Should Your Company Sell on Amazon?

People who wear the Birkenstock brand of cork-and-leather sandals have a reputation for being laid-back—hardly the type to pick a fight. But for the past several years, executives at the German-based footwear company have been anything but chill when it comes to Amazon. In 2017, after years of partnership, Birkenstock Americas announced it would stop selling on the site because too many counterfeit versions of its shoes were being sold by Amazon’s third-party sellers. In Birkenstock’s view, Amazon wasn’t doing enough to prevent counterfeiting. “Policing this activity internally and in partnership with Amazon.com has proven impossible,” Birkenstock said in a statement, calling the platform “an environment where we experience unacceptable business practices that hurt our brand.” A few months later, when the company learned that Amazon was reaching out to its authorized resellers to convince them to sell Birkenstock shoes on the site—a direct violation of the reseller agreement—Birkenstock Americas CEO David Kahan fired off an email to all the company’s sales partners. “Any authorized retailer who [sells Amazon] even a single pair will be closed FOREVER,” he wrote. Later, in an interview, Kahan framed the situation this way: “This is modern-day piracy,” he said. “This is a middle finger to all brands, not just Birkenstock.”

Amazon is the most visited e-commerce platform in the United States, with nearly 3 billion visits a month, 200 million global Amazon Prime members, and about $400 billion in annual revenue. Amazon ships products to more than 130 countries, and it is the dominant online retailer in 28 countries. Roughly two-thirds of U.S. consumers start their product search on Amazon. Its fulfillment speed and service quality are trusted and loved by consumers. All these factors make Amazon an essential—and to some brands, a seemingly mandatory—place for companies to, as the saying goes, “meet the customers where they are.” As former Gap CEO Art Peck put it, “To not be considering [selling on] Amazon…would be, in my view, delusional.”

Choosing the Right Platform for Your Brand: Series reprint

Yet brands face real challenges when selling on the platform—from competing products, third-party sellers, and even from Amazon itself. Additionally, Amazon’s growing advertising business (in which it charges fees for premium positioning in search results, as well as for advertisements on its music and streaming video services and other outlets) has significantly reduced sellers’ margins on the platform. And in an era when companies use customer data to cross-sell, improve existing products, and find ideas for new innovations, Amazon’s walled garden and strict constraints on sharing customer data limit brands’ ability to learn about—and from—their customers.

Many brands have grappled with this dilemma. Nike and Ikea, for example, experimented with selling on Amazon but subsequently stopped. If a customer finds these brands on Amazon today, the products are being offered by third-party sellers, not the brand itself. Gap has had long internal debates about whether to sell via Amazon. Randy Antin, a former senior marketing manager at Gap, explains the discussion this way: “Retailers have always been a bit wary of ‘frenemy’ Amazon. Do we play with you when your game plan is to have everyone buy through you? Who owns the customer? Are we willing to give up control to utilize this giant distribution channel?” Gap ultimately decided not to sell on Amazon. Other companies do, but they privately complain about the costs, trade-offs, and compromises.

This article introduces a systematic method for brands to use as they mull over whether or not to sell on Amazon. We include a self-assessment tool: Brands can evaluate their performance in various areas and tally their score to determine the best next steps. Even for brands that receive ambiguous scores, the quiz brings to light the most important considerations when making this decision. For brands that choose to move forward and sell on Amazon, as many will, we offer launch optimization strategies that will help them design their Amazon product pages to maximize success.

Let’s start by examining the critical considerations for a brand thinking of selling on Amazon.

The Product Itself

Before we get to more-complex analysis, let’s consider the threshold issues some companies will face. Despite Amazon’s desire to be “the everything store,” not every product should (or even can) be sold on Amazon.

First, there is a list of prohibited and restricted items that cannot be sold on Amazon or which require special permission to sell. These include alcohol, tobacco products, and lottery and gambling products. Legal restrictions also mean that some products may be shipped only locally. Those items are not ideal candidates for Amazon because a large part of its appeal is its global reach.

Second, some products require unique customization or personalization. While Amazon makes it relatively easy for brands to do some pre-sale customization—such as printing T-shirts or signage—across many product categories, this capability is limited. More and more companies use data and sophisticated algorithms to personalize offerings or to identify the exact match for a customer, and Amazon may not be the best place to do that. For example, Nurish by Nature Made offers multivitamins customized to an individual’s weight, gender, age, lifestyle, diet, and goals. Buyers fill out a lengthy survey, which the company uses to customize the vitamin mix. This level of personalization just isn’t possible via Amazon.

Third, some products are difficult or expensive to ship, which complicates any effort to sell online, regardless of the platform. If a company’s product is especially large, heavy, or fragile; has a limited shelf life; or requires refrigeration, then shipping is challenging—and shipping via Amazon can be even more so. Today many companies that choose to sell on Amazon utilize its logistics prowess through its Fulfillment by Amazon (FBA) program, in which Amazon handles warehousing and shipping for a fee. Only products from companies that use FBA will receive the Prime designation, which gives free shipping to Prime members—a big incentive to choose FBA. Amazon has built one of the world’s most sophisticated and highest-volume distribution networks, but dealing with nonstandard items interferes with its goal of efficiency—and it charges accordingly. One reason companies like Wayfair (in home furniture) and Lowe’s and Home Depot (in large appliances) have carved out substantial online businesses is because Amazon has yet to master the art of shipping items that don’t easily fit in small boxes.

The Competitive Landscape

A major concern for brands selling on Amazon is competition. In any product category, the platform will offer products from many different sellers. Typically consumers use the search page to find items, and a simple search for a product (such as “shoes”) leads to thousands of results. Even when consumers look for a specific branded item on Amazon (such as “Steve Madden shoes”), thousands of results appear, including many that are not the desired brand. (On the first page of a Steve Madden search, for instance, consumers will see sponsored results for lower-priced shoes such as Cushionaire, Journee, and STQ.) Some of the brands may be legitimate, well-known labels; some may be Amazon’s private-label brands; and some may be counterfeit products or cheap brands. Companies rightly worry about their products appearing alongside items that aren’t their own, which can immediately put shoppers into a comparison mindset.

In some categories, consumers may not see the brand itself as important. For example, some consumers don’t care about which brand of shoe they buy, as long as they are functional and the price is right. Other people care about their brand of shoe but not their pens, and so forth. Over the past decade, we’ve seen more consumers willing to purchase unbranded or store-branded private-label products in many categories, both online and in physical stores. On platforms such as Amazon, we see a phenomenon of commoditization, where many similar products are juxtaposed on one page and become a commodity in the minds of consumers. Shoppers are then encouraged to buy on the basis of price and functionality, not on brand. In some categories, Amazon’s product displays also prominently show unit pricing—the price per ounce of a moisturizer or sunscreen, for instance—which can drive consumers to focus primarily on price.

One example of a category that has become a commodity on Amazon is batteries. In 2009, Amazon launched its Amazon Basics line of low-priced, utilitarian products—items like smartphone charging cords and disposable batteries. It has since expanded its private-label offerings into dozens of categories, including small appliances, fitness gear, and pet supplies. By 2016, Amazon Basics held 30% of the battery market—making it larger, in unit volume, than Duracell. It had also gained a 15% share in diapers, not far behind industry leader Pampers. Duracell continues to sell on Amazon, touting attributes such as longer battery life, but the growth of Amazon Basics suggests that Duracell’s strategy has had limited success.

Therefore, when making the Amazon decision it is important to understand how competitive and commoditized your product category is and where your brand falls within it. Brands with strong positioning may be able to break through the clutter and thrive on Amazon. Apple products, for example, feature a distinctive design and provide access to the Apple ecosystem. Further, the company’s large customer base is interested in buying genuine Apple-branded products. Apple also has strong and restrictive reseller policies, limiting the threat of unauthorized third parties selling its products on Amazon. Other well-known brands are more prone to counterfeits sold by illegitimate third-party sellers. That is why luxury brands such as Rolex, Gucci, and Louis Vitton refuse to allow their goods to be sold on Amazon.

The Costs of Reaching Customers

The most significant benefit of being on Amazon is customer reach. In general, companies will have access to many more customers by selling on Amazon. (Remember, most product searches in the United States, at least, start on Amazon). The question is, what are the costs of that reach? Margins and customer data are two of the biggest. Companies need to make sure they have (or can get) enough of both.

When thinking about margins, brands should focus on the costs that result directly from selling through Amazon. Brands pay the platform in different ways. Some companies become sellers on the platform; in that case Amazon receives a commission on each sale. If Amazon fulfills the delivery, brands pay for shipping and storage. Other companies sell to Amazon as vendors, much like they do with brick-and-mortar retailers: They deliver the goods to Amazon at a wholesale price, and then Amazon makes its own pricing and merchandising decisions and ships the products to customers. No matter which method you choose, Amazon charges advertising fees for promotion on the site. Revenues from Amazon’s advertising business in 2022 were $31 billion, and they are growing quickly. Brands need to add up these costs and subtract them from unit selling prices to be sure they will have enough margin to sell on Amazon sustainably.

What valuable data do you miss if you sell on Amazon instead of your own website? It is the same data you lose if you sell through a distributor or a retailer. That includes data about customers: who they are, how to contact them, how frequently they buy your products. Brands that want to cultivate long-lasting relationships with customers, to understand their customer base, or to interact with customers directly may not want to give up this data. Conversely, some brands are okay with shorter-term gains. They see the relationship with the customer as transactional and are satisfied with any sale.

Brands that choose to sell on Amazon but still aspire to collect customer data may gain some information through after-sale registration, app usage, and the like. However, brands must bear in mind that when they promote their products on Amazon, they learn nothing about the consumers that visited their product page but didn’t buy. They might have been able to connect with them through remarketing campaigns had they visited the company’s website instead.

The Need for Control

Well-known brands have suffered from counterfeiting on Amazon, whether or not they worked the platform. In 2019 Allbirds, the direct-to-consumer pioneer of woolen, sustainably-made footwear, found dozens of knockoff, half-priced versions of its shoes for sale—some offered by Amazon itself under the private-label brand Galen. Like Birkenstock, Allbirds, which had never sold its products on Amazon, publicly called Amazon out—not just for the blatant copycat effort but also for not using the sustainable materials that are part of Allbirds’s appeal.

In response to complaints about counterfeits and copycats, in 2017 Amazon started offering a “brand registry” program that allows companies to protect their intellectual property and trademarks. However, with many sellers on the platform, the process is often cumbersome, and not all brands can or are willing to enforce and protect their brand image. Removing unauthorized sellers or counterfeit brands from Amazon can be challenging, and legal action is expensive and time consuming. It can feel like a whack-a-mole game, where sellers keep popping back up after being removed. If a brand is prone to counterfeiting, managers need to decide how to respond to counterfeit offerings on Amazon—which may happen even if, like Allbirds, they choose not to sell on the platform.

Selling on Amazon can also complicate relationships with existing retail partners. Very often, a retailer signs a distribution agreement with a brand, and sometimes the contracts have provisions that give the brand control over certain elements of the relationships. A significant one is minimum advertised price (MAP). Such a policy, in effect, means that the reseller cannot advertise your product for a price below a set threshold, which often translates online into an inability to undercut prices. (For more on minimum advertised price strategies, see “Pricing Policies That Protect Your Brand,” HBR, March–April 2020.) If a product manufacturer already has established agreements and enforceable policies, it should be relatively easy to add Amazon to the list of authorized retailers. If a company doesn’t, or if many unauthorized third-party retailers have already obtained inventory of the product and are selling it on Amazon, it becomes challenging to maintain control. The product may be subject to intense price competition, where other sellers offer it for a low price to entice your customers to buy from them. Because this happens on a single platform where it is so easy to compare prices, a company may lose sales to third-party sellers unless it has some protections and controls in place.

Making a Decision

Our scorecard offers a practical way to evaluate these considerations. You can mark your answers, add up the points, and then read your score’s interpretation. If your score falls in the lowest range, then you should not consider selling on Amazon. If your score falls in the middle range, then you should consider it, but you will want to address some of the challenges before doing so. And if your score falls in the highest range, then your brand is an excellent candidate for selling on Amazon.

Now let’s turn our attention to the implementation challenges facing companies in the second and third groups. These brands are leaning toward selling on Amazon, or they may already be doing so. What should they do to maximize their chances of success—and maximize their profits?

Increasing the Odds of Success

Let’s start with the basics. For brands to succeed on Amazon, they must first be visible on the platform. They need to have helpful, relevant titles to ensure that their products appear high up in the search results. The same is true for content on their product page. Just as they do for search engine optimization on Google, brands must select relevant keywords for their product pages. A messy or repetitive-sounding page will send consumers searching for one that looks more professional. Because customers can’t touch, feel, or try the product, copywriters must do their best to give them the information that will convert a visit into a sale. Brands should have a visually appealing product page that is easily skimmed and contains helpful information. It should include multiple images that tell a story about the product, a video, and a Q&A section.

Consider the popular candy Sour Patch Kids (SPK), which sells its products as an Amazon vendor. Initially, searching Amazon for the candy would yield about 1,000 different product listings, including many from unauthorized sellers. Each page included its own unique combination of keywords and photos, as sellers tried to optimize their pages to get customers to buy from them. SPK’s pages had just the brand name, the logo, and nutritional facts—not an optimal selection of information. Shoppers had a hard time knowing which pages were the trusted product. This was not the brand experience that the SPK team wanted.

So it took steps to optimize its presence on Amazon. It started by consolidating all its available products to just 15 listings, differing by the SKUs. The brand edited its keywords to say the name of the product, the flavor, serving size, and pack size. SPK improved the quality of its product descriptions, investing in content that more clearly and effectively described brand attributes. For example, the page featured appealing sour and sweet imagery and a grid showing the different flavors and products offered with convenient hyperlinks. The changes significantly increased the number of page views of those selling directly from SPK, pushing pages from unauthorized sellers down on the digital shelf.

In addition, SPK evaluated the products being sold by unauthorized sellers and discovered that Amazon shoppers wanted more single-serve and treat-sized products. It launched new products in response, and those sales helped push Sour Patch Kids’ pages even higher in search results.

Another important success factor is customer reviews, which can help pique interest in products. Unfortunately, there’s a catch-22: Brands need reviews to get customers, but they can’t get customers without the reviews. To work around that, some brands explicitly ask for reviews through newsletters, social media, and Amazon’s review requests. However, brands cannot ask for positive reviews or pay for reviews, because Amazon cracks down on companies it suspects of using those tactics.

Some brands rely on outside services such as Helium 10 to increase the number of reviews. These services contact anyone who buys the product and asks for a review. Amazon also offers services to encourage reviews. Amazon Vine, for instance, gives free products to its most trusted reviewers. The program is especially useful for new and unknown products; the goal is to introduce them to testers.

Some brands add a paper card to their packaging requesting a review. Others try to leverage their influencers by encouraging them to add videos in addition to reviews on their product pages. Some brands start outreach programs to top Amazon reviewers in their categories. Again, the key is not to provide compensation in exchange for reviews or to get reviews from people who didn’t buy or use the product—both of those actions will cause Amazon to investigate.

Some brands adjust prices in order to secure more reviews. For example, Arçelik is a Turkish producer of white goods and other appliances, which it offers under various sub-brands. It sells just one of those brands, Grundig, via online platforms such as Amazon. When selling in brick-and-mortar stores, Arçelik typically unveils a new product at a high price point and then begins discounting only if sales are slow. When it began selling its Grundig appliances on Amazon, it quickly learned that the opposite strategy can make sense. “In [online] marketplaces, we start with a low price to get consumers to buy and leave reviews, and then we increase the price of the items with good ratings,” says Noyan Ceritoğlu, Arçelik’s e-commerce manager.

Next, look into Fulfillment by Amazon (FBA). Under this program, brands send their inventory to Amazon’s fulfillment centers, and Amazon does the rest. As noted previously, brands that utilize FBA often realize better ranking on the site and gain access to Amazon Prime, potentially increasing the number of orders. This allows brands to scale rapidly without developing more logistics and order-fulfillment capabilities. The downside is higher fees and strict shipping criteria for box sizes, labels, and barcodes.

Finally, brands can create a unique “Amazon store”—a strategy that’s especially relevant for brands that have multiple products. A store is a customizable online storefront with a unique web address to direct customers to. You can showcase your products, tell your brand story, and give your customers an easy way to search through all your products. A brand storefront also provides a defense against counterfeit or unauthorized sellers; it’s a way of telling your customers, “This is the real deal. This is where you should be buying.”

One brand that has found success this way is DivaCup, which sells silicon menstrual-care products. In 2018, it sold its line through a wide variety of channels, including brick-and-mortar retailers (primarily drug stores), its own website, and Amazon. Selling through Amazon was challenging, however, because several dozen unauthorized third-party sellers kept undercutting it on price. (DivaCup’s products generally retail for more than $30; on Amazon, the company found third-party sellers listing them as low as $17.) But in 2019, DivaCup changed its approach. To improve sales performance and maintain brand integrity, it doubled down on Amazon, establishing its own Amazon store. It bought advertising on Amazon to improve its positioning. It also partnered with an authorized third-party seller, granting it exclusive selling rights. DivaCup monitored results carefully and ultimately decided to sell solely through the third-party seller, a fast-growing company whose services included dedicated account management, marketing, data analytics, and brand protection and enforcement. Once it began taking legal action against unauthorized third parties, the number of them declined significantly. DivaCup’s sales on Amazon have increased, and the prices on the platform are now more in line with those in other channels.

Selling on Amazon does not have to be an all-or-nothing decision. Some brands sell a few products on Amazon while also encouraging customers to buy directly from their own website. This hybrid strategy allows them to use Amazon to build awareness and acquire customers but also drives purchasers to their own website, where margins are typically higher and data collection efforts can be more comprehensive. For best results, companies must make strategic assortment decisions, choosing which products to offer on the platform and which to sell on their own website.

For example, Magic Spoon, the digitally native, high-protein cereal brand, sells full-size boxes of cereal on its own website. (Disclosure: Matt Higgins is an investor in Magic Spoon.) When the company first started selling on Amazon, it offered only single-serve cereal boxes there. That way, customers could try the brand on Amazon and then go to the company’s website for larger sizes. Later, Magic Spoon started offering its standard variety pack of full-size cereal boxes on Amazon, but customers could try limited-edition flavors and build their own variety packs only on its own website.

Every brand should consider selling on Amazon. Some might discover that it’s not the right platform for them. They may conclude that their margins are too small, their product is too heavy, or their product category isn’t a good fit. Maybe there’s too much competition, and too much downside in lining up their product alongside competitors. These companies should continue selling through their existing channels.

But many companies will decide to sell on Amazon. And those that do should invest the time to showcase their products intelligently there. They should also consider using assortment choices to drive some customers back to their own website to buy. There is a danger in becoming over-reliant on Amazon as a sales channel, so companies must make smart choices to use the platform in a way that, while taking advantage of its scale, protects the long-term value of their brand. 

Source: Harvard Business Review