Can You Compete With Amazon?

A recent Wall Street Journal article raises this question in a new way.

“According to some small retailers, the Seattle-based giant appears to be increasingly using its Marketplace—where third-party retailers sell their wares on the Amazon.com site—as a vast laboratory to spot new products to sell, test sales of potential new goods, and exert more control over pricing.” – Wall Street Journal

Wall Street Journal

The article goes on to quote a seller of Pillow Pals who states he was selling 100 of the toys each day until suddenly Amazon itself began selling them and his sales dropped to 20 per day. This seller and several others made the direct complaint that Amazon was using its access to their data to source hot products. Amazon refused to respond to this question from the Wall Street Journal and several other news organizations that picked up the story. In addition I could find nothing on their site stating their position on this matter.

However, I was able to speak with Bob Willey a long-time Amazon seller who has attended both of the last SCOE conferences where Amazon sent category managers and other staff. Bob has had several conversations with the Amazon folks over the years and they have all assured him that even if they wanted to access this data, they are unable to get access to it. In addition, there are a couple of Amazon warehouse employees who are members of Bob’s forum and state the same thing, there is no info being sent from the receiving areas or the warehouses to the Amazon Retail section, where Amazon does its product sourcing.

Amazon category managers are also category buyers. They attend trade shows and do the same work and research that we as business owners do to identify hot products. There will obviously be some products they source that a third-party seller is already selling. I choose to believe Amazon that this is not their business model but rather something that happens as their buyers do their own product research.

So does it happen that Amazon will come in and compete with a third-party seller on a hot item? Absolutely yes; it does. Whether it is from their own product research or data mining, the effect on us as Amazon sellers is the same. The real question is what to do when it happens to you. Can you, as a small business, compete with Amazon?

There are many strategies I’ve seen proposed around the net; for example to run the price down to pennies and then attempt to buy out Amazon’s stock, or to keep your price within 2% of Amazon’s and hope they share the ‘buy box’ with you For my business the answer has been to do my best to never DIRECTLY compete with Amazon head to head. In my experience, even if I have the same price as Amazon, the vast majority of buyers would prefer to purchase directly from Amazon instead of my store. Amazon has worked hard to establish the relationship where consumers trust them so implicitly; that is WHY I want to be a seller on the site; I benefit from their reputation. But when it comes down to competing head to head, I’d rather not.

So, what to do? There are always options!

First, if you are sourcing new products and see Amazon as a major seller (999 or more in stock) then I’d pass on that product.

Second, if you are selling a hot product and doing very well, hedge your bets. What do I mean? Don’t go too deep for several reasons. First, Amazon may come along to compete but ALSO other sellers will inevitably discover your diamond product and the pricing war will begin. The goal here is to never run OUT but never have more than 1 week’s stock in the warehouse. Yes, it will take some juggling but think of it as risk prevention.

Third, if you have a hot product and suddenly find yourself with unwelcome competition from Amazon or other third-party sellers, start getting creative.

Have you heard of ‘Product Bundling?’ This can be a great way for you to capitalize on that hot product and make it hard to impossible for others to compete. I know a seller who was doing well with an expensive set of kitchen knives until Amazon started carrying them. Six months later he is making even more profit from that line. How? He didn’t give up. He even used Amazon’s technology against them. He noticed that on the listing for one of the knives, it was stated, “People who buy this item also buy . . . . “ and one of the items was a cutting board. Light Bulb! Seller sourced a bunch of cutting boards, packaged them with his knives, bought his own UPC code, and set up a new listing. His listing ranks higher than the original knife listing now. You can also maintain your price and wait for Amazon to sell out and you will sell your items. Or you can stay within 2% of the price and expect to show some sales, even though slower. Even in the original WSJ article, the Pillow Pal seller was still getting 20% of the sales Until He Started the Price War! Read it again, Amazon didn’t start the price war – the seller did.

Knife Set

The bottom line is that this is the Amazon sandbox and as long as we sell there we will come up against strong competition from both Amazon and other sellers. How you react to this competition will determine if you are still in business a year from now and whether you are still profitable.

Got more ideas for competing with Amazon? I’d love to hear them – please leave a comment and let’s brainstorm together.

This guest post is by Kat Simpson. Kat is a respected as a trusted eCommerce speaker, educator, and entrepreneur, Kat Simpson has been a successful eCommerce merchant for over 10 years; is a Certified eBay Education Specialist and Gold Level PowerSeller, who also maintains stores on Addoway, Bonanza, Buy.com, and iOffer. Currently Kat is the co-host of popular weekly eCommerce Podcast FBARadio.

9 Responses to “Can You Compete With Amazon?”

  1. Elaine Says:

    Kat,
    Great article. I’ve learned from your interviews on FBARadio that I can compete with Amazon and win once in a while without losing that all important margin. Thanks for adding more to that challenge.
    Elaine

  2. KathyS Says:

    Thanks Elaine, I appreciate your support and we will continue to provide more ideas about competition.

  3. Bob Says:

    Amazon is undergoing (so we have heard) another big ASIN merge, to clean up the Amazon Catalog. Estimates are that there are currently over 120,000,000 catalog pages.

    In this process, there has been some discussion of whether Amazon is going to crack down on “Bundles”, and maybe require approval for each one, since it is obviously being abused by some sellers.

  4. Kat Simpson Says:

    Hi Bob,

    I had heard about the ASIN merge and ‘cleaning up the catalog’ prior to 4th quarter and felt very positive about that news. I had not seen that they were talking about bundles but if it’s incorporating new rules, I’d sure like to hear them.

    What have you heard about folks ‘abusing’ the Bundling issue?

    Kat

  5. crystalwells-miller Says:

    Thanks fore the info Bob. Yeah, I can see where it could be abused, but bundles are a great method to increase sales for both the sellers and Amazon. I’m glad to hear they are doing another big ASIN merge. It will be a blessing or a curse depending on how you list your items.

  6. David Conner II Says:

    I do not see an issue with product bundling!!! Amazon is a customer driven Customer focused site that as we all know caters to it’s customers. When people bundle items in the majority of cases I have seen sellers have added to the customers buying experience! Bundling gives customers more value for their money and at the same time leads to increased sales for sellers as wel as rewards them for “thinking outside the box” and awarding the sellers ability to be creative in enhancing the buying experience because next to having the lowest price Amazon wants Amazon.com to be the best buyer friendly site on the internet and I feel strongly that bundling is a very viable way to achieve that!!!

  7. KathyS Says:

    I agree with you David. It is common, though for abuse by some unscrupulous sellers to lead to new rules on Amazon. I suppose we need to be more proactive in monitoring other sellers but who has time for that? LOL

  8. Chris Kong Says:

    Great article. Very insightful. I especially like the creative tips on managing inventories.

    I also think that future retailers can close the gap with the showroom business model.

    A hybrid offline & online business model where you have mini store like pop up stores or showrooms where you can see and try out the products, but the actual sale transaction takes place online and the products are shipped to you. It’s more cost effective than having one big store carrying all the inventories with high fixed cost. And you can keep the price competitive.

  9. crystalwells-miller Says:

    Chris,

    Very insightful comments. Glad you liked the tips on managing inventory.

    Here’s some interesting news about Amazon and the HybridModel

    Here’s some tidbits I dug up..

    Walmart is testing a couple of Pop-Up Stores
    Great White Paper titled Popping for Shoppers

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