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Is Amazon a Friend or Foe? Retailers Must Weigh the Opportunity Before Tapping Revenue Gains

Mike Farrell

One of the most discussed topics in e-commerce over the past 18 months has been The Amazon Effect. Amazon has been throwing its weight around the industry, threatening to disintermediate retailers from their customers while eating into their profits.

The reality is, Amazon and other marketplaces are not going away. Marketplaces represent approximately half of all e-commerce sales, and Amazon alone drives 40% of e-commerce sales in the U.S. It sells 12 million products across most every retail vertical, including its own private label brands as well as products from more than 5 million other sellers.

Whether you see Amazon as a friend or foe, it’s critical to understand the dynamic environment that this giant has to offer.

Amazon’s growing influence leaves retailers with a primary question: How do we continue to coexist with a 500-pound gorilla?

The answer lies in understanding a few key factors: what Amazon can, and cannot, help you achieve; the risks and rewards of selling and advertising on the marketplace; and best practices to navigate the environment. Capitalizing on the Amazon opportunity requires a balancing act, but retailers who understand the channel can find success.

Why Amazon Is an Opportunity

Amazon continues to provide a number of benefits, the greatest of which is access to millions of consumers who are ready to buy.

  • Retailers with strong margins can take advantage of Amazon’s network of customers to move inventory and generate cash flow.
  • The type and volume of product sold on Amazon can help you understand the demand for products in your catalog. That information can then help inform merchandising decisions for your e-commerce site.
  • If you are a manufacturer selling on Amazon, brand value can be gained by using Amazon as a distribution network. The size and reach of the audience, combined with its high propensity to convert and provide feedback, can bolster brand equity.

Why Amazon Poses Risk

At the same time, these opportunities must be contextualized by the risks that Amazon also presents.

  • Amazon’s growing market share and brand loyalty is reducing the available market for non-Amazon loyalist shoppers.
  • The company carries its own private label brands and has the ability to give them priority or recommend them alongside a retailer’s products.
  • Amazon does not share customer data with retailers, so there are no remarketing capabilities.