Amazon has been the dominant force in the eCommerce industry for decades, offering sellers various options for reaching a wide customer base. When it comes to selling on Amazon, businesses have two primary choices: creating and managing their own Amazon channel or selling their inventory wholesale to an already established, third party seller on Amazon. So, which is the better way to go? Let's take a look at the benefits and challenges of each approach so you can make an informed decision.
Creating Your Own Amazon Channel
The obvious place to start is the traditional method of creating your own Amazon Channel, where you sell your inventory directly to consumers. The effort is certainly higher, but so is the reward. It is up to you to determine if you are ready to go this route. Here are the benefits and challenges of this approach.
Benefits
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Greater Control - Having your own Amazon channel vs. a Third Party Seller provides you with complete control over branding, product presentation, pricing and customer experience. You can tailor your listings and optimize them to align with your brand's unique identity and messaging. You can market directly to these customers and re-target your marketing as needed. Essentially, you own the customer relationship.
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Direct Customer Interaction - Managing your own Amazon channel enables you to directly engage with customers, build relationships and gather valuable feedback. This allows you to better understand your target audience and improve your products or services accordingly. Again, the customer relationship belongs directly to you and nobody else.
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Higher Profit Margins - Selling directly through your own Amazon channel rather than through a Third Party Seller typically yields higher profit margins, since you eliminate the need to pay fees or commissions to third party sellers. You have the freedom to set prices that align with your desired profitability.
Challenges
- Increased Responsibility - Managing your own Amazon channel requires substantial time, effort, and resources. You need to manage inventory, order fulfillment, customer service and advertising-- all of which can be demanding and may require additional staffing or outsourcing.
- Initial Setup and Learning Curve - Setting up your own Amazon channel involves navigating Amazon's Seller interface, which is not the easiest. You also need to understand Amazon's policies and guidelines for optimizing your listings for better visibility. There can be a rather steep learning curve involved for newcomers, which may require investment in training or hiring an external team to help you manage your channel.
Wholesaling to a Third Party Seller on Amazon
Now, let's look at an alternative and less obvious approach--wholesaling your inventory to a third party seller on Amazon. The effort is clearly lower, but so are the profit margins. Is this the best approach for your business? These are the benefits and challenges of this approach.
Benefits
- Streamlined Process - Selling wholesale to an established third party seller on Amazon simplifies your operations. You only need to focus on producing and delivering the inventory while leaving the management of the Amazon channel, customer service, and marketing to the channel owner.
- Existing Audience and Expertise - Established third party retail Amazon channels often have a loyal customer base and extensive expertise in selling on the platform. By leveraging their audience and knowledge, you can benefit from increased exposure and potentially faster sales growth.
- Reduced Responsibilities - By wholesaling your inventory to a third party seller on Amazon, you hand over the responsibilities of order fulfillment, customer service, and marketing to the third party seller. This can free up your time and resources to concentrate on other aspects of your business.
Challenges
- Limited Control - Selling wholesale to a third party seller means relinquishing control over pricing, branding, and customer interactions. You may have less influence over how your products are presented, marketed, and priced--potentially impacting your brand's reputation and profit margins. The main takeaway here: You do not own the customer relationship--the third party seller does. Furthermore, you won't be able to market to these customers for cross selling and repeat business.
- Lower Profit Margins - Third party Amazon retail channel owners typically require a wholesale price that allows them to make a profit. This can result in lower profit margins for your business compared to selling directly through your own channel.
- Potential Channel Conflicts - If you sell wholesale to multiple third party Amazon retailers, you may face challenges with price competition and channel conflicts. Balancing pricing consistency and fair competition can be a delicate task in order to maintain positive relationships with all partners as well as their customers.
Conclusion
Deciding between creating your own Amazon channel or selling wholesale on established third party Amazon channels requires careful consideration of your business goals, resources, and priorities. Creating your own channel offers greater control and potential for higher profit margins but demands more responsibility and expertise. Selling wholesale to third party Amazon sellers simplifies operations and leverages existing audiences. However, it limits your control and may impact profit margins.
Assess your business's capabilities, long-term strategy and willingness to manage the complexities involved. By understanding the benefits and challenges, you can make an informed decision that aligns with your unique business objectives and helps you succeed in the highly competitive Amazon marketplace.
For more information about selling on Amazon, contact us so we can help you with your marketplace strategy.
