December 31, 2011, 12:00 AM

The Risky Rumba With Amazon

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Taming the beast

But like any business arrangement, working with Amazon requires careful planning and ongoing reviews, experts say. While marketplace sellers provide Amazon more revenue and additional products to display, making its site more appealing as a shopping destination, marketplace sellers get instant access to Amazon's many customers. "Among the big benefits of participating in the Amazon marketplace is that you can test products and learn selling capacity," or the volume you can sell of any one product, says Halligan, who is a former senior executive in marketing and other roles at retailers including Wal-Mart Stores Inc., Williams-Sonoma Inc. and Blue Nile Inc.

But she cautions that merchants need to first work out a three-part strategy for selling on Amazon to avoid having the benefits outweighed by risks and costs:

  • First, it's crucial to start out with a distinct value proposition—offering an attractive product at a good price that Amazon and other sellers don't already offer in large quantities;
  • Second, set goals for customer traffic, sales and profits, and constantly monitor whether sales on Amazon outweigh the inherent risks (such as providing product selling data to Amazon) and variable costs of selling on Amazon;
  • Third, have an exit strategy for moving sales to another marketplace or to one's own site if the Amazon strategy doesn't work out.

More retailers, meantime, are taking a harder look at Amazon and whether it can work as a selling channel. "Until recently, many retailers would think binary—either sell on Amazon or not," says Scot Wingo, CEO of ChannelAdvisor Corp., which specializes in helping retailers sell through Amazon and other online marketplaces. "Now many of them are more nuanced. For example, maybe they'll sell only a subset of products on Amazon. Every one of our customers is going down this road."

In some cases, Amazon negotiates contracts that require marketplace sellers to offer their full product line on Amazon.com. But for those that work under basic rates—accounting for the great majority of sellers, Wingo says—Amazon allows sellers to list only some of their products. That enables a retailer to keep its best-selling products for its own site, and use Amazon to test new products or to dispose of slow-moving merchandise.

Retailers that learn how to navigate the unique and often painstaking rules and characteristics of the Amazon marketplace can at times beat Amazon on its own turf, Wingo says. "You can compete with Amazon in the Amazon marketplace—that's the trick," he says.

Navigating the rough spots

To be sure, selling through Amazon is not always easy and includes rough waters that some retailers find too troublesome. For many merchants, the biggest hurdle is Amazon's strict controls over follow-up marketing. Marketplace sellers aren't allowed to directly market to customers after they place an order on Amazon.com; Amazon views them as Amazon's customers.

Evo, a Seattle-based retailer of skis, snowboards and other sports gear, stopped selling through Amazon a year ago, figuring that the time and cost of allocating inventory for the Amazon channel wasn't worth the trouble without the ability to market to and build relationships with evo's Amazon customers. "Amazon basically wanted us to be a fulfillment center for them," says Nathan Decker, head of e-commerce.

Furniture retailer Carolina Rustica also backed out of the Amazon marketplace, partly because of the difficulty in sending product data to Amazon and because it wasn't able to control the appearance of product images and descriptions. That sometimes resulted in disappointed customers who received an item unlike what they had seen online, CEO Richard Sexton says.

Carolina Rustica isn't alone. The system of loading product data to the marketplace under Amazon's strict coding requirements has befuddled retailers large and small, says Mike Davidson, a marketplace seller and former Amazon manager who recruited and helped set up marketplace merchants. "It's a complex environment," he says. "Just when you think you've got it figured out, it'll change tomorrow."

The challenge is often most troubling for large, established retailers, particularly those who sell through multiple online and offline channels, Davidson and others say. "There's no widget that makes this easy," he says.

Macy's Inc. and other multichannel retailers have struggled to load their product data to Amazon.com databases, though this has been partly out of resistance by such merchants to allocating inventory to additional selling channels and identifying it to Amazon's rules, Davidson says. Amazon may kick out retailers that don't abide by its rules and provide a poor customer shopping experience, he adds. A Macy's spokesman says the national retailer backed out of the Amazon marketplace early last year because Amazon no longer suited its market strategy, but declines to be more specific.

Amazon requires marketplace sellers to tag products with Universal Product Codes as well as separate Amazon Stock Item Numbers. That lets Amazon group together similar products—even if they don't have the same UPC code—but limits the control sellers have over their product descriptions, says Eric Best, CEO of Mercent. Amazon's strategy, he notes, is to provide consumers with the best mix of purchasing options without having to scroll far down a page.

Winning the Buy Box

But while several sellers will appear on a product page, only one can "win" what Amazon sellers refer to as the Buy Box—the box in the upper right of a search results page on Amazon.com that includes an Add to Cart button and directs the sale to a particular seller. Making it into that Buy Box requires convincing an Amazon software algorithm that you offer the best mix of attributes such as price, shipping and customer service reputation among all merchants—including Amazon itself—offering a similar product.

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