dealing with Amazon.
Let’s take a closer look at the challenges Amazon creates for your business and see what steps you need to take to be successful in an ecommerce world that is dominated by Amazon.
Let’s first define our terms. You can either sell your products to Amazon or on Amazon.
When you wholesale products to Amazon, they:
Own the product
Make the pricing decisions
Decide what to keep in stock
You can also sell your products on Amazon through third-party sellers, and this is where things can get a little complicated.
There has been a lot of attention paid to all of the unauthorized sellers on Amazon—the companies that a brand isn’t affiliated with but finds ways to sell their products on Amazon.
When you lose control of your inventory and other companies have access to your product, the Amazon Marketplace becomes a problematic channel.
You can’t control pricing because you don’t know who the sellers are, and if you don’t know the sellers, how do you ensure that the Amazon channel aligns with everything you do in every other channel you control?
Regardless of whether or not you control your brand on Amazon, all of your retail partners can easily see what’s happening on the marketplace.
A lot of brands end up having awkward conversations with retailers who say:
“I can’t pay these wholesale prices because it’s being sold for only 5% more on Amazon.”
The brand says:
“It’s not our fault. We don’t know who these companies are.”
Unfortunately, it doesn’t matter if you don’t know who the third-party sellers are.
Consumers don’t care who’s ultimately selling the products and retailers are just looking at the bottom line.
The moral of the story is this:
If the consumer can always get the product cheaper on Amazon, your brand has an Amazon channel problem.
When I refer to a brand selling on Amazon, I’m talking about a company that has a U.S.-registered trademark.
When dealing with unauthorized third-party sellers, many brands think:
“Maybe if I yell loud enough at these sellers, I can scare them off.”
Brands send them nasty letters to cease and desist, but rarely find that strategy to convince them to stop selling the product.
The reality is that there are a lot of very sophisticated gray-market sellers on Amazon and they don’t scare easily.
They all have legal representation and they know how to play the game of what’s known as first sale doctrine.
First sale doctrine is a legal concept that says anybody in this country has the right to buy a product and then turn around and resell it.
These sophisticated gray-market sellers know that they have legal protection thanks to the first sale doctrine, so you have to become more sophisticated as a brand if you want to protect your ability to control distribution.
One important way to overcome first sale doctrine is to modify the way you enforce trademark.
You can structure your trademark so that it’s not just the name of your brand, but it’s actually how the product is handled—how it gets moved from retailer to consumer.
There are about 75 different ways that trademark can be defined and enforced.
If you can show that there is potentially a trademark issue, you can get a court to rule in your favor and be able to overcome first sale doctrine as a legitimate means by which an unauthorized seller can sell your products on the Marketplace.
When you tighten up control of your trademark, you can:
Better control distribution and not have to rely on sending those nasty cease-and-desist letters to unauthorized sellers.
Demonstrate that the continued selling of your products without authorization actually represents a legal issue.
The resellers are illegally selling your products and can’t hide behind first sale doctrine.
Managing trademark and continuing to police it is a cost of doing business. You have to put the right kind of online reseller policy in place, and it has to include anti-diversion language that says resellers or retailers don’t have the right to sell the product to unauthorized resellers.
The simple reality is that almost no brands in the world have complete control of distribution. They sell to retailers or distributors and their incentives do not align perfectly with the incentives of the channel.
As a brand, what you want to do is sell a lot of product and protect brand equity, but the retailer or distributor only cares about selling a lot of product.
They don’t really care about the long-term value of your brand and whether you can get the premium pricing you want because you’re a brand rather than a generic product.
You have to figure out how to motivate your channel to do what you want to do, which is to sell your product at higher prices than a generic.
While you probably can’t keep your channel 100% clean all of the time, you can put enough roadblocks in the way that most of these sophisticated gray-market sellers will decide that it’s too much of a hassle to sell your brand.
They’ll move on to some other brand that isn’t managing trademark very well.
Your goal should be to keep your channel clean enough that you can either take back the Buy Box on Amazon yourself or at least ensure that your designated reseller owns the Buy Box most of the time.
Your pricing gets stabilized on Amazon and it’s much more consistent with your pricing on every other non-Amazon channel. And if you have consistent pricing online and offline, it’s a lot easier to recruit more brick-and-mortar retailers to sell your product.
I’ve worked with companies who have lost their distributors because the distributors said:
“There’s no point in my trying to get retailers to carry your product because you have no control over what happens on Amazon.”
Once the brand got control of what was happening on Amazon, they were able to bring back distributors who could then get their products into brick-and-mortar channels.
We often think about Amazon as a place to sell products, but it’s also a place where companies advertise their products and get indexed on Google, so I like to separate the sales part from the branding part.
If you’re a brand who plans on being around for a long time and understand that you will never have 100% control of your distribution, you need to consider that Amazon is a massive website where all of the listings get indexed on Google.
They get indexed so high—typically number one or number two on SEO and pay-per-click (when Amazon was still bidding on Google ads)—that you end up in a situation where even if your Amazon content isn’t very good, it’ll still going to get indexed really high and you’ll basically have poor quality content at the top of Google’s search results.
You need to put your content in the Amazon catalog by registering it through a program called Brand Registry.
It’s a free program where, as a U.S.-registered trademarked brand, you can get Amazon to allow you to submit content and have it locked down.
Even if you choose not to sell any products on Amazon, you can at a minimum lock down the content on all listings of your brand, thereby reducing the likelihood that some new unauthorized seller that shows up with your product would be selling on a product listing that has inaccurate, incomplete, or inconsistent content.
Forget about the fact that you don’t want that unauthorized seller there in the first place.
Accept that it’s probably going to happen at some point, so make sure that the content on Amazon is high-quality and consistent with everything you do in every other sales channel.
As you think about selling on Amazon, it’s important to be realistic.
Don’t expect that your products are going to start flying off the virtual shelf just because you put your products on Amazon.
There are 400 million products in Amazon’s catalog. The 400-millionth-and-first product that you put in the catalog isn’t going to get noticed right away.
Nobody cares about it except for you.
Amazon doesn’t care about it, Amazon’s customers don’t care about it, and your competitors don’t even care about it.
If you want to sell on Amazon, you have to consider how you’re going to drive traffic to your listings. Are you going to do paid advertising on Amazon or Facebook? Are you going to email customers to let them know you’re on Amazon?
When they’re thinking about selling on Amazon, many brands are concerned that they’ll be cannibalizing sales from their own website.
The reality is that there are very few brands in this world that will ever have the available customer base that Amazon has.
If you can figure out how to be relevant to 200 million customers on Amazon, the sales you’ll make may very quickly far surpass anything you’ll ever get on your own website.
You may be spending a lot of money to drive traffic to your website today, but I guarantee that Amazon is more efficient at driving the same amount of traffic to their website, so you will have to continue to outspend Amazon.
Amazon doesn’t care about your product because they’ve got 10 other products like it and they’re going to get the sale of one of those 10 items.
You have to consider whether you want to get a small piece of a huge pie or get 100% of a really small pie on your own website.
Making this decision may come down to whether enough of your competitors are already on Amazon. You don’t want to be left behind.
If you grew your company on your own website and it was your primary channel, you probably are hesitant to start selling on Amazon.
You may try a few things with one or two products but not be totally sold on the idea.
But part of the challenge is that it’s hard to jump headfirst into Amazon with one product and expect that you’re going to get the full benefit of optimizing the listings and driving enough traffic to start to see success.
There is a point at which you have to say:
“If we’re going to sell on Amazon, we’re going to do it properly.
We’ve put all our content in, locked it down so that if somebody else tries to sell it, we at least know it’s high-quality content.”
Putting a large variety of products on Amazon rather than just one or two is a good idea because the customer demand you get on your website will never match the type of customer demand you get on Amazon.
The customers on Amazon don’t buy the same proportion of products the way they do on your website.
It’s just a reality.
And it can be a self-fulfilling prophecy. If you put one or two products on Amazon, you’re probably not investing the time and money it takes to see success. You were dabbling on a site with 400 million other products when you needed to be hard-core focused on driving traffic to those products on Amazon.
Remember that there are more than two million sellers on Amazon already.
Even if you take just the top 1% of those sellers, that’s 20,000 sellers that know how to play the game.
Most of them know how to go to Asia and source anything they want, so when you come along with your new widget, the reality is that the quality of your product isn’t as important as your ability to drive traffic to your products.
These 20,000 sellers will school you any day of the week on whatever widget you sell, so you need to figure out how to be good enough to compete with the top 1% of sellers who could easily recreate your product and bypass patent, design, or trademark to create something close enough that customers on Amazon would see their version of the product and buy it before they would buy yours because you’re only spending $100 a month to drive 20 people to the listing.
The worst way to go about selling on Amazon is to pretend that the problem of unauthorized sellers is going away anytime soon.
The problem is only going to get bigger, and it’s going to start to pollute every other channel where your brand is trying to sell.
If you’ve taken the approach of, “I have my own website and I’ve got two or three retailers so I’m good to go,” the longer you ignore the fact that Amazon is here to stay, that people are actively looking at your products to figure out how to build cheaper versions, and that they know how to market it better than you do.
Unless you have extraordinary brand loyalty for a product that’s clearly unique in some meaningful way and the only place people can buy the product is on your website or some channel you tightly control (like a franchise store), somebody on Amazon is going to make a cheaper, better version of the same product and get a lot of sales long before you make Amazon a meaningful channel for your business.
A brand needs to be in control of its pricing, and to be in control of your pricing you need to be in control of your distribution.
To be in control of your distribution, you have to have proper trademark, which we’ve already discussed.
But it turns out that if your brand is visible enough and successful enough, Amazon Retail—the first-party side of the company—will be looking at your product.
“We could buy pallets of that SKU, and we could sell it on our site. In fact, we know that enough Amazon customers are searching for it and not able to find it, so we’re going to go out and source it.”
So, Amazon Retail goes directly to a brand and buys a lot of products from them.
B2B companies are happy about this because they understand how to do B2B sales, but they don’t understand that Amazon is a very large channel that can negatively impact their ability to have consistent pricing across channels because Amazon can also decide to lower the prices.
Amazon doesn’t have to make money selling your brand.
They just need to keep satisfying customers who keep coming back to buy the product.
Your best bet is to sell on Amazon using a hybrid model where some of your catalog is sold first-party and some is sold third-party.
There are a number of different issues to consider here.
Number one, for your best-selling products, chances are Amazon is going to find a way to source that product anyways.
If they can’t buy it directly from you, they’ll go to one of your distributors and buy diverted product.
Or they’ll find some overseas distributor that you don’t really have tight control of and they’ll get them to reimport the product.
Now Amazon Retail has first-party product and you didn’t even sell it to them. You’re not even part of the conversation with them.
If you have some products first-party and some products third-party, this hybrid model gives you access to a variety of different marketing programs.
Amazon has different programs for first-party sellers and third-party sellers.
If you have products in both, you actually get access to all the marketing tools.
This enables you to drive traffic in a few different ways, and you can essentially move products around from one model to another.
It’s important to recognize that when you’re a first-party seller, you get no data back from Amazon other than how many units were sold.
If you’re a third-party seller, you can at least see how many units of each product was sold per order so you can start to collect more customer data.
You don’t own the customer relationship, but you can get some more information that will enable you to experiment with different types of bundles, which is very hard to do on the first-party side.
Essentially, the hybrid model gives your business more flexibility so I recommend this approach to get the most out of Amazon.
There is no silver bullet to selling on Amazon, but Amazon is here to stay.
If you’re in this for the long haul, you need to think about Amazon as a communication channel, a sales channel, and an advertising channel. It’s truly all three.
And if you’re thinking long-term, you’re going to have to manage what happens to your brand on Amazon.
Think of Amazon as a place to lock down your content and get the word out about your products to a lot of customers, and start having serious conversations about how you’re controlling distribution.
Are you selling product to anybody that shows up with a purchase order? Are you recognizing the downstream impact that’s going to create this Amazon channel problem?
In many ways, Amazon is a wake-up call to ask yourself:
“Am I actually a serious brand that wants to be around five years from now?”
If so, you need to take control of your branding, distribution, and pricing right now.
The sooner you address the Amazon channel, the sooner you’ll become a disciplined brand that’s prepared to win in every channel you sell in.
James Thomson is Partner of Buy Box Experts, a managed account services firm enabling brands to sell direct on Amazon. He is also president of PROSPER Show, the largest US-based continuing education conference for Amazon sellers. Previously, James was the head of Amazon Services (which recruits >99.5% of all new sellers to the Amazon marketplace each year), Amazon's first FBA account manager, a banker and a management consultant. He earned a Ph.D. in Marketing (B2B Pricing and Distribution) from the Kellogg School at Northwestern University.