Selling on Amazon.co.uk (Seller Central)

[ca_jamesscott]

I've been looking around the forums since joining a couple of days ago and I'm surprised not to find more mention of members who are selling on Amazon (either through Marketplaces and/or Seller Central).

Amazon is kicking butt right now (41% increase in sales Q/Q announced this past week) and so any online retailer should certainly be considering listing their products on Amazon and getting access to their enormous and growing loyal buyer base.

I'm curious to hear if anyone is currently using Amazon as a sales channel? What are your experiences (good and bad)? I've got some experiences and best practices to share on these forums if anyone is interested?

James
ChannelAdvisor UK

 

[sysops]

Have you looked at Amazon's charges lately?

The combination of very high charges and 'race to the bottom' on margins makes Amazon quite unappealing.

 

[ca_jamesscott]

Hi sysops.

Yes, I'm aware of Amazon charges, and whilst high, most retailers I deal with think it's a price worth paying. Let me explain why, if I may.

Let's compare selling an item on your website (your most cost-effective channel) versus on Amazon ('high' charges).

There are 3 main components to consider

1) Marketing / Customer Acquisition
2) Payment Processing
3) Fraud / Chargebacks

For each of these I will firstly consider the cost on your own website.

1) Customer Acquisition

It is generally recognised by online retailers that you need to pay between 6% (highly tuned campaigns) and 11% (more typical) of your online turnover in marketing costs. That means most retailers spend between £6 and £11 in marketing in order to sell £100 of products. This is pretty standard and although it varies from product to product and industry to industry, the range I quote is what 95% of retailers pay. BTW - you can work out your own % by dividing the amount you spent in the last 3 months on marketing (print ads, banners, affiliates, Google Adwords, SEO, etc) by your total sales over the same period. It's not precise (for example repeat buyers somewhat alter the equation) but it's close enough.

2) Payment processing
Depending on the rate you've been able to negotiate with your payment provider, you're probably paying between 1.5% (on the low end) and 2.5% (on the high end) for payment processing.

3) Fraud / Chargebacks
The industry average 'cost' of chargebacks and fraud on an online retailer is in the range of 0.5% (very good) to 1.0% (average) of the cost of goods sold. That means if you sell £10,000 of good in a month, fraud and chargebacks will probably cost you £100. Make sense? This of course doesn't include the time and resource it will cost you to actually process and deal with these incidents, which pushes the % up further.

So, let's total that up:

6-11% (marketing) + 1.5-2.5% (payments) + 0.5-1.0% (fraud).

That gives between 8% and 14.5% total cost for these elements via your website.

Now, back to Amazon. Amazon charges between 7% and 15% (depending on category) I believe (although a few categories may be higher). But the good news is that Amazon takes care of all 3 components above. That means that actually Amazon represents a pretty fair deal. And they know that. That's why they charge what they charge and that's why they're growing so fast (in a big part due to the success of their third party merchants).

So, for any online merchant, Amazon is worth a look and an experiment. It can give you INSTANT access to a vast buyer base and drive a TON of sales. Of course, this has it's own benefits - not only will your volumes increase (enabling you to push your suppliers for better discounts) but you also are accessing buyers that probably wouldn't have found your business or your products otherwise - which means incremental sales over what you would do if you didn't sell on Amazon.

I hope this makes some sense. As you may be able to tell - I'm a big fan of marketplaces such as eBay, Amazon, Playtrade and (just launched) Pixmania. They account for over 25% of all online purchases so by skipping them you're missing out on a lot of potential sales.

Would love to discuss more!

James.

 

[Paul Kelly ICHYB]

of the 41% increase, how much came from internal growth and how much from marketplace traders?

They are an outlet that should form part of your sales strategy and not sole by your strategy!

A lot of people will not buy from ebay, so, if you do not sell elsewhere, you miss a chunk of the market!

As for the 'very high charges' comment, if you use ebay and paypal, what are the combined charges? Also, if you had a shop, what are the outlet expenses - lot more that 7-8%!!!!

A lot depends on your products and the exposure it is given (by them and you).

 

[ca_jamesscott]

The % of third-party sales remained the same as last year (29% of all sales) so that means they have grown at the same 41% rate as the Amazon retail sales.

Check out the amazonstrategies dot com blog for some great insight from one of my colleagues.

Here's an extract.

"Third-Party (3P) sellers world-wide on Amazon grew 18% to approx. 1.4 million, accounting for 29% of all products sold (same as last year). While the growth accelerated (18% vs 11% a year ago), the share of third-party merchants vs. Amazon Retail (sourced and managed by Amazon) has remained essentially flat. The vast majority of seller accounts are in the media category and I am estimating there to be world-wide about 25,000 non-media sellers (anybody have any other insights?). "

James.
ChannelAdvisor UK

 

[sysops]

So, for any online merchant, Amazon is worth a look and an experiment. It can give you INSTANT access to a vast buyer base and drive a TON of sales. Of course, this has it's own benefits - not only will your volumes increase (enabling you to push your suppliers for better discounts) but you also are accessing buyers that probably wouldn't have found your business or your products otherwise - which means incremental sales over what you would do if you didn't sell on Amazon.

Your points are all well thought out, and very valid. However, one very important point you don't mention is actual retail price. I'll illustrate this with a real life example.

We run a number of retail sites, and sell exclusively through these, and not on third party channels such as Amazon and eBay.

One of these sites specialises in a particular type of household goods, with an average sale price of £50-£100. Typical margin for this type of product, when retailing at RRP, if 40% gross (that's the best achievable margin).

One of our main competitors do sell on Amazon. They typically sell at 75% of RRP. So something which should sell at £100 (and does on their retail site), they sell on Amazon at £75. This is necessary in order to compete with other Amazon sellers, and with Amazon themselves.

So instead of having a £40 margin on this product, they have a £15 margin. £10 of this goes to Amazon. You are then left with £5 margin on a £100 product.

This is not sufficient margin to justify the sale - once you've taken your running costs out of the equation, you lose around £20 on that sale. So the sale is only worth it if you have a near 100% rate of customer retention. This is never the case, especially not with customers buying from Amazon sellers, who invariably shop on price.

The ease of accessibility (for new merchants) of eBay and Amazon is a double edged sword. On the one hand, it levels the playing field. On the other hand it encourages swathes of new, naive sellers, who have little or no understanding of the underlying numbers, to have a go at selling at minimal margins, margins which mean they actually lose money, and stop trading within 6-12 months.

We've looked into this very closely, and concluded that selling on Amazon could indeed generate huge turnover for us, but at an operating loss. It would in effect be subsidised by the core business. This applies not only to the product discussed above, but to several classes of consumer products we looked at.

If it were possible to sell on Amazon at RRP, with 15% fees, we would.

 

[ca_jamesscott]

Sysops - your points are also very clear and valid. You've obviously done your research.

It's true that as products become more popular on Amazon, other sellers are attraced to sell them, and the competition drives prices down until those with the best margins (or worst maths skills!) are left.

But then that's what happens in business anywhere, online and offline....

The key to success is staying ahead of the competition - spotting the next top selling products and bringing them to market before they do, being the better negotiator with your suppliers to get the prices down (for example, maybe your competitors have lower costs than you do due to the volumes they are driving and thus are commanding lower prices from their suppliers? Just a thought.), and keeping your costs down (efficient fulfillment processes, etc, etc.).

The point I'm making is that Amazon is not really that different from selling anywhere else, online or offline. It just accelerates the process somewhat!

Hey - not trying to tell you how to run your business - you know your economics much better than I do - I just want to make sure that other retailers reading this thread don't automatically rule out Amazon (or Play.com or Pixmania) because of the 'high' fees.

Good to have such an intelligent discussion on this!

All the best.

James.
ChannelAdvisor UK.

 

[lesliedocherty]

This is a great post, exactly the reason i used to come here all the time, a well thought out arguement with an equally good reply, great stuff.

I have considered amazon for a while, but dont know where to start, websales are now 30% of store turnover.

How do i go about starting to sell on Amazon ?????

 

[worlddom]

You can start here

 

[sysops]

(for example, maybe your competitors have lower costs than you do due to the volumes they are driving and thus are commanding lower prices from their suppliers? Just a thought.), and keeping your costs down (efficient fulfillment processes, etc, etc.).

While this is possible in many situations, it isn't the case here. We actually sell more of those particular products than any other independent site in the UK, and are definitely achieving the best price from the manufacturer.

The point I'm making is that Amazon is not really that different from selling anywhere else, online or offline. It just accelerates the process somewhat!

Accelerates the process - that's an interesting way of looking at it.

We tend to sell at or close to RRP across all of our sites. This works well for us, because it allows us to provide a good level of customer service, which results in incredibly high customer repeat rates (one site has a 60% 12 month repeat rate).

The only way we could pay for such a level of customer service is through higher margins.

It would be quite possible to run the operation differently, reducing margin by 10%, and slashing spend on customer service. You can't really have both - once you've worked on streamlining your operation, and all other costs are as low as you can make them, the next biggest cost is customer services.[/quote]

Hey - not trying to tell you how to run your business - you know your economics much better than I do - I just want to make sure that other retailers reading this thread don't automatically rule out Amazon (or Play.com or Pixmania) because of the 'high' fees.

Like others, I welcome the discussion

 

[ca_jamesscott]

This is a great post, exactly the reason i used to come here all the time, a well thought out arguement with an equally good reply, great stuff.

I have considered amazon for a while, but dont know where to start, websales are now 30% of store turnover.

How do i go about starting to sell on Amazon ?????

I can introduce you directly to the Amazon team - send me a private message with some details on your business and contact info and I'll get someone from Amazon to call you next week.

James.
ChannelAdvisor UK.

 

[ca_jamesscott]

Oh - and pleased to hear you enjoyed reading the post!

 

[ca_jamesscott]

Hooray - I finally reached the 15 post target which means I can now post URLs!

Here's a useful one to an Amazon blog written by a colleague of mine in the US.

http://www.amazonstrategies.com/

 

[Paul Kelly ICHYB]

sysops,

you comments are also well thought out, however, you miss several issues/points.

Margin (and business) Mix - you must adjust your margin to suite your outlet/route to market, based on expected business (whether that be turnover, margin, cash profit, it is your call).

If people go to Amazon as a starting point, you may never see them, as they may stop there.

I am sure there are some fools out there, but I cant see anyone would sell at a loss - are you cost prices right/do you need to renegotiate with your supplier? However, you are right that there are people who do not know their own business.

You seem focussed on RRP's - these can be evil things. An RRP is irrelivent if there is no price management by the supplier and, in any case, this is deemed anticompetative in several markets, such as electronics, and, in my eyes, should be banned altogether! But that's another thread!

OK, Amazon i not for you, but it should not be discounted from everyones portfolio!

 

[sysops]

I am sure there are some fools out there, but I cant see anyone would sell at a loss - are you cost prices right/do you need to renegotiate with your supplier? However, you are right that there are people who do not know their own business.

But the problem with a level playing field online marketplace such as Amazon or eBay is that it only takes one fool selling at very low margin to start a race to the bottom. We've seen this over and over again, and it is one of the biggest problems in online retail.

There are two categories of 'fools' in this case:

1. New sellers, who want to get started. They buy some stock, usually at quite high prices, then try selling it. They find that they aren't shifting the stock, so they drop their prices. They continue dropping their price until they are getting a good level of sales.

Typically by this point they are running on extremely low margin, which is totally unsustainable. They will be either a small high street shop, or (more commonly) someone selling from their bedroom.

Someone buying a new digital camera will happily buy from them through Amazon, because after all they have a good level of buyer protection.

2. Existing retailers who are exploring a new channel. They generally know their business, but in order to explore the new channel, they are willing to run at low margins or even make a small loss (within that channel) for a while. Many of them pull out after a few months.

Regarding our own purchase prices in the example I gave - in this case, we really are at the best possible factory price, because we do a good volume.

 

[ca_jamesscott]

The good news is that Amazon's algorithm - the one that determines which merchant appears in the precious 'blue buy box' at the top right of the item detail page - takes into account not just price but also feedback and item availability. So if a competitor is undercutting you and providing poor service, the algorithm will catch up with him over time and reduce his exposure to buyers. Ultimately a poor performing merchant will get kicked off Amazon for good.

If, however, the competitors is providing the same product, at a lower price and is keeping customers suitably happy, then yes, he'll outsell you as he's providing customers with what they want at a lower price.

Amazon is all about selection and value after all...

 

[Paul Kelly ICHYB]

retailing is not the 100m, it is a continuous marathon! Let people chase prices down and see them fall out of the race.

 

[sysops]

retailing is not the 100m, it is a continuous marathon! Let people chase prices down and see them fall out of the race.

Only to be replaced by others, who then fall out a few months later. There is a never ending supply.

By only selling only on our own sites, we do so on our own terms (and do so with a reasonable measure of success).

 

[Paul Kelly ICHYB]

Only to be replaced by others

Fair and true comment.

By only selling only on our own sites, we do so on our own terms (and do so with a reasonable measure of success).

And that success must be applauded. But dont you ever wonder what would happen if you ventured 'through the wardrobe'????????

 

[sysops]

And that success must be applauded. But dont you ever wonder what would happen if you ventured 'through the wardrobe'????????

Of course, it's something we discuss every few months, and it's one of the reasons I enjoy discussions such as this.

So far, consensus within the company (it's never just my opinion) has been that by focussing on our own sites, and maximising spend on promoting these sites, we achieve a better long-term return (3 years and longer) than by investing in 3rd party channels.

One option we've considered is bringing someone (who has experience) in to run a test Amazon campaign for 6 months. This cuts out the learning curve for us, and allows us to measure fairly accurately the additional cost involved in selling through a new channel.

 

[Paul Kelly ICHYB]

without sounding too crude, if you want to trial it JFDI!!!! You could set up a personal account, if you wanted to keep a distance between the trial and core business, but, unless there is a major issue, i do not think it will affect your reputation in any way.

Go on, give it a go!!!!!

 

[sysops]

without sounding too crude, if you want to trial it JFDI!!!! You could set up a personal account, if you wanted to keep a distance between the trial and core business, but, unless there is a major issue, i do not think it will affect your reputation in any way.

Go on, give it a go!!!!!

I don't personally have the time or inclination to do it - I really have more than enough to do without taking on the joys of peer to peer selling .

If we decide to do it as a business, we'd need to task someone with the work. This means finding x number of spare man-hours for the experiment. Since we run a tight ship, almost everyone is over 90% utilised, so this isn't as easy as it sounds.

It may sound like inertia, but my personal view is that this type of endeavour needs good planning and careful resource allocation.

 

[ca_jamesscott]

So, we've heard from a couple of people who DON'T sell on Amazon - is there anyone reading who DOES sell on Amazon? What are your experiences?

 

[Paul Kelly ICHYB]

Maybe I should have stated that one of my businesses sell on Amazon and maybe 10% of our business comes from it. Yes, it is lower margin, but, the added marketing opportunity i.e. customer details and leaflet stuffing opportunies outweigh the lower margin.

 

[Mister B]

We sell on Amazon and actually, do very well out of it, mainly because our products are developed and sourced by ourselves which allows us to maintain a respectable margin.

However, with our branded offering, we are being increasingly undercut by other retailers who, as Sysops correctly states, are prepared to sell for a pittance. In this eventuality, we refuse to lower our prices and prefer to sell on our excellent levels of feedback and service. OK, the volume may not be there anymore but I would much rather deal with half the amount of orders at a respectable margin. No point in being a busy fool

One question which I am looking to get answered, relates to the ownership of barcodes. As an example, for arguments sake, a commercially available widget has no barcode issued by the manufacturer. Retailer A then creates and issues a barcode which allows it to be sold on Amazon. (Not possible before as it's not in the Amazon catalogue, had no barcode and was therefore not permitted.)

Retailer A happily sells aforementioned widget at the right price so maintaining margin. Retailer B then comes along and uses the same barcode to allow him to sell the identical product but at a lower price.

Now, I think that it is safe to assume that retailer A cannot stop B doing this, but what would happen if retailer A were to stop selling the product and delete the code? As he created the code originally, does he control the product code and accordingly the ability to retail the product? Or, once created, is that code stored in the Amazon database for eternity?

Answers on a postcard please...

Mister B

 

[Paul Kelly ICHYB]

once you set a unique product up you lose a lot of the ownership, especially the right to delete it! I suppose it enters 'public domain'. it does bose the question what happens if you lose the right to use the barcode, full stop!

If it proves popular, Amazon can take total ownership of it from you.

A tactic to look at is decalre that product as exclusive to you and, if someone else sells it, tell Amazon it is a copy, however, this will only work if it is your brand or really an exclusive product. I have not tried this approach, but if someone is passing off, there are legal implications.

 

[Jimmi]

I agree this is an interesting thread because it points out the nature of online business the way it can be very cut-throat. What Sysops says makes allot of sense for a business owner to build credibility rather than try and price your way to sales. Having said that Amazon is great for buyers I've bought off there quite a few times. The last thing I bought was a book a couple of months ago but I remember I ignored the cheapest top few on the list because their rating was so bad and paid a bit more for someone with a high rating. That's not something I used to do but I think the more you buy online the more you learn not to just plump for the cheapest just to save a few pence.

 

[cubzworld]

We sell on Amazon and whilst some of our products are sold by others at ridiculously low prices that we refuse to match we have many that are not offered by others or have not been undercut that we actually sell at above our website price.

Amazon accounts for approx 10% of our sales, at first we struggled to understand the fine tuning required and nearly gave up but now support other statements that if you provide good customer service, never cancel orders because you do not have the item in stock then you will be rewarded with high visability.

Product sales also go in circles depending on the stock levels of other merchants. We sell one product at nearly double the price Amazon themselves offer it. However they seldom have the item in actual stock and so offer a 3-4 week delivery - we sell loads of these with immediate dispatch.

Regards

Tracy
Tots n Toys

 

[Page]

Not selling but looking at doing so.

One of the reasons behind this is that I see amazon as books books books but then have slowly finding myself going there for more and more things.

Easy to buy I suppose.

Amazon drew me in by due to their low free postage and selling things like printer ink. It started with one type of ink that my normal supplier did not carry. (There is a warning in there).

 

[Mister B]

once you set a unique product up you lose a lot of the ownership, especially the right to delete it! I suppose it enters 'public domain'. it does bose the question what happens if you lose the right to use the barcode, full stop!

...and this is what I find most galling...the fact that people piggy back your own endeavours and then slash the price indiscriminately

It would be interesting to hear the point of view of anybody on here who may actually be one of the discounters. Not so that we could slag each other off, but just to understand their rationale. Now theres a thought

Mister B

 

[ca_jamesscott]

One question which I am looking to get answered, relates to the ownership of barcodes. As an example, for arguments sake, a commercially available widget has no barcode issued by the manufacturer. Retailer A then creates and issues a barcode which allows it to be sold on Amazon. (Not possible before as it's not in the Amazon catalogue, had no barcode and was therefore not permitted.)

Retailer A happily sells aforementioned widget at the right price so maintaining margin. Retailer B then comes along and uses the same barcode to allow him to sell the identical product but at a lower price.

Now, I think that it is safe to assume that retailer A cannot stop B doing this, but what would happen if retailer A were to stop selling the product and delete the code? As he created the code originally, does he control the product code and accordingly the ability to retail the product? Or, once created, is that code stored in the Amazon database for eternity?

Answers on a postcard please...

Mister B

I think I have an answer...... but I'll have to double check with one of my colleagues today to be 100% sure.

When you refer to 'barcode' you are referring to EAN / UPC code or something similar. That's an international barcode that relates to the product you're selling. Whilst you need one of these to sell on Amazon, Amazon actually gives the product its own code - the ASIN (Amazon Single Identification Number) which is a code unique to Amazon. For another seller to sell the product you have created and listed they would only need to quote the ASIN number - since that is already mapped to a UPC/EAN. Therefore I think the issue of ownership rights goes away as Amazon could choose (and I think they do) to map multiple EAN/UPC codes to a single ASIN if they believe they are identical products.

James
ChannelAdvisor UK.

 

[Mister B]

Thanks for the reply James.

TBH, I have no issue with ownership rights, as I believe none exist. My point is more of a rant than a valid objection. It just irks me when you go to the trouble of allocating barcodes (UPC/EAN) for an esoteric product only for somebody to come along and benefit from your efforts and subsequently undercut you.

Mister B

 

[Paul Kelly ICHYB]

it's the nature of the beast!

 

[theprintingworks]

OK you've got me convinced enough to try it.

I have a unique product that we used to sell through a mail order catalogue. It sold many '000s each year for about 6 years then the catalogue company decided to copy our concept (completely different visual design) and sell it themselves under their own brand. Anyway this has left me with a few thousand in stock that have been sat there for 2 years.

The stumbling block is the EAM/UPC bar code thing - i cant seem to get past it. Anyone have any ideas?

 

[Paul Kelly ICHYB]

what is the EAN/UPC issue?

And, what is the item?

 

[theprintingworks]

The item is a larger childs motivational chart/set and i dont have a EAN/UPC number. Ive tried making one up but it wont accept it.

 

[Paul Kelly ICHYB]

the EAN code must be recognised as kosher - these are not just made up numbers. Although the first 5+ digits are allocated to a company, the 13th digit is matmatically calculated! On this basis, they are TOTALLY unique.

You can buy a one off barcode on Amazon here.

 

[theprintingworks]

OK, got my product on the admin side. Anyone know how long it takes to appear? How can I list/unlist depending on when I have stock etc.?

 

[Paul Kelly ICHYB]

It normally goes live pretty quick. You can also 'switch off' the listing immediately.

Where did you get the barcode from in the end?

 

[theprintingworks]

I'd rather not say

Lets just say a friend loaned me one.

But I have more items I want to list, do you think its worthwhile buying a batch of barcodes? Also where do I find out what amazon are going to charge/keep?

Mine also says buy new and used from £9.99? How do I get it to say buy new, in stock etc?

Check it out - motivational, educational star chart £9.99