Amazon Business Models, and their pros and cons

Amazon has ushered in a revolutionary change in the way people sell. From the regular brick-and-mortar shops to selling online across hundreds of e-Commerce websites, a lot has changed how business is done, and Amazon has been a linchpin of this systemic transformation over the years. 

Amazon has gobbled down an overwhelming share of the retail market ever since it forayed into the market as an online book store in 1994.  As per the data collected by eMarketer, Amazon owns nearly 40% of the market followed by close competitor Walmart (5%). 

Talking on its exponential growth, the founder, Jeff Bezos, in a letter to shareholders in 2019, stated that over 50% of the company sales come from mom-and-pop stores under the Amazon umbrella.

Amid all the frenzy, little is talked about the business models, some of which have been instrumental in writing the glorious journey of Amazon.

So, in this article, we will talk about the pros and cons of the various Amazon’s Business Models:

Private Label

A private label enables Amazon sellers to sell products with their own brand name though manufactured by someone else.

It’s like you buy from overseas and sell it on Amazon with your brand name and logo. All you’ve to do is do the groundwork—often tedious— to find the product with high demand, low competition, and long-term sustainability.

Some of the recommended Private Label product ideas on Amazon include water bottles, camera bags, LED lights, photo frames, phone screen guards, and many more.  Use TURBO PIRANHA™ to search up to 36,000 items per hour.

Pros Brand the products in your own unique style; no pressure on branding decision. Enjoy control over the inventory as you place orders based on demand.  No competition with Amazon “Buy Box” for the products. Use paid marketing to boost sales and generate more quick revenue.

Cons An expensive proposition with a bulk investment made to purchase the products and then creating a private label. A time-consuming process with all the resources invested to do the market research, branding, and marketing products. Initial hiccups to establish your brand, which is relatively new in front of the familiar names.  Product quality is not in your hands; you may have to take over the extra liability of product testing/certification.

 

Wholesale

Selling wholesale on Amazon enables sellers to place a bulk order of popular but often low-cost branded products from another manufacturer.

Pros Easy to generate sales revenue from already-known products; eliminates the marketing cost. Fairly easy to start selling and make quick profits as products are already in demand.  Hassle-free supply of products. No stock shortage.

Cons Stiff competition with multiple sellers vying for popular brands. A high up-front cost for placing a wholesale order.  Extensive research goes into filtering and finding the products that fit your criteria.

Retail arbitrage

Retail arbitrage enables sellers to purchase products from the local stores and sell them on Amazon to make a profit. However, the actual profit in your hand comes after deducting Amazon’s FBA fees and the actual cost of the product. 

You can find plenty of options during the clearance sale in stores such as Walmart. So, fill your shopping bags and start selling on Amazon.

Pros You don’t have to spend on brand awareness and marketing. A level playing field to grab the best deal on listed products in the stores. Full-control to manage inventory.

Cons You may end up buying poor-quality products sold for peanuts. Scaling a business is nowhere in the frame if you depend on cheap deals.  Incur storage cost. May face acute competition in some premium categories where people do not mind shelling extra such as smartphones.

Online Arbitrage

Online arbitrage enables sellers to shop from the local stores as well as online and sell it worldwide, at comfortable prices. It can be considered as an extension of retail arbitrage that limits sellers to regular stores.

Pros Low-cost investment to start off your business Safe business with low risk Saves time hopping from one store to another for inventory Wider reach as you can purchase products from other markets Allows you to shop from cashback websites

Cons Focus is more on sales and not improving profitability Needs extra manpower to manage the logistics Does not offer much scope to scale your business

Using a bulk profit analyzer can help sellers filter down products that actually sell on Amazon, and stimulates revenue for your business. 

Selling books on Amazon

This is how it all started by selling books on Amazon. For sellers, it’s a huge opportunity to access the global outreach of the international e-Commerce giant. 

All you’ve to do is look for some wholesale booksellers, thrift stores, or even libraries to source new or old books in good condition to sell on Amazon, at great profit margins.

Pros Access to millions of users worldwide; a good chance to boost sales and profits. Fastest shipping – 1 or 2 days deliver for Prime members Excellent customer service

Cons Sky-high competition with hundreds of other sellers using the platform  Amazon calls the shots for sellers. It does not come for free; Amazon charges some fees for both FBA and FBM.

 

What if you can get a rough sales estimate of any special genre of books? fiction, non-fiction, etc? Our Amazon sales estimator gives average monthly sales numbers for specific Amazon categories. 

Dropshipping

Dropshipping enables you to act as an intermediary between a supplier and a customer. All you do is collecting orders on Amazon with FBM and sending the products directly from your supplier to the customer.

Pros Need not bother about inventory management No startup cost needed Earnings based on the performance; so sell as much as you can.

Cons No control over the product quality Fulfillment and shipping is at the mercy of the vendors Poor customer service from the vendors may tarnish your image on Amazon Low-profit margins; competitive

All said and done, Amazon has many regulations and rules on dropshipping and the risks outweigh the often over-advertised perks. So, we recommend rethinking dropshipping before you make the final decision.

Flip

FBA sellers often buy cheap products (mostly books) from FBM (fulfilled by merchant) sellers and sell them with FBA (fulfilled by Amazon) with higher prices.

Pros  Profit margins between FBM and FBA Increased sales, especially because of Buy Box Priority given to FBA sellers  If the purchased product is not good enough, you can return it easily.

Cons  You always need to crawl Amazon using a bulk profit analyzer It offers good profit margins but due to limited opportunities and many sellers are doing this , it’s not a sustainable business model.

Wrapping up…

Every Amazon’s business model comes with its own set of pros and cons. As a potential seller on Amazon, choose a perfect risk-profit business model.  

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