Heads I Win, Tails You Lose
Things to consider when selling on Amazon
Thinking about selling products on Amazon? They are a great company and consumers love them. But before you leap, it is good to try to understand how they think. A simple method to help you do this is the following phrase:
Heads I win, tails you lose.
Consider this phrase to help you understand your risks when using this selling channel.
Here are some examples of this idea in action:
The problem: How does Amazon discover what products it should sell?
- Heads I win. Amazon often lets sellers take the risk. It watches what sells and then considers the successful products to decide whether to create an Amazon-distributed listing or point other sellers to your listing.
- Tails you lose. Your successful Amazon listing suddenly gets lots of competition and often Amazon appears listing the same or a similar product. Your volumes then go down.
The problem: Amazon wants to start direct shipment, but too many sellers are shipping the product themselves.
- Heads I win. Amazon presents slight differences about shipping expectations for direct ship sellers while making Amazon-fulfilled alternatives appear just a little bit better. The result? More buyers move to Amazon fulfilled listings, especially when delivery deadlines are important.
- Tails you lose. For time sensitive items, sellers now need to move to “Fulfilled-by-Amazon” (FBA) or lose sales. This complicates inventory forecasting. Product now needs to be shipped to Amazon, and then they move it to other distribution centers, often taking weeks to receive product you already have on hand.
The problem: Amazon makes less money on seller-listed items.
- Heads I win. Amazon gives preferential treatment to Prime-eligible listings, thus creating the need for you to move to FBA if you wish to maximize your channel sales. And with FBA, Amazon receives more revenue than seller-fulfilled items.
- Tails you lose. If you do not advertise with Amazon, your listing slowly sinks down the offer page – often despite being the lowest-priced item. The logic behind this is a mystery to most sellers. And if the category is competitive, this added advertising can dramatically increase your Amazon costs.
The problem: Sellers complain when third-party sellers jump on listings, sell inferior products, and take over the prime seller box.
- Heads I win. From a channel perspective “Who cares?” The prices get lowered, more product is sold, and you, the seller, take the hit on unsold inventory.
- Tails you lose. Amazon tries to solve the problem by introducing optional “transparency codes” that allow legitimate sellers to pay for a special label placed on each product. If you pay this extra money for the codes, Amazon can more aggressively keep your listing clear. This is not unlike parking at a sporting event and having a kid come up to you and offer to protect your car from damage for $20. What happens if you do not pay the $20?
These scenarios do not mean you can’t earn money by selling products on Amazon. Hopefully, by understanding the principle “heads I win, tails you lose,” you can more readily discover your path to profitability using this popular selling platform.