Why working with Amazon is challenging

Amazon box model

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Snapshot : Why working with Amazon is challenging. Their customer obsession makes them push really hard on suppliers. Their shopping experience is not all it’s cracked up to be. And their business approach can be divisive. You won’t be able to put it off forever, but choose your time carefully when to work with Amazon.

We’ve all got that job we keep putting off. Taking your old clothes to the charity shop. Cleaning behind the fridge. Filling in your tax return. The things you know you need to do, but need to dig deep for the energy to start, because you know they are not going to be pleasant.

We put working with Amazon into that basket.

Because for all their undoubted success, they bring many challenges for businesses who want to work with them. We talk about Amazon in our guide to online retailer strategy in our e-commerce skills section, but this post expands on some of the topics mentioned. 

Amazon’s customer obsession

Let’s start by looking at Amazon’s customer obsession. It’s widely reported that Jeff Bezos claims this as the ‘secret sauce’ behind the Amazon’s success. Relentlessly focussing on the needs of the customer makes sense as a way to grow your business, right?

And we understand that the widest range of products (the ‘everything store’ Amazon aspires to) and access to quick and or free deliveries can make a huge difference to the decision of whether to buy or not. Great for customers. 

But how do they manage to deliver on the range and delivery service?

Working with Amazon as a bigger business

If you are a well-established business, and Amazon sees a commercial opportunity to range your products, be prepared for a long and drawn-out negotiation process.

We’ve worked with a couple of major Australian businesses who been in the pricing terms negotiation phase for over a year. Amazon see their huge US scale as a great starting point in the negotiation.

But if you are not planning to sell your goods in the US, then you have to point out that’s not relevant for local sales. 

Then there’s all the extra ‘services’ that get offered. But which all come at a cost that consistently chips away at the margin you make selling with them.

Want to have a dedicated account person at Amazon? YOU pay for that.

Want access to the data behind your sales so you can make informed judgements about future activity? Yes, that’s an additional cost.

And when you start to add in operational costs – freight charges, damages, returns – and advertising and innovation costs – display advertising, promotions, A+ content, events, paid search – you suddenly find that Amazon’s customer obsession is at least in part funded and fuelled by squeezing every last penny out of their suppliers. 

Working with Amazon as a smaller business

What if you are a small business and want to start selling your products through Amazon?

That’s even more challenging.

They have a fixed fee structure with zero negotiation.

You pay a selling fee. Plus a referral fee. And sometimes also a closing fee.

Plus if you are using Amazon for fulfilment (creatively called Fulfilment by Amazon (FBA)), there is an additional fulfilment fee to cover. 

They do a great job of making Selling on Amazon sound reasonably priced. You can start with a flat $1 per unit sold fee (or a $50 monthly subscription). That’s your seller fee just to get your name on to the site as a seller.

But you are then adding anywhere from 7% to 15% referral fee depending on the category you operate in. Your closing fee if you operate in certain categories is another $1. And if you are using their fulfilment service, you need to cover anything from $1.32 (for say a mobile phone case) up to $14.57 for a large oversize item (like a computer monitor) per unit sold.

You also need to pay for the storage space your items use in their warehouse which can be between $19.40 and $26.50 per cubic metre. 

And we haven’t even talked about the cost of advertising and media to get your products found on the Amazon website. Or the many strict clauses you’ll have to sign up to in their seller agreement

Head starting to spin?

Now you can start to see why working with Amazon is challenging.

There are people making a good living working with Amazon, but you do have to have a solid grasp of your business commercials to make sure you are able to sell profitably through them.

And for the same business which introduced the simplicity of the 1 click buy button and in fact, who owned the exclusive patent on it until as recently as 2017, setting up a commercial agreement with Amazon that suits you rather than suits them is quite the opposite in terms of a customer experience. 

Amazon’s shopping experience.

Amazon’s shopping experience when you visit the site as a shopper has clearly been optimised to maximise conversions.

That’s no secret.

They have such huge amount of data, they are clearly putting things in front of you as a shopper that are most likely to make you spend money.

But, if you spend time clicking around on Amazon, it’s not a particularly enjoyable experience. There’s something quite soulless and clinical about the whole experience.

And we do wonder, if many people put off visiting Amazon unless there is something specific they want, just because of the overwhelming nature of the Amazon online shopping experience. 

Look at Amazon’s bewildering array of options for customers. Prime, Prime Now, Pantry, Go, Family, Fresh, Subscribe and Save, Whole Foods, Kindle, Alexa and Echo. (full range of services not available in all markets, but surely on the way everywhere?).

It’s choice overload for consumers. 

One of our Amazon’s core principles has been a passion for innovation, and we understand that each of these services tries to solve a need for the customer. And we also understand, that for every service a customer signs up to, that customer increases the amount they spend with Amazon and therefore becomes a more valuable customer.

Clever stuff.

 

Online retailers - Amazon-home-page

But when you as a customer go on to the Amazon site, isn’t there just a huge amount of information for you to process?

So many categories. So many menu options. And so much cross-selling. Audible. The Amazon Echo. Amazon business services.

It’s an overwhelming online shopping experience.

If you know what you are after, it’s a great place to get in and out of. But as a browsing shopping experience, urgh. It’s not really where you as a shopper would want to spend any more time than you had to.

And we can’t help wonder if many online shoppers will stay away because of that.

Amazon’s approach

So, finally, we come to what it is like to work with Amazon when you are running your own business.

There is something in their culture and approach that really brings out why working with Amazon is challenging. They are relentless in what they do. And ruthlessly efficient.

When you deal with them, there is just something quite cold and humourless about their whole operation. They are borderline robotic in the way they go about their business. 

Then you see the frequent stories in the press about how poorly they treat their warehouse staff. And even amongst the more skilled parts of their team, you don’t have to search far to find stories about how they have a toxic work culture where there is little empathy for staff.

And infamously, when it comes to being competitive, when they can’t beat someone, they buy them out.

Like this list of over 100 acquisitions by Amazon since they launched.

They are a fantastically interesting company to observe. We love their aversion to Powerpoint. The story of how they got their supply chain set-up is fascinating. Their approach to innovation and decision-making has a lot many businesses could learn from.

If you haven’t read The Everything Store biography of Jeff Bezos, by Brad Stone, we’d highly recommend a read* 

https://www.amazon.com.au/gp/product/0316377554/ref=as_li_tl?ie=UTF8&tag=threebrains-22&camp=247&creative=1211&linkCode=as2&creativeASIN=0316377554&linkId=762d7b9a90a3df0f560b999fbd147aa3

Because of their scale and innovation, it’s impossible to avoid having something to do with Amazon when it comes to e-commerce. We haven’t even talked about their web and data hosting side Amazon Web Services who are huge.

But like that job that has to be done, there’s a time when you need to knuckle down and just do it. And you’ll feel better once it’s over and done with. But the process itself? We have more fun doing our tax returns.

* As an Amazon Affiliate, we earn from qualifying purchases

Photo credit : Amazon boxes : Photo by Hello I’m Nik 🇬🇧 on Unsplash

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