240. Amazon Marketplace Realities

“Behemoth”: A Must-Read Book

This is the 4th blog in a series that riffs off of chapters from: “Behemoth: Amazon Rising” by Robin Gaster. In “Chapter 5 – “Marketplace: Amazon as Platform” –  Gaster offers investigative facts about and guidelines for the Darwinian Jungle known as “Marketplace”.

Highlight Facts

  1. In 2019, 58% of marketplace sales were by “resellers”. Many are factories making either niche or commodity, clone products that use Amazon as their only distribution channel.
  2. Because Marketplace is automated by AI, it scales to yield booming profits for AMZ. In ’19, fees for – commissions, shipping, FBA and advertising – totaled $67.9 B with an estimated profit of $31.9B. (Fees for global, inbound-to-US logistics are extra).
  3. Domestic resellers (using all services) pay on average – 15% referral/commission; 13.5% FBA; and 7.5% advertising (a now, near necessity) – for a combined 36%. Considering traditional, two-step retail markups – 50% of “list” for retail and 12.5% off 50 for wholesale – it’s a deal. Resellers get instant, dynamic access to all Prime buyers. And, none have a next-best marketplace.
  4. AMZ loses money on the majority of their own brands (Ch 9 analysis). Expectation? Reseller sales will continue to grow towards 80%+ while AMZ prunes losing brands/SKUs.

Guidelines

Gaster details the pros and cons of being a “sharecropper” on Amazon’s marketplace. Resellers must be strategic and vigilantly tactical at using all of AMZ’s tools to cope with: AMZ’s tough, automated, love; and bad actors’ tricks.

Adds for Distributors:   

  1. Retailers and wholesalers can’t sell whole-good, commodities profitably on AMZ. Aggressive pricing to win the Buyers Box plus fees and internal fulfillment costs equal scads of small, unprofitable orders. Why not, instead, invent more service value for best, target accounts?
  2. Distributors that sell whole-goods that fit through AMZ existing infrastructure (think: office supplies; books; parts) will continue to lose sales.
  3. Distributors with dust-collecting SKUs (especially out of production) can pursue a Used-Book Reseller strategy. Charge what the traffic will bear and liquidate formerly dead stock.
  4. Niche product manufacturers (that distributors inadequately push) and new clone producers will continue to create their AMZ channel. All brands will be forced to use AMZ at least for advertising and perhaps an initial step for Omnichannel scenarios. Why? AMZ is where B2B buyers increasingly go first for information.
  5. Besides extrapolations, expect more disrupting innovations from AMZ.

Do: get, read, digest and discuss “Behemoth”.

Leave a Reply