BI 339: The Pros and Cons of Selling Direct on Amazon

Episode Highlights

[03:42] — Ethan introduces Amify

Ethan McAfee is the founder and CEO of Amify, which helps medium- to large-sized brands sell directly on Amazon.
Through their service, they help brands manage their listings, optimize their supply chain logistics, analyze data, and take charge of customer experience, among other things.

[04:25] — Pros and cons of selling on Amazon

When Amazon came about, brands thought of it as another retail distributor or seller.
Ethan comments that brands need to think of Amazon as a platform and extension of their websites, not as a retail distributor.
Most brands are still using middlemen or 3P (Third-Party) sellers on Amazon in this day and age.
When brands begin to think of Amazon as another channel for direct sales, they gain an advantage over data and customer experience.

[07:00] — Why controlling your customer experience matters

When you sell directly, you can control how your brand looks and your customer’s experience.
You get data that tells you about who your customers are, what they’re buying, and how likely they are to buy again using Amazon FBA.
FBA gives you real-time data, which also allows you to adjust your logistics promptly.
The data you get from FBA should only be used for analytics, not to reach out to customers directly for ratings, for example.

[09:45] — 3 main ways to sell on Amazon

Brands can sell via Amazon 1P, which means they sell directly to Amazon, and Amazon will sell to the end-customer.
Third-Party Retailers, or 3P, is another option. Wholesalers can partner up with retailers to sell their products.
The last option is to sell directly, and the pros of this are getting more money since you’ve removed middlemen out of the equation.
Brands who sell directly don’t usually know how to implement strategies correctly, so they hire Amazon consultancies like Amify.

[13:00] — Who benefits from selling via Amazon 1P?

1P is excellent for huge brands that are already household names.
If a brand sells products at a low price point and doesn’t care too much about resellers taking a dollar off a product’s price, then Amazon 1P might suit them.
Low-price products are difficult to sell outside of 1P, because you need to consider the shipping and handling costs that come with it.

[16:10] — Pros and cons of 3P retailers

Ethan states that selling via Amazon 3P is an easy way to get on Amazon.
A brand can authorize select retailers, creating a valuable wholesaler-retailer relationship that benefits both sides.
However, this may unintentionally lead to partnering with retailers who don’t give you any value.
The vast majority of Amazon 3P sellers are not value-adding, and can rather act like “leeches.”
Having too many resellers might be detrimental to your time, health, and the growth of your brand.

[22:00] — 3 reasons why most brands do direct selling

According to Ethan, one main advantage of direct selling is cutting out the middle man–this means more money going into your pockets.
During COVID times, it makes more financial sense to be earning more after cutting out the cost of paying third-party retailers.
The second reason is it lets you have more control over your customer experience.
When you sell directly to your end-customers, you get to know what’s selling on a day-to-day basis. In short, the third reason is about having data that will save you more time.

[28:15] — Compromising with your 3P partners when switching to direct selling

Your brick-and-mortar partners will likely be upset if you were to switch to direct selling.
To soften the blow, you can still allow them to sell via FBM (Fulfillment by Merchant).
Finding this compromise allows you to have a backup, for example, during holidays when Amazon FBA warehouses become crowded.

[29:10] — Amazon and the marketplace

It seems Amazon would rather be a marketplace than a retailer.
Ethan shares that Amazon is trying to move away from being a 1P seller for a lot of brands in the last few years.
One reason why Amazon wouldn’t prefer direct selling is because of prices, and Amazon aims to be the lowest price in the entire market for products.
The downfall of being an open marketplace is the great numbers of counterfeit and unauthorized sellers, which then affect customer confidence in platforms like Amazon.
Amazon, over the last few years, has made changes such as showing seller information to make the Amazon experience more beneficial to customers.

[34:00] — What does an outsourced Amazon management team do?

Amify helps brands with things like supply chain management and inventory forecasting.
When consulting with a client, Ethan shares that Amify assists with the “three little pigs.”
The first is managing inventory levels on Amazon and ensuring a brand doesn’t have too much or too little in stock.
Ethan also analyzes data to forecast demands.
With such data put together, the brand can adjust its supply chain and logistics.

[37:25] — The importance of having a strategy

Ethan says that deciding on a strategy is the most important thing you should keep in mind.
It’s crucial to have the basics down.
Foremost, be clear on who is in charge of your Amazon brand management.