Amazon Business Model

Assignment 1
Zainab Iram
Amazon Business Model

 Private Label,
 Wholesale
 Dropshipping
 Private Label,
 What is Amazon’s Private Label?
 Private labeling for Amazon means you sell (existing) products of your choosing, under
your own private brand (label) on Amazon. After studying a product/market, you
contact product suppliers/manufacturers directly, and they make the product for you,
in bulk, at cost, under your brand name. They then ship the product, ready to sell, to
Amazon. Assuming you’ve done your part in diligent research and strategic polishing,
your product sells insanely well, and you hardly have to lift a finger… except to type.
 All the work can be done from behind your laptop or mobile device — that is, from
your location flavor of the day (coffee shop, kitchen table, Bahamas, desk job, etc).
 Private Label vs. Retail Arbitrage
 PL: Repeat sales of the product(s) of Seller’s own brand
RA: Sales of all different types, varieties, and brands of products
Advantages and Disadvantages of Private Label
Advantages
 The profit margins can be extremely lucrative if you find an untapped product
niche with consumer demand.
 You have influence and control over the end-to-end creative process and end
up building an entire brand from the ground up. Unlike selling wholesale, with
private label selling, you have your own brand and get to create your own value
and reputation.
 As long as you have the cash flow, you can add additional products to your
private label line and are not limited by a certain cap on available products the
way you might be with manufacturers via a wholesale model.
 You automatically own the Buy Box, as you do not have direct competition on
your ASIN.
 You control the supply chain and can work with the manufacturer to decide how
many units you want produced after your initial order, when you want to begin
production, and if you have any changes for future orders.
Disadvantages
 Here are some of the most notable challenges or drawbacks to selling private
label products:
 A significant amount of upfront capital is required with initial orders and
generally, you will want to allocate spend to advertise your private label
products to drive discovery.
 The time commitment involved with creating Amazon ASINs, product detail
pages, and branding elements such as Amazon Stores is extensive.
 There is likely more of a lead time with manufacturing and importing private
label products than selling wholesale products, particularly if you are sourcing
from overseas.
 More guesswork is involved with regard to demand forecasting.
 The onus is on you to generate positive ratings and reviews, which can, in turn,
drive shopper loyalty, fuel the flywheel, and aid organic rankings.
 Without a detailed vetting or quality assurance process in place, you may end
up partnering with an illegitimate or low-quality supplier, which will lead to low-
quality products.
Wholesale

 Wholesalers purchase existing branded products whereas private

label sellers create their own branded products to sell on Amazon. ...
Instead, they add their offer to an existing product listing. On the other
hand, private label sellers must create their own product listings.
Wholesale

 Wholesale is the practice of purchasing bulk branded products from another

manufacturer, supplier, or distributor to resell to consumers. Examples include
popular consumer electronics, kitchenware, and even popular toys.
 How wholesale works on Amazon
In a nutshell, selling wholesale on Amazon comprises the basic steps of:
 Setting up a seller account
 Finding a high-demand product to sell
 Sourcing the product (in this case, from the manufacturer)
 Creating an optimized listing to rank against your competitors
 Launching and promoting the product
 Managing and growing your business (including inventory, sales, etc.)
 Pros and Cons
 Why sell wholesale?

Pros:
 Product demand: You can sell established brands (Apple, Kitchen aid, etc.) that
consumers are already searching for. This takes the burden off your business for
marketing.
 Quick to get started: Behind retail arbitrage, wholesale is the easiest business
model to get up and running. More than half of wholesalers (51%) in Jungle
Scout’s study of thousands of Amazon sellers told us it took them less than six
weeks to get their businesses up and running.
 Profitable: Also, 57% of wholesalers told us that they started to turn a profit in under
three months, compared to 65% of private label sellers who said it took six months
for them to see a profit.
 Scalable: You can focus your time on growth, even building a team to manage
the day-to-day operations, rather than focusing on building a brand, creating
listings, or other efforts fledgling brands need to do.
Cons:
 Competition: Nearly all of the listings on which you place offers will have
multiple sellers. And since the only “lever” you have to pull is price, it can
sometimes become a “race to the bottom.”
 Up-front cost: Because you must purchase goods in bulk, usually,
wholesaling is more expensive than reselling or dropshipping.
 Research: The most time-consuming aspect of wholesaling is research. You
will have to explore dozens — maybe even hundreds — of product
opportunities and ensure that you can get the product in stock from a
supplier
How does wholesale differ from other
business models?
 At first glance, wholesale may seem similar to the other business models on
Amazon. However, there are some pretty big differences as detailed
below.
 Wholesale versus private label
 Wholesalers purchase existing branded products whereas private label
sellers create their own branded products to sell on Amazon.
 Because of this difference, wholesalers do not necessarily need to create
new product listings. Instead, they add their offer to an existing product
listing. On the other hand, private label sellers must create their own
product listings.
 Wholesale versus dropshipping
 Dropshippers list goods for sale on Amazon. Then, when a purchase is
made, they place an order through the supplier/manufacturer of the
product, who fulfills the product on behalf of the dropshipper.
 Wholesalers own their inventory and are in charge of fulfilling orders
themselves.
What is dropshipping?

 In simple terms, it’s the business model that lets you focus your efforts on
marketing. The most time-consuming tasks are either automated or done
by your suppliers.
 E-commerce software takes care of processing and fulfilling your orders,
while your business partners store, pack and ship the products to your
customers.
 Besides, there is no need to make a significant investment to start it.
 All of these make dropshipping a riskless, effortless and affordable business
model to employ.
Advantages

 Less risk – You don’t have tons of money tied up in inventory that potentially
might not sell. You only buy a product if a customer has already purchased it, in
which case, you’re already guaranteed some sort of profit margin.
 ● Very little overhead cost – Without warehouse costs or the need to stock
inventory, drop ship businesses have very little overhead. Many owners are even
able to run their business from out of a home office, using only a laptop.
 ● A faster start-up – There’s a lot of work in stocking inventory, finding a
warehouse, taking out a lease and hiring people to manage, pick and pick
your products. Without all those steps, retailers can get their businesses off the
ground much more quickly.
 ● Scalable – It’s super easy to scale a drop ship operation, as the majority of the
extra work falls on your suppliers — not you or your own team. When you do
more business, you simply have to order more products. The supplier is the one
who has to pick it, pack it and get it from point A to point B for the customer.
Disadvantages

 ● Low-profit margins – Because of the low barriers to entry and the competitive space of
online shopping, drop shipping businesses are often forced to price for very low profit
margins. It’s not until they’ve really scaled their business and built up customer loyalty that
they can increase prices enough to see big financial gains.

 ● Lots of inventory issues – It’s very hard to keep track of inventory levels when you’re not in
charge of them yourself. And if your store isn’t in sync with the latest inventory data from
your suppliers? That means a customer could order out-of-stock items, resulting in
frustration, and disappointment that will probably hurt your reputation in the long haul.

 ● Shipping is complicated – Shipping is pretty complex with drop shipping, as it depends

on which supplier the product comes from, where the customer is located, the weight of
the product, etc. If a customer buys three products all from different suppliers, that means
you’re hit with three different shipping rates. You’re forced to either eat some of those
costs or charge sky-high costs and risk losing the customer. Neither’s an ideal option.