In recent months, this column has addressed competition with Amazon from a couple of different perspectives. While current statistics still show the majority of sales on the site are made by third party sellers (who might actually be a small business owner),there’s a conspicuous trend toward the giant taking over more and more of the pie.
This New York Times article detailed the challenges, frustrations and dependencies that come along with selling through the platform. I can think of two clients who have fought the bear and walked away after being bitten.
One client, selling a proprietary product directly to Amazon and on the site through approved dealers made the hard choice of cutting off the grizzly. You see, Amazon won’t agree to minimum advertised price (MAP) policies and instead it makes sure it “wins the box.” That is, by showing the lowest net price it places its own listing ahead of other sellers.
This results in the price of the merchandise spiraling downward, undercutting the dealer network. So, our client effectively walked away from millions in future Amazon purchase orders to protect the integrity of its primary distribution chain. Who can blame them? How can you justify betting it all on one outlet (even one named Amazon) when the dealer distribution chain that helped you grow your business would be at risk?
Another client who manufactured personal care products found his supply chain leaking. He suspected a distributor was selling merchandise to unauthorized dealers who were reselling on Amazon and undercutting the brick and mortar dealer network. While this diversion wasn’t Amazon’s fault, our client hit the Amazon brick wall trying to get help to control it. He worked for months to prove to the Amazon bureaucracy that he owned his own trademarks and was classified in the right merchandise category and therefore qualified to invoke an Amazon policy that would allow him to shut off those unauthorized sellers. Business is tough when you can’t get anybody on the phone to discuss your protests. Eventually, this client realized that even selling direct to Amazon was no dream. For every item purchased by one Amazon warehouse, another would ship back his unsold goods. The slow payments and return fees effectively canceled each other out.
Now, if you’re thinking of making a late entry for your business into e-commerce, don’t be discouraged just because Amazon seems to outsell the next seven largest competitors combined (yes, including Wal-Mart). And don’t think that just because your industry’s products are already on the site (and cheaper?) that there’s no response you can make.
Yes, commerce is shifting online. Yes, customers are beginning to expect to shop this way. Yes, Amazon is a formidable, perhaps even a predatory competitor. Remember, there’s more to selling on the internet than on the one dominant platform. Sure your sales volumes will be lower, but keep your eye on the long term and look for a way to satisfy customer needs beyond price and speed. Emphasize service and experience and you’ll have a better chance to survive your walk through the woods.
— Frederick Welk
CEDF Business Advisor