Leveraging Amazon for Business Growth
If you’re looking to expand your online business by going where your customers are, Amazon.com is the most obvious choice, and arguably the most convenient channel. With close to 300 million active users and 44 percent of online shoppers going directly to Amazon first when looking for a product, the world’s leading marketplace provides unparalleled scale and reach for sellers looking to start or grow their online business.
YPO members have shared how they harnessed Amazon’s strengths to help their businesses grow.
Riding the e-commerce wave: A changing landscape
The entrepreneurial story of YPO member Alan Lim, CEO of E-Services Group, started in London, England, UK, when he was a college student trying to buy a digital camera from eBay. Recognizing a pattern in the auctioning process, Lim identified two factors impacting price: the weather and football games. “On cold days, I would sell as there were more people in front of the computer. On football days, it was cheaper to buy,” he explains. “Using the BBC weather forecast and the football schedule to buy commodity products from Asia and sell in the United Kingdom, I made 30 to 40 percent net profit.”
When Lim graduated from college in 2002, he became the first Amazon seller in the United Kingdom in addition to becoming one of the top eBay sellers in the country. “By the end of 2004, the Amazon marketplace team there grew from two to almost 40 people and half the salary of the team was financed by my marketplace commission,” says Lim.
When Lim’s e-commerce business expanded from individual reseller to a team of 40 people, concerned that the business was relying too heavily on Amazon and eBay, he created his own website in 2005, following the same model and using targeted digital advertising. By 2008, Lim moved the team to Hong Kong as the business continued to expand globally, organically growing into a USD150 million marketplace with a logistics service arm.
“Things became more challenging in 2014 because major marketplaces like Amazon and eBay became very big competitors. E-commerce became based on growth and revenue, not profit, and it was no longer sustainable to compete on price,” says Lim. He shifted to a new focus, providing e-commerce sellers access and know-how to sell on the large regional marketplaces in return for getting a percentage for every sale.
“EBay allowed me to start the business. Amazon initially helped me scale the business in 2003 up to 2015 when things slowed down because of lower margins,” says Lim. “Today, we have a major collaboration with Amazon helping manufacturers sell effectively on Amazon and other marketplaces, including setting up their accounts, pricing strategy, logistics and overall management.
Lim’s advice to new entrants to online regional or global marketplaces like Amazon is to avoid categories like perishable goods or components of finished products. “Generally, top-selling categories like electronics, fashion accessories, home appliances and lifestyle goods work best,” says Lim. “However, the main success criteria is the product price competitiveness, a reliable and cost-effective logistics solution and a solid team to manage the process.”
Building strong differentiators
Entrepreneur Jamin Arvig has weathered the changing e-commerce landscape. Arvig started selling water filters on a website from his house 15 years ago, and for the next 10 years, he built WaterFilters.net into an established leader in online water filters and air filters products.
“In 2000, someone could start an e-commerce business in a garage and compete with the big players. We did it. Now to start an e-commerce business, you need to have strong differentiators to compete with the big players. It’s a much more mature channel,” he says. Recognizing a need in the market for online e-commerce expertise, Arvig launched AIcommerce.com to help other companies replicate the online success of the water filter business and win in major marketplaces like Amazon.
The “secret sauce” to Amazon for U.S. Water Filters and other successful online businesses, according to Arvig, lies in building a data analytics ecosystem. “Having systems and people that analyze and respond to data, choosing the best subchannels to play in, has been one of our biggest differentiators.
“The people we are able to help win best in the long term are those who have a legitimate value proposition in terms of brand, supply chain and/or intellectual property,” says Arvig. “Without these differentiators, the marketplaces turn products into commodities.”
His advice to those who have not leveraged Amazon or the other major online marketplaces: “Move fast because all competitors are. And be decisive to get the necessary capabilities. Businesses can build these themselves or they can buy or partner with someone with the know-how to accelerate the process.”
The effort to build these capabilities should not be underestimated, he says. “It is not intuitively obvious, but it takes every function in the company to succeed. Every department needs to have e-commerce and marketplace capabilities. The analytics team should be the entire company,” says Arvig. “Systems dealing with Amazon are very complex and Amazon also changes its rules and processes constantly. All the departments need to work cohesively with technology and processes pulled together.”
Navigating through the treasure trove
“When deciding to sell on Amazon, know your business, study what you are getting into and based on that, determine which method of fulfilling orders is best for your business,” says YPO member Steve Grubbs. His business, VictoryStore.com, is a pioneer in the design-your-own space for product and yard signage.
Grubbs has been selling on Amazon for the past seven years; he began working with Amazon on a Fulfillment by Sellers (or Merchants) basis, keeping the responsibility for shipping, handling and customer service.
Then, as the business got enough momentum, Grubbs chose Fulfillment by Amazon (FBA), where Amazon, for a fee, handled the picking, packing and shipping on his behalf. “Since FBA provides access to prime customers, with free two-day shipping, that was a big deal.”
Grubbs then moved to a third option, the Seller Fulfilled Prime (SFP) launched by Amazon in 2015 for qualified Amazon sellers. With SFP, sellers get access to Amazon prime members just as with FBA; however, they handle shipping, handling and customer service themselves. “This means it gets shipped out of my warehouse and I have to get it to the customer in two days. So higher standards are set.” Grubbs is now considering selling the stock directly to Amazon to help lower the investment required to comply with Amazon’s strict rules for prime sellers.
His advice for new sellers on Amazon — besides carefully choosing which fulfilment option depending on the business model, amount of working capital, margins and how well they can move your inventory — is to look at niche opportunities. “One little unknown secret for growing fast is custom products. Amazon buyers can customize online and purchase. You can upload a picture to be printed on a coffee mug and shipped in two days. This is our fastest-growing area,” adds Grubbs.
He also recommends investing in building expertise to understand the different Amazon tools and programs that regularly change, either through dedicated in-house resourcing or using outside expertise. “We have both an internal expert who is solely focused on Amazon and an external consultant. This helps us expand to international markets not available before and to grow 30 percent year over year from this channel, while on our own website, we are struggling to grow.”
Challenge for premium brands
“Amazon does a tremendous job in Germany. For customers it is very convenient and popular especially around holidays, with rising sales,” says Axel Bree, who recently stepped out of the management role of the Hanover-based, family-run luxury bag firm Bree founded by his father 40 years ago. He says many of the high fashion brands are still not selling on Amazon.
“The team at Bree spoke to Amazon about five years ago but we were not interested. But two years later, we started to sell via the marketplace. It was stable business and provides a stable turnover,” recalls Bree. The turning point was in 2015, when Amazon offered to buy their inventory of products and sell directly on their own invoice.
“When the brand moved to Amazon, turnover jumped. This was the upside. The downside was that they were able to set their price policy. So, in our own shop and online stores we were offering the same product at a higher price and people started comparing prices. Managing this problem is a daily worry,” says Bree. “Brick-and-mortar retail in general is losing business and getting more difficult, so in a way you are hooked on the growth from Amazon.”
Based on his experience, Bree recommends that brands in the medium to premium category look beyond immediate volume and turnover and consider the longer-term impact on the brand equity. “Amazon has set the standards and makes it very easy and convenient. But Amazon is only one way of distribution,” says Bree. “I am getting nervous by the power of one retailer and hope other global and regional e-commerce marketplaces that are currently growing at an impressive rate can provide good competition.”