How Amazon Is Changing Ecommerce And What Your Online Store Must Do To Succeed

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I was listening to Pat Flynn’s Smart Passive Income podcast the other day and his last interview really struck a chord with me.

In this particular episode, Pat featured a young couple that made over $100K in profit by selling surplus goods online.

And their business model was predicated on finding businesses that were looking to liquidate their excess stock, buying these clearance items at rock bottom prices and then selling these goods at retail prices on Amazon.com.

But there was a twist. Instead of having to stock and ship orders themselves, they relied on Amazon to handle all inventory and fulfillment using a service known as Fulfillment By Amazon.

As a result, the only aspect of their business that they had to worry about was inventory acquisition since Amazon took care of everything else.

Anyways, their story really resonated with me because it made me think about how much the ecommerce industry has evolved in the many years since I started selling online.

And their story just goes to show that there are always opportunities out there to make money. You just have to open your eyes, be decisive and take a chance.

Personal Story

arbitrage

The other reason I was very fond of this podcast episode was because I had a very similar business to this young couple when I first started out trying to make money online. Back in year 2000-2001, I used to comb the Craiglist ads looking for bargains.

Since people were always moving around from place to place, you could always find someone who was just trying to get rid of everything at rock bottom prices.

And when I managed to find these people, I’d end up buying all of their stuff for practically nothing. In fact, all you had to do was show up with cold hard cash and the negotiation was easy.

For example, I used to buy computers, stereos, electronics, accessories etc…pretty much anything I could find. And then I’d turn around and sell it all on Ebay for a pretty decent profit. At my peak, I was making about $2000/month in extra income and I was ecstatic.

I even ended coding up a little script which would parse the Craigslist ads and let me know when new deals were available so I could pounce on them as fast as possible. Things were very profitable for about a year until other people started catching on.

As time passed, I found myself competing with many other people for these killer deals. In the beginning, I was always the first to pounce. But after a while, I found that many people started beating me to the sale.

And even though I got real time notifications, I could not respond to the Craigslist ads fast enough and eventually, I could no longer find enough inventory to make significant money on Ebay.

Amazon Is Changing The Game

fulfillment by Amazon
When it comes to plain vanilla arbitrage, the markets will always stabilize over time. This is what I saw with my Craiglist experience and now Amazon is threatening to stabilize the entire ecommerce landscape by commoditizing the entire sales process.

With services like “Fulfillment By Amazon” where you can pay someone to pack and ship orders for you, it has become easier than ever to sell items online without any headaches while leveraging Amazon’s gigantic brand name.

As I was listening to Pat’s podcast about the couple selling surplus goods, I couldn’t help but think about how it was just a matter a time before these surplus stores realized that they could simply ship their excess goods to Amazon and get rid of them at a much higher profit margin.

Think about it this way, if Amazon is taking care of warehousing and fulfilling, what do they have to lose? Even though Amazon takes a 33% cut of the proceeds, 66% of retail pricing is way better than liquidation prices.

It’s also just a matter of time until other people find out about these liquidation flash sales and make these opportunities much harder to find. That’s just the way the free markets work.

Unless you have a real business name or brand, you are always in danger of getting pushed out.

That is why my Craigslist operation ultimately failed.

Amazon Is Turning Ecommerce Into A Commodity

commodity

Amazon is a huge juggernaut in the ecommerce space and more and more people are selling there because they have such a huge audience. And if you’ve ever shopped on Amazon before, you’ve probably noticed that even though you might be buying from a non-Amazon store, it still looks like you are buying from Amazon.

In other words, every time a sale is made on Amazon, Amazon is getting the mind share and branding for the sale regardless of which company is actually making money selling the product.

With fulfilled by Amazon, this loss of mind share is even worse. Because Amazon is responsible for shipment (customers are eligible for prime) and returns, you may as well be buying direct from Amazon.

So what’s my point here? As more and more online businesses start selling on Amazon, more and more products will start getting commoditized which will eventually drive prices and margins down to practically nothing.

Because there’s no real concept of branding on Amazon, customers will simply buy based on price and it will become a slow death spiral to the bottom of the pile. This is what Amazon is doing to ecommerce and it’s all a part of their master plan.

Should You Avoid Amazon Altogether?

So what can you do about this? Should you avoid selling on Amazon altogether? Should you just give in, sell on Amazon and deal with tighter margins and falling prices? No way! The best way to succeed in the ecommerce world is to sell non-commodity products.

The best way to succeed in the ecommerce world is to establish your own brand, your audience and your own legion of fanatics who are loyal to your store. If you sell commodity products that everyone else carries and you don’t add any value, you will ultimately fail.

That is why I believe that people who rely on Amazon as their only marketplace will eventually see eroding profit margins over time as more and more people start listing their products there.

On the Ecommerce Fuel Forums (which I highly recommended BTW), I’ve even heard chatter about certain vendors in China bypassing traditional retailers and simply listing their goods on Amazon.

If you are just a vanilla online store selling vanilla products, then it just becomes a pricing game. And as with any pricing game, you will ultimately lose unless you have a special arrangement with your manufacturer that no one else has.

How To Sell Successfully Online

unique value proposition

So what can you do about this? The absolutely best way to combat price erosion is by offering a unique value proposition with your store.

If you can’t think of anything special about your online shop or you can’t stand out in some way shape or form, then I wouldn’t even bother opening a store.

There are many ways to make your store standout. Here are a few things that you must do.

  • Create educational content about the products you sell. Creating quality content is the best way to become an authority in your niche and being an authority is a very powerful position to be in. If customers recognize you as the expert in whatever you are selling, you will make sales even if you are priced a little higher.
  • Create a brand for your shop. When you sell on Amazon, you are just a nobody. But when you have a brand, then you have the power to influence the purchasing decision. Make sure you can provide some sort of value add with everything that you are selling. If possible, creating your own products or re-brand existing products. Do not underestimate the power of repeat buyers and word of mouth
  • Create a customer email list. Even though outside forces like Amazon and Google can bring you down, they will never be able to touch your customer list. In fact, your email list will often be the single most important marketing leverage that you’ll have. Start an email list early and don’t lose touch with your existing customer base

Conclusion

Amazon is changing the face of ecommerce and it has become more important than ever to make your shop stand out. If all you can do is compete on price, then you will eventually fail.

So take the time to establish a brand. If you don’t have a unique value proposition for your business, then it’s time to get one. Just because things might ok for your store right now, doesn’t mean that your prices won’t erode over time.

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21 thoughts on “How Amazon Is Changing Ecommerce And What Your Online Store Must Do To Succeed”

  1. Mark says:

    Good call Steve. This article really resonated with me.

    I’ve tinkered with FBA (fulfillment by amazon) but could never get into it fully. They ask a pretty penny and I’ve heard of some horror stories when they handle all the inventory. It might work out well for many people but I just never wanted to give up that much control.

    We’ve run tests with putting some products on Amazon and then we fulfill. I thought it might be a good lead generator as long as we handled the backend of the sale right and it’s been OK. Overall though, our focus has been on developing some unique brands that work really well for the customer, and that’s probably going to be the best way for us to deal with new competition in the marketplace. We’re increasing loyalty in this way and you can see it happening fairly quickly.

    So being a bit different certainly isn’t a bad thing when it comes to online commerce!

    1. Hey Mark,

      We’ve been using Amazon product ads and they convert extremely well. Still haven’t tried the traditional listing route yet because of the high fees but we may give it a try later this year.

    2. Mark,

      Have to agree-

      Carving out your specific niche with unique branding is vital to long-term survival
      online. Going head to head with the likes of Amazon is a killer for your business. Differentiating yourself in your e-commerce selling will set you free and lead to sustained profitability!

  2. Hey Steve! I’m glad that the interview struck a cord with you :) I know it wasn’t in the most positive way possible, but it stuck out so that says something. I am Jessica, from the interview.

    I wanted to say that I think you have some great points about standing out in any business! That really is so important. One of the things I try to teach people after they get started selling is to start to do things differently than other people are so that you virtually have no competition.

    I’ve thought long and hard about “when will the stores just sell it on Amazon their self?” I buy less than 10% of what I am seeing available to me. Even in liquidation stores. We have even thought about owning a liquidation store for first dibs on the products. But, we found that there is so much more that would not be profitable or worth the time of listing on Amazon. Every business has a model and they can’t take advantage of every outlet. When a store clearances something out, they are done with that item. Being in corporate management, my husband made that decision for products at times. Even though there were other options like craigslist or flea markets, that isn’t a good option for the original outlet. You just have to cut the cord and move on.

    Thanks for sharing our story and giving your thoughts on it.

    1. Hi Jessica,

      So glad that you left a comment. I didn’t mean to come off as negative. In fact, I feel quite the opposite. I really admire your hustle and the success that you’ve achieved thus far. There are always opportunities out there to make money and only the efficient ones will survive. And I have this feeling that you will be one of them:)

      Take Care

  3. Steve, thanks for the great article! I appreciated your experience with the Craigslist/Ebay debacle back in 2000-2001. History repeats itself! I know a lot of industries have been scrambling as Amazon takes over, so it was good to hear a decisive way forward for those of us working online. It really underlines the points in the books A Whole New Mind and Purple Cow. If what you’re doing can be replicated for less cost, eventually it will be. Thanks for the insights!

    1. Hey Ross. Good to hear from you. Are you going to be at WDS this year? If so, I’ll see you there.

      1. I won’t be able to make it this year as I’ve signed up for Pioneer Nation coming up in two weeks.

  4. Great point Steve. I’ve been selling on Amazon for a while, and knew that people would be easily sold by the Passive Income podcast last week. But what I can tell you is that it is becoming harder and harder to make money on Amazon. Your advice here is spot on. I started another store – BlindSurprise.com – because the importance of creating a brand is key. Amazon cannot steal customers or cut margins on value for customers that only YOUR BRAND can create.

    Josh
    BlindSurprise.com

  5. Another great article Steve! Lots of food for thought. I’m just getting started trying to arbitrage items and want to be able to create a long-term, sustainable business. You’ve given me things to think about and to build into my business plan so it can work for many years to come. Keep up the great work :)

  6. Great insight into the Fulfillment by Amazon issue for online merchants. This really leads me to believe that I might want to design my own clothes and emphasize branding sooner rather than later!

  7. Thanks so much for this article. I always tell my customers to be careful about selling on Amazon and even using their payments or ads. It is not Chinese manufacturers listing directly on Amazon, it is them taking your sales data to back door you to the manufacturer on your best selling products. I have had two of my customers have this happen to them.

    My advice is, if it is already selling on Amazon, use it as an additional source of sales. If it is not selling on Amazon, avoid it as eventually your best sellers will be siphoned away. FBA is great if you are selling on Amazon but their storage fees can be high and there are less known fulfillment companies that can get you the same preferential pricing.

  8. Hi Steve, Great article! Thanks for your insights. I’ve been selling on Amazon for about 5 months now and it’s really “cut throat.” It’s very hard to compete unless you have the lowest price and if you do decide to lower your prices and get some sales, the profit margin is miniscule.

    On the flip-side, Amazon is getting us clients that we can now market to and try to cross sell. We don’t get their email addresses from Amazon, but we do get home addresses, so we can implement direct mail campaigns, like monthly newsletters and product offers.

    We’ve gotten about 100 new clients over the past 5 months and it’s a little too early to tell if our direct mail campaigns are working, although we have had a few people sign up for our monthly online newsletter for special discounts.

    The way I look at it, we’re not making boatloads of money on Amazon, but we are getting clients that Amazon is paying us for.

  9. Great article and excellent points! Though I don’t sell on Amazon (fees are a bit too steep for me right now), I do list on Etsy and Ebay as a means of gathering new customers who I then try to direct to my website for future purchases. I recently wrote a blog article on the different ways I do that: http://beadingforbusiness.com/2014/03/12/a-case-for-staying-on-etsy/

    Because while yes, you ultimately people buying form YOUR website where your brand will be remembered, marketplace sites do bring in a lot of traffic and potential for customer generation.

  10. Steve,

    More good insights for selling online. Amazon is a monster and you are so right looking to the future. Long-term sustainability is dependent on branding yourself along with your excellent points.

    Great stuff from you!

  11. Thanks for the advice! I had recalling been considering investing the time into selling on Amazon through FBA. Appreciate the feedback about why starting your own store is still the way to go.

  12. You’ve made a good argument to avoid Amazon here. It can be tempting to go ahead and join it since its such a powerful source, but I think you are right you run a serious risk of loosing money. Thanks for the insight!

  13. Great article. I have new site with e commerce and need this update badly, thanks again

  14. Great Post! I particularly enjoyed the 3 Big Points of Create Unique Content, Brand, and Connect.

  15. Jeff Mould says:

    I can’t even believe you wrote this. Amazon fulfillment is doing dropshipping. Dropshipping has been available since before the internet. So why are you giving Amazon hype as if they invented dropshipping? What they do is how most online businesses operate. I’ve had online stores since 99 and have never had to ship because my wholesalers offer dropshipping and they only take $2 per order no matter how large the order! Bottom line, Amazon is robbing everyone. Only the lazy and greedy use them for their so-called business.

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