We take a deep dive into the pros and cons of each option, and how to effectively balance your channels options. Having your own webstore gives you the best possible competitive advantage, and results in higher customer loyalty. Today’s episode will explain why.
Why Amazon is the best way to get started in eCommerce
The dangers of relying on Amazon alone to support your business
Why some of the biggest eCommerce brands are leaving Amazon
How each option impacts your relationship with customers… and ultimately their loyalty
Why you need to develop your own branded website
Full Podcast Transcript
Hello Beings of Earth! I’m your host Neil Verma.
Welcome to eBrandCast, where we decode what branding truly is, so you can build a dominant eCom Brand.
Today, we’re going to dive into what I know is a highly controversial topic with eCommerce entrepreneurs: whether you should start your eCommerce business on Amazon, or with a branded site of your own.
The debate has been raging for over 20 years now, partly because the argument for and against marketplaces continues to change.
Because although eCommerce is still a young channel, it evolves very quickly.
But as an entrepreneur, you still need to make this important decision for your brand.
The role of marketplaces has gone through 3 distinct phases.
The first phase is the longest, which we can roughly define as starting in the mid-90’s and only ending around 2017.
During this time, eBay and Amazon were the go-to marketplaces for online shoppers.
Especially early on, when eCommerce was in its infancy, buying online was still a new concept and for consumers, trust was the main purchase driver.
Consumers trusted big marketplaces that offered them greater protections.
For entrepreneurs, this was the Golden Age of eCommerce.
At the time, it was relatively easy for sellers to source unique products and rank well on Amazon.
For sellers, Amazon didn’t require much capital to launch on and competition was minimal.
It was a time when third-party sellers didn’t need to worry too much about differentiating their offers from others.
As long as you chose a profitable niche, with a few SEO tricks you were set up, and customers would roll in.
Since most eCommerce entrepreneurs were gravitating to these marketplaces, branding was understandably seen as irrelevant.
And frankly, it wasn’t needed in order to create a profitable online business.
The convenience of Amazon, eBay and other marketplaces for consumers superseded the need for sellers to stand out as unique.
Although there were bigger players, like Zappos, who were pioneering a differentiated online experience, it was easy for third-party sellers to cut out a piece of the market for themselves.
Given this situation, the debate of marketplace versus branded sites seemed moot.
The upsides for leveraging a marketplace were just too numerous.
And some of these advantages are still relevant.
I’m sure I don’t need to tell you that the absolute most important first step to take toward building a meaningful and successful eCommerce business, is to get started.
And one of the greatest enemies of beginning and creating traction is inertia.
The gap between being inspired by the idea to start your own business, and actually getting set up and launching, is when your potential success is at its most vulnerable.
There are so many choices and opportunities, that getting distracted and even made complacent by weighing all your options, is a real danger.
It’s why the writer Ben Johnson once said, “It must be done like lightning.”
In other words, the faster you can close the gap between wanting to start your own business, and actually hitting the ground running,
the sooner you’ll have the insights and tools you need to turn that idea into a sustainable business.
From this point of view, when you’re just starting out in eCommerce, and you’re faced with the choice between building your own site and hopping on Amazon specifically, the choice seems obvious.
One of the major advantages Amazon offers is the ability to setup and start selling within hours.
Deciding to design and build your own site is fraught with countless decisions and choices.
With Amazon, you just plug in the pertinent details about your business and products, and you’re set.
A branded site takes a lot more time and effort to create.
Even with a platform like Shopify or Magento, a lot more goes into getting started.
Analysis paralysis becomes a real threat when you have to worry about everything, from choosing the aesthetic look of your site, to which payment gateway to use.
When you list with Amazon, all of the details are taken care of.
It’s this low barrier to entry that contributed to the landscape changing around 2017.
At that time, marketplaces entered the second phase of their evolution.
By then, more consumers were not only shopping online, but totally comfortable with it.
Trust will never be irrelevant, of course, but it was not longer the driving force behind brand and channel choice.
The dovetailing of a wider market, as well as low barriers to entry created a surge in competitors entering the space.
Particularly on Amazon where millions of third-party sellers signed up, many of whom were former suppliers realizing they could undersell competitors by selling direct.
Unfortunately, the flood of competitors meant a flood of copycat products.
Following a product search on Amazon, customers now had dozens of options for the same item.
This sudden commoditization created a greater need for sellers to differentiate from one another and compete for customer attention.
Unprecedented levels of competition also meant unprecedented levels of games.
For every legitimate seller on Amazon, there are others who are willing to hijack listings and offer counterfeit items to siphon sales.
Issues which Amazon’s seller support has always struggled to manage.
Of course, I know that most of you are already aware of all the drawbacks of Amazon.
You know the struggle to protect your business from counterfeiters, and Amazon’s inability to offer adequate support for honest sellers to combat these issues.
And unfortunately, it’s only too easy to have your listings disappear overnight, over false complaints, or due to Amazon’s constantly changing policies.
Maybe you’ve even fallen victim to this yourself.
I certainly have.
But it was the moment eCom entrepreneurs started to finally shift away from pure plays on marketplaces, toward building more branded websites, and experimenting with retail stores.
In fact, even hugely successful eCommerce brands during this phase started to leave Amazon.
One such departure from Amazon came from retailer Birkenstocks, the German shoe manufacturer.
Birkenstocks are famous for their contoured cork and rubber footbeds.
They left Amazon in January 2017 after a flood of counterfeit listings on the marketplace.
Although they were selling select models of their shoes on the marketplace both directly, and by employing several authorized sellers, Birkenstocks was struggling to control imitators.
A flood of Chinese merchants entered with fraudulent products well below retail price, and a string of paid-for fake reviews.
It wasn’t long before their listings were prioritized in Amazon’s search rankings.
They were also taking advantage of Amazon’s logistics system, which commingled inventory of the same items from various distributors in its warehouses.
Result being, that often authentic items get mixed up with fake ones.
So a customer buying from an unauthorized seller might end up with the real deal, while another customer – paying more – from the brand itself, might end up with a cheap knock-off.
Too many customers ended up paying full-price for shoes that quickly fell apart, and didn’t fulfil the brand’s promise of more comfortable shoes.
Worried that this situation was going to end up doing serious damage to their brand, they reached out to Amazon for help.
Birkenstocks says that ultimately, Amazon told them they would have to agree to sell their entire product line on the marketplace.
And that this was the only way Amazon could create a totally “clean” environment and ensure no counterfeits made it online.
This makes sense for Amazon, who are out to be the world’s “one-stop” shop for every product out there.
But Birkenstocks weren’t comfortable with handing over what was essentially full control of their brand, so they decided to back out of the marketplace altogether.
In addition, in December of 2017, right before their items disappeared from the marketplace altogether, Birkenstocks won a lawsuit against Amazon.
While they were on the site, Amazon was allowing unauthorized sellers to optimize and bid on keywords that misspelled ‘Birkenstocks.’
Because it’s a brand name that customers hearing it for the first time might easily misspell, it only added to Birkenstocks fear that unsuspecting customers might be lured to low-quality fakes.
Especially with Birkenstocks readying to leave the marketplace within weeks, they didn’t want to allow any further damage to their brand.
Birkenstock’s story, unfortunately, isn’t unique.
Amazon has proved themselves to be either unable, or unwilling, to launch a full-scale effort against counterfeits.
While there are steps you can take to ensure Amazon customers buy from you or authorized sellers, there’s still significant danger to your brand’s reputation.
An example from the eCommerce world of this dilemma is Ranch Road Boots, a brand that makes premium leather cowboy boots.
After selling locally for 4 years, Ranch Roads launched online in 2016 including on Amazon.
By 2018, 50% of their sales were attributed to the marketplace.
By August of 2019, the brand decided to stop selling on Amazon altogether.
Even though sales numbers were good, the costs, both financial and in terms of brand equity, became unsustainable.
In addition to advertising costs, Ranch Roads was also paying 18% commission, making their margins too thin for long-term growth.
And even though the boots sold well, they had twice the return rate with Amazon customers than direct sales through their own website.
Part of the reason was that their merchandise wasn’t being cared for properly.
And because their shoeboxes were being shipping in envelopes, they often arrived at the customer’s doorstep battered and crushed.
All of which was only giving customers a disappointing experience, and negatively impacted the perception of the Ranch Roads brand.
When customers returned the boots, Amazon would give buyers a full refund Ranch Roads was forced to absorb.
And even when the brand knew certain customers were gaining the generous return policy, Amazon required Ranch Roads to fulfil those orders.
For both Birkenstocks and Ranch Roads Boots, it’s clear that what underlies these disputes is a fight over who controls the brand.
Don’t get me wrong, Amazon is a great tool, especially if you’re starting out.
But you need to understand that at the end of the day, Amazon is more worried about their own success than protecting your business.
The influx of competitors and greater product commoditization of this phase, leading to more and more brands setting up their own storefronts with an equally appealing brand experience,
Meant that Amazon was now facing greater competition to their eCommerce dominance.
During this phase, Amazon started to look for new ways to keep consumers in their ecosystem.
Although there are plenty of eCom businesses that thrive selling only on Amazon, the fact is, these buyers aren’t really your customers, they’re Amazon’s customers.
Particularly if you use Fulfilment by Amazon, most customers don’t realize they’re buying from anyone other than Amazon.
The same advantages Amazon offers eCommerce entrepreneurs, often make customers blind to who they’re actually buying from.
This is by design, of course.
Amazon wants to be the out-front brand for customers, and while they offer entrepreneurs some important and powerful tools to build their own businesses, they own the customers.
Even as a seller, you’ll never know your customer’s details.
Amazon also jealously guards all the customer data they collect.
Sure, you may benefit from how this data optimizes their product pages, review system, and checkout process, but you’ll never have the tools to reach out to your own customers if you’re only on Amazon.
In other words, because you have no way of building a relationship with customers, you’re not building a brand on Amazon, you’re just another product seller.
Increasingly, Amazon is competing with their third-party sellers, not supporting them.
While you might think Amazon’s constant improvements to their platform and customer experience will only improve sales on the marketplace, these adjustments are usually to Amazon’s benefit, not yours.
Keep in mind, Amazon is looking to impose the Amazon experience on their customers.
Even the ‘Amazon’s Choice’ badge was created to prioritize Amazon’s own products.
And as voice-assisted shopping through devices like the Echo increases, Amazon’s algorithm will zero in on Amazon’s own products, unless the customer specifically asks for another brand.
And as you probably know, one of Amazon’s major changes over the past few years is the expansion of their private label program.
Amazon routinely tracks the top-selling products by third-party sellers, then creates their own version, sometimes under the “AmazonBasics” brand, other times under a private label.
Allbirds, an eCommerce sneaker retailer, were themselves the victims of Amazon’s ruthless expansion.
The brand wasn’t even officially selling on the marketplace, but in September of 2019, Amazon launched its own sneaker, called the “Galen.”
And it looked suspiciously like Allbirds’ Wool Runner.
What made the news especially cheeky, was that the Galen was launched the same week Amazon announced an ambitious new plan to combat climate change.
The Allbirds brand is rooted in sustainability, and they saw the move as a clear infringement on their territory.
Joey Zwillinger, cofounder of Allbirds, described the Galen as “the first algorithmically generated copycat.”
Amazon had, apparently, used the same analytics to design their shoe as they do to choose the products they private label to undercut third-party sellers.
At the risk of sounding too negative about marketplaces, none of this necessarily means that Amazon or other marketplaces are the wrong choice for you, even after you’ve established a profitable business.
But look again at Birkenstocks, Ranch Road Boots, and Allbirds: they were able to leave Amazon without a major impact on their brands, precisely because they had a strong brand independent of Amazon.
They didn’t need to rely on Amazon, but there are many smaller eCommerce companies and entrepreneurs who do.
You might be one of them.
Amazon’s increasingly aggressive moves to emphasize their own brand, means that more and more, Amazon is your competitor, not an ally.
Amazon is certainly making the right decisions to bond consumers more closely to the Amazon brand, it’s just at the expense of the smaller third-party sellers.
If you do choose to get started on Amazon, the key lesson to take away here is not to rely on any single channel.
This is the enduring lesson of the second phase of evolution for online marketplaces.
The perception that you either choose to sell on a marketplace or your own site is a false choice.
Unfortunately, many entrepreneurs don’t understand how much has really changed on marketplaces because the first phase of evolution lasted for more than 20 years,
while the second phased only spanned 3 years.
So they’re stuck in the mindset of 5 years ago, thinking choosing between a marketplace and a website is a black and white choice.
A mindset that might as well be 50 years ago in terms of effectiveness.
And this evolution isn’t slowing down, we’re now early into the third phase, which began in the early months of 2020 with the outbreak of the COVID pandemic.
While eCommerce was already moving toward omnichannel branding, COVID has made it table stakes.
In terms of customer behavior, extensive lockdowns and social distancing have pushed more consumer online in a short span of time.
A range of products, like groceries, that were once considered too cumbersome to buy online, are now mainstream.
And while the competitive flood of phase 2 led to a greater demand for branding and differentiation, in the current phase, the demand for branding is coming from customers.
Because the pandemic didn’t just push people online, it also reshuffled everyone’s priorities.
Lockdowns significantly impacted the economy, and many consumers are worried about the health of their loved ones.
In terms of shopping, it means most consumers aren’t as open to direct sales pitches as they once were.
It means you can’t rely on messaging that leans on offers and discounts.
Instead, consumers are looking for purpose-led brands that are prioritizing the community’s well-being over their own bottom line.
And if you’re going to have a trustworthy purpose, that requires a brand.
Not to mention, there’s more emphasis on the customer experience.
As more people spend more of their time online, they expect a seamless, smooth experience no matter what device they’re using, or what channel they’re on.
In other words, the reality of evolving customer expectations means that relying on Amazon just isn’t a viable plan anymore.
Yes, creating your own storefront is more labor intensive than creating an account on Amazon and creating a few listings.
But it’s much harder to create long-term competitive advantage on any marketplace.
Remember, even if most consumers these days start a product search on Amazon, your products aren’t going to be the only ones that show up in the search results.
Consumers will see pages upon pages of your competitors products too, and because Amazon makes customers brand-blind, they’ll likely focus on price and product pictures to make a purchase decision.
This leads to more unpredictable conversion rates and profits.
With the right strategy and tools, it’s absolutely possible to build a branded website that offers customers a purchase journey, that’s as seamless and comfortable as Amazon’s.
The difference is that with your own site, you’ll own the entire customer experience.
You’ll have control over every step of the journey, and over every brand decision.
And your customers will be your customers.
You’ll know exactly who they are.
With each purchase, you’ll be able to build an email list that lets you market directly to your biggest fans, and inspire brand loyalty and reliable, predictable, repeat purchases.
You’ll be able to offer more personalized customer service, especially if a customer is asking a question about one of your products.
Amazon’s service can’t possibly be experts on every product in their catalogue, which often sends customers searching for answers in product reviews, and Amazon’s Q&A section on product pages.
But with your own website, you can offer precise help on everything you offer.
If you offer an array of products, you can more effectively cross- and up-sell these items.
Amazon generates a list of related products and items other customers ordered at the same time, but more often than not, none of these recommendations include other products in your lineup.
By controlling how you present and relate each product, you can learn more about your customers’ preferences.
And with each purchase you’ll get a clear picture of what each consumer bought, how much they spent, and what they’re interested in.
In other words, you’ll actually get to know your customers, and what motivates them, allowing you to continually improve and optimize both your products and your website experience.
Knowing your customers isn’t just good for relationships, either.
It allows you to grow your business more effectively and quickly.
Because Amazon hoards all of their customer data to themselves, you’re blind as to how each customer found your products, and why they chose you instead of their myriad of other choices.
With your own site, you own the customer data, and can easily determine how customers are finding your page, what they’re most interested in, and see their behavior patterns.
With the larger picture of each customer’s path to purchase, you can allocate resources to the channels and traffic sources that are the most profitable and effective.
You’ll see where in your sales funnels you’re losing the most customers, and be able to quickly fix any shortcomings to maximize conversions.
Revenues are no longer unpredictable.
You have control over the customer journey, and the power to improve it.
Nor will you be subject to the whims of Amazon’s self-interest and unpredictable policy changes.
With your own site you’re not in danger of losing your whole business overnight, without any reason or recourse.
You’re also free to set your own prices, run creative marketing campaigns, and more streamlined retargeting efforts.
With access to customer data, you can send out highly personalized ads that bring customers back to your site, not your competitors.
On Amazon, search rankings shift all the time.
When a customer isn’t ready to buy today when your listing appears on the first page of results, they may be ready to buy when your listing has been buried by a new competitor.
But perhaps most importantly, you’ll graduate from being a product seller to a brand builder.
While Amazon’s product pages are powerfully optimized and effective, they still present your products generically, with very limited options to customize.
With your own website, you have full control over the context you build around your products.
You can infuse your brand’s unique personality into each offering, and ensure you’re sending the right message to customers.
You’ll engage consumer emotions and build a bond.
If you want customers to associate your brand with your product category or industry, you’ll need to carefully balance a channel strategy that includes a marketplace.
People tend to remember the marketplace, not the third-party seller whose brand name is buried somewhere on the product page.
So, the marketplace gets the benefit of the customer’s positive emotional associations, not you.
A branded website allows your business to take full credit for the products you offer, and the purchase experience.
The good news is that branding will also remove the potential for analysis paralysis while building your website.
Most of the major decisions, from design elements to the voice behind your product descriptions, will be made ahead of time.
So although building a website is more work up-front than creating an Amazon account, branding removes most of the major pitfalls that trap other entrepreneurs in development-hell.
And more importantly, a strong brand is what eCommerce customers now expect.
It’s true that you can’t ignore Amazon or other marketplaces as a sales channel and you shouldn’t, but unless you’re building a brand that’s independent of those platforms, you’re going to be at their mercy.
Many eCommerce entrepreneurs are drawn to this calling precisely because they want to build something they can really own, and the freedom that entails.
But until you own a branded website, until you set aside the time and put in the effort to build a brand, you won’t really own your business.
You’ll just be hustling products.
eCommerce has moved beyond this business plan, and you don’t want to put your business in danger just because you’re stuck in the mindset of 3 years ago, instead of today’s reality.
Start on Amazon if you need to, but make sure you’re building a brand alongside those efforts.
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