The Pros and Cons of Using Amazon Business

Thinking about going over to the dark side? Here are a few high and low points that all distributors should keep in mind before aligning with Amazon Business.

In September, Amazon Business posted a blog that shined a light on the business-to-business (B2B) platform’s prowess. It talked about how it was working with “hundreds of thousands” of business sellers worldwide with more than $10 billion in annual sales. Those companies are using the platform to serve everyone from “sole proprietors to large enterprises with tens of thousands of employees on a single account,” Amazon writes. “We serve millions of businesses worldwide, including hospitals, universities, Fortune 500 companies, government agencies, daycares, restaurants, and more.”

Focused on bringing “suppliers to customers, and customers to suppliers,” Amazon Business says it’s working to improve suppliers’ ability to reach more customers, and to make it easier for customers to buy from suppliers. “Wholesale suppliers and distributors are just as much our customer as the end buyer,” the company points out, noting that third-party sellers on its platform make up more than 50% of its $10 billion in annual sales.

These are pretty compelling arguments in favor of working with Amazon Business, and particularly for electrical distributors whose e-commerce storefronts are either struggling to keep up or are nonexistent. But selling through Amazon Business also comes with its own share of downsides, not all of which are readily obvious to the distributor that aligns itself with the e-tailer.

“Selling products on Amazon Business can generate substantial revenue. However, there are downsides,” Lori McDonald points out in PracticalEcommerce. Depending on the product category, for example, distributors could wind up shelling out anywhere from 6%-15% in fees (not including any Fulfillment by Amazon [FBA] fees). Companies also have fewer opportunities to build relationships with their end customers, nor can they effectively differentiate themselves from their competitors on the platform.

“On Amazon Business,” McDonald writes, “buyers can easily search for the lowest-cost vendors and purchase from them.”

Double-Edged Sword
Ask marketing expert Rex Kimball what he thinks about electrical distributors using Amazon Business as a selling platform and he’ll tell you that it’s a double-edged sword. One one hand, you can leverage a pre-existing marketplace that Amazon has put a lot of time and effort into establishing— to the tune of about 300 million users. “The setup is not too technical, and it already exists, so hooking into it is fairly easy,” says Kimball, founder and president at Mirex Marketing.

“Amazon can store and deliver the product for you if you use their fulfillment services,” Kimball points out, “so you don’t have to worry as much about storage and inventory.” Known as FBA, that service provides storage, packaging, and shipping assistance taking the burden off the seller. The program allows sellers to ship their merchandise to an Amazon fulfillment center, where items are stored in warehouses until they are sold. When an order is placed, Amazon employees physically prepare, package, and ship the product(s).

Amazon’s FBA service also costs money. According to nChannel, the e-tailer breaks its fees down by size (standard and oversize), weight, and time of year. For example, distributors can expect fulfillment and storage fees to include these services:

• Picking and packing orders
• Shipping and handling orders
• Customer service
• Product returns
• Storage per cubic foot per month

For example, a small standard-size item (roughly the size of a book) that is one pound or less will have fulfillment fees of $2.41 from January-September and $2.39 from October to December to ship, nChannel explains. Standard-size inventory storage fees are $0.64 per cubic foot and increase to $2.35 per cubic foot during the holiday months.

Taking the Plunge
Fees aside, Kimball says other cons include the fact that Amazon’s branding is always going to overpower yours, and that—unlike your own e-commerce storefront—its system is not customizable to your operations. For enterprising distributors, Kimball says the lack of branding opportunities may be less of a concern than for other types of companies—namely because B2B customers tend to be more loyal “as you’re helping them with their operations and making them profitable.”

Yet, on that note, Kimball says the increased fees (charged by Amazon) might require you to increase your own prices and that does make purchases less profitable for your clients. “Because of this, your customers could potentially look elsewhere,” says Kimball, who adds that shipping costs should also factor into the distributor’s decision to work with Amazon Business, “Since you’re shipping in bulk (to Amazon), you could potentially provide your own shipping and make the cost less per unit which your clients would appreciate.”

Kimball says the good news is that distributors don’t necessarily have to take an “either-or” approach to Amazon Business, and that they can leverage the e-tailer’s platform for specific products and/or lines, and then reserve the rest of their products and services for their own e-commerce platforms. “Electrical distributors can literally leverage both to get the return that they’re looking for,” says Kimball, who tells companies to use the platform for what it’s worth (namely, its huge user base and established technology infrastructure), capture whatever information they can from the experience, and then let their sales teams develop deeper relationships with those buyers.

“Then, prompt those customers to come back and place follow-up orders through your own e-commerce site,” says Kimball, “where you not only don’t have to pay Amazon’s fees, but where you can also create a more captive audience.”

Harnessing the Power
Justin King, president at B2X Partners and author of Digital Branch Secrets, says distributors can also use Amazon Business as a sort of “test market,” for new, overstock, or even obsolete products that they want to unload. “There’s short-term money to be made in partnering with Amazon Business, but it’s not a very good long-term strategy for electrical distributors,” King advises. And as Kimball pointed out, distributors that are taking the leap need to understand just how far away they’ll be from their end customers—something that might be disconcerting for electrical distributors.

“Amazon Business’s mantra is to give its customers as much exposure to as many brands and products as possible in a single place,” says King. “By default, that means those customers will not be loyal to you. They just can’t be.”

But that doesn’t mean you can’t exploit the power of Amazon Business at least for a little while, King says. “Are smart people doing that today? Absolutely,” he adds. “You can take advantage of this by educating yourself on what Amazon Business is doing and maybe even testing out a few products to see how it works. Ultimately, however, you will need your own digital commerce strategy.”