As a brand owner, one of the first and perhaps most important strategic decisions you will need to make is what to do about Amazon. As you can read on our site, we are very resistant to any brand owner doing business with Amazon. But, let’s take a look at what this really means for a brand owner and how it can power a small business.

Amazon has a huge user base. They users are active. They typically purchase a lot of product annually to justify the Prime membership fee they are paying. They are embedded with their user details and can benefit for one-click checkouts, making transactions fast and easy. With Amazon’s layered offerings of Amazon direct merchandising, FBA (Fulfilled by Amazon), Amazon Vendor Express, and 3rd Party Sellers, there is significant competition in the market to drive pricing down. We like to say doing business with Amazon is a race to zero. Who benefits? The consumer benefits from lower and lower pricing. Amazon benefits since they collect advertising and listing fees from 3rd party sellers, and extract other fees from other channels.

Your decision to do business with Amazon as a vendor will depend on a few things; your margin, your cash flow requirements, and your internal resources.

As a brand owner, you will likely do business in Vendor Express, which at the time of writing is in transition and being shut-down and relaunched in 2018. In Vendor Express you actually ‘sell’ your product to Amazon. So your only customer is Amazon. They then sell your product to the marketplace users. On the surface, this may sound like an ideal relationship. It is not. What actually happens is that Amazon does not really purchase your merchandise. They issue Purchase Orders each week which you will fill out and ship. They then will hold your merchandise for 45-60 days. Whatever does not sell is returned to you and not paid for. This is otherwise known as a consignment deal. What they do sell, you may receive payment in 90 days. We say ‘may’ because our experience has been that accounting for the sales and receiving payment is problematic. In terms of brand equity, this is not a good deal for you. You never see who the consumer is, have no contact with the consumer, and have no idea what Amazon sold the item for. You are essentially handing over your brand equity to Amazon and that will end badly.

Another choice for you to do business with Amazon is their FBA service. This is where you send the products to Amazons fulfillment centers to hold as inventory. This may be suitable for you if you do not have the internal capacity to fulfill and ship a growing volume of direct-to-consumer orders. In this scenario, you are paying for warehouse capacity and processing for each order. This eats into your margins and needs to be mindfully thought-out. The downside here is that you need to drive the transaction, which will require paying Amazon for advertising. We have seen few brand owners able to scale into a profitable business using this method of acquiring customers. Who wins in this channel? The same; consumers and Amazon. We have seen quite a few large FBA sellers move away from FBA in 2018 and explore drop shipping models away from Amazon due to the high costs of doing business as an FBA vendor.

The final opportunity to power your small business with Amazon is 3rd Party Seller marketplace. IN this market, you would be listing your products, receiving orders from Amazon, and then you would be fulfilling the orders to the consumer. Again in this channel you are responsible for advertising to get your customers. The more you pay, the more traffic you receive. But that is not a guarantee of transactions happening. Who benefits in this channel? Amazon. They collect monthly fees, listing fees, transaction fees, and advertising fees.

Once you determine to give Amazon a try, your first step is to apply for and secure your Brand Registry. That will give you control of your brand and products on the marketplace. This does not keep others from selling your products, but at least you can control the images and content they can use to compete against you.

Once you launch your products, a must is having good accounting in place. You will lose if you don’t. Even a basic spreadsheet will suffice in helping you to track sales, returns, and accounts receivable.

The final consideration is one that should be given a lot of thought. It has been our experience, that wholesale buyers will not see your brand on Amazon in a favorable manner. In fact, if the 3rd party market is not managed properly and price discounting is occurring, wholesale buyers will be highly resistant to doing business with you. Why should they if you are giving away your margin to Amazon and not them?

As always, drop us a line if we can help you power your small business.