Selling on Amazon: Risks for Business Startups

There are a number of risks to which entrepreneur should pay attention to the Amazon marketplace when selling.

Risks in the strict sense

In addition to the opportunities mentioned, the Amazon Marketplace also carries a lot of risks, which the business founder most likely can not recognize at first glance. This often leads to problems that are threatened with existence.

To address these threats, the author will address the most serious risks within this chapter. A description of all existing risks "can not be guaranteed in this chapter for the reasons mentioned above.

Maximum price transparency

The books on the subject (advertising)

What for customers is a blessing can definitely become a curse for the provider. It is clear that the Amazon Marketplace offers maximum price transparency compared to other sales channels.

The advantage that on the one hand numerous customers are attracted and that Amazon perceived as attractively priced marketplace automatically brings with it the disadvantage that the potential business start-up will hardly be able to sell an identical product at a higher price.

Competitive prices

In a Online-Shop, this is still possible a little more, in brick-and-mortar retail it is even common practice. It can therefore be assumed that the start-up will see sales collapse immediately as soon as his product is no longer in a price-leading position. The possibilities of getting this problem under control were discussed.

However, the entrepreneur must be aware that the Success largely depends on the product selection and the procurement sources. Business models have little chance of success if products cannot be procured at competitive prices. The reason for this could be, for example, that existing competitors have already established themselves with high purchase volumes.

Deficient differentiation strategies

Discounts for your success (advertising)!

By trading on the Amazon Marketplace, the founder of a business vouches for a certain amount Risks on, which applies to all marketplaces: a limited opportunity for differentiation.

Due to the high standardization in the product presentation as well as the handling of transactions, the focus of the customer is almost exclusively on the product. The dealer remains behind and is hardly noticed.

Lack of branding

These factors, as well as the limited display options of the product, do not encourage the creation of a Brand. If the founder of a business acts as a pure distributor without marketing his own developments, brand building is not quite as essential. Every founder of a business who sells exclusively via the Amazon Marketplace must be aware of this.

One can Strategy absolutely useful be to use Amazon as the only sales channel to start a business, but later to add other sales channels to the business model, such as your own online shop, a wholesale distribution or even a stationary trade. This also leads to a reduction in dependency on Amazon Marketplace.

Dependency on Amazon volume

If the entrepreneur's business model is based solely on distribution via the Amazon Marketplace, then it automatically enters into a strong pendency. With regard to future changes to the commission model or the general terms and conditions, the founder gives himself an actually incalculable risk.

So is the Marketplace retailer changes implemented by Amazon, such as the mandatory automatically subject to answering customer inquiries within 24 hours, 365 days a year.

Threatening exclusion

If the dealer does not stick to it, the exclusion from the Amazon sales platform threatens him. As long as this is pending, the entrepreneur must be able to ensure that all Amazon policies, as well as the given benchmarks, are adhered to in the customer statistics.

In practice, this is quite feasible, provided the founder is a professional from the start Organization and processing. Nevertheless, depending on the inventory risk, the founder should consider whether the dependency should be reduced in the medium term by establishing additional sales channels.

High sales fees require high-margin products

The variable sales fees at Amazon vary between 7 and 20 percent, depending on the product group, see Figure q in the Appendix. There is also a fixed sales fee of EUR 0,99 per sold Article. The latter fee does not apply if the "Power" sales tariff is selected, which Costs in the amount of EUR 39,00 per month.

Figure 17 shows pricing for the Amazon Marketplace using two examples. These are based on the premise of the “Power” sales tariff, since the basic tariff for serious start-ups will not be an option due to the limited listing and evaluation options.

In the left price example from the illustration, the customer book is sold for EUR 100,00 plus EUR 3,00 shipping costs. The start-up marketplace dealer is subject to VAT and has already paid the monthly fee for the “Power” tariff. The payment from Amazon in this example amounts to EUR 84,59, of which the marketplace dealer has to pay the shipping costs and the internal process costs.

In the example on the right, an MP3 player is sold to a customer in France for EUR 150,00 plus EUR 7,31 shipping costs. Since the commission in this example is only 7 percent and the assumption was made that the Marketplace dealer is exempt from VAT, the payout amounts to EUR 146,30, of which the shipping costs to France and the internal process costs of the entrepreneur have to be paid. The two examples become clearthat selling on Amazon tends to pay off more for high-margin products. In any case, founders must thoroughly examine their business model to see whether it can work profitably, including Amazon's sales fees.

Conflict of Interest Amazon vs.. MarketPlace dealer

Another risk for the entrepreneur is the conflict of interest between Amazon itself and the marketplace dealer. Amazon's overall strategy is strong growth designed, which can only be accomplished by constantly expanding the product catalog on the marketplace. The fact is that the growth of recent years without the introduced marketplaceConcept, would not have been possible.

From the aluminum plate to the toothbrush, almost all consumer goods are now available on Amazon. In this case, Amazon itself is primarily responsible for products that have a high sales volume. In product terms, on the other hand, Amazon likes the precedence of the market dealer.

Kanibalisierungsgefahr

Of course, Amazon buyers also have the sales figures for such niche products, so that Amazon can start selling these items directly at any time, provided they can come to an agreement with the manufacturer of the product and agree on a supplier contract.

Because end customers of an Amazon direct delivery ceteris paribus more Trust give, as a Marketplace dealer, it can lead to a cannibalization of his sales. If the Marketplace dealer does not have the exclusive rights to the product, he has no chance to take action against this practice.

In addition, Amazon and other vendors may use proprietary images, videos, and product descriptions for their own distribution activities as a result of the transfer of the unrestricted right of use of the content specified in the Terms and Conditions.

Exclusion from selling on Amazon for lifetime?

The risk of being banned from selling on the Amazon platform for violating the policies of the local one Company or not reaching the targets set by Amazon represents one of the greatest risks for the entrepreneur.

If the exclusion is due to one of the aforementioned causes, it is almost impossible to obtain that this decision is canceled again.

The entrepreneur has also no possibility to open another seller account since Amazon automatically checks whether newly created accounts are connected with an existing blocked account, in some form.

The company name, address, telephone numbers, bank details and even the IP addresses including the MAC address of the computer are compared. Recognizes the Amazon System If these parameters match, the previously created seller account will be closed immediately.

Disability lock due to lack of targets

If Amazon's goals are not met, the Marketplace account will be reviewed similar to policy violations. In such a review, Amazon reserves the right to withhold any payouts up to 90 days temporarily. At the same time, Amazon expects that incoming or pending orders will continue to be processed.

Since the sales proceeds are distributed in the 14-daily rhythm, a considerable payout sum may have accumulated during this period. The retention of this payment for 90 days can inevitably lead the entrepreneur into insolvency if he has low liquidity and needs these calculable cash flows.

Top books on the subject

Read text as PDF

Acquire this text as a PDF (only for own use without passing it on according to Terms and conditions): Please send us one after purchase eMail with the desired title supportberufebilder.de, we will then send the PDF to you immediately. You can also purchase text series.

4,99€Buy

Advice on success, goal achievement or marketing

You have Ask round to Career, Recruiting, personal development or increasing reach? Our AI consultant will help you for 5 euros a month – free for book buyers. We offer special ones for other topics IT services

5,00€ / per month   Book

Book eCourse on Demand

Up to 30 lessons with 4 learning tasks each + final lesson as a PDF download. Please send us one after purchase eMail with the desired title supportberufebilder.de. Alternatively, we would be happy to put your course together for you or offer you a personal, regular one eMail-Course - all further information!

29,99€Buy

Skate eBook as desired

If our store does not offer you your desired topic: We will be happy to put together a book according to your wishes and deliver it in a format of yours Choice. Please sign us after purchase supportberufebilder.de

79,99€Buy