Small and medium-sized businesses (SMBs) are the backbone of every country and vital to its economy. In the US, businesses with fewer than 100 employees account for 98.2% of all businesses, and those with fewer than 20 employees for 89%. The new millennium hasn’t been the easiest for small business owners though. The shift towards E-Commerce has changed buying behaviour significantly and big players like Amazon are acquiring more and more power.
Additionally, the recent COVID pandemic has posed an especially big challenge to small brick and mortar shops, forcing them to operate with limited capacities or fully close. Small business owners have to adapt and get creative which might include considering alternative distribution channels like Amazon. In this article we will explore how Amazon can help your small business, despite possible hesitations about partnering up with them.
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Current Challenges for Small Businesses
SMBs have always faced unique challenges stemming from trying to keep up with larger competitors while using limited resources. However, the past year has demanded small business owners to twist, turn and grow in ways they would not have previously imagined. Let’s look at two of the main drivers and their impacts:
The Era of Ecommerce
The rise of Ecommerce and changing buying behaviours have been impactful on all businesses but small businesses are especially struggling. The change has been fast and led to several challenges:
- More time spent online by consumers, resulting in a shift of marketing & customer acquisition to digital channels
- Increase in consumers buying online especially younger age groups (85% of consumers between 18-32 buy online at least a few times a week); leading to less purchases conducted in physical stores
- Congregation of purchases on big platforms like Amazon
- Exposure to higher number of competing products on platforms
- Changing consumer expectations around product availability, speed of delivery and price competitiveness
- Added resource & skill requirements for small teams trying to set up Ecommerce distribution & marketing channels
The recent COVID pandemic of 2020 has impacted small businesses in unexpected and unprecedented ways and added further pressures:
- Shop restrictions & forced closures: Businesses all around the world had to face limitations in opening hours, number of customers or even full closures over several weeks and months.
- Increasing number of customers turning to available online shopping channels, even ones not interested in Ecommerce before.
- Higher awareness of vulnerable supply chains and business model setups which lead SMB owners to increase risk diversification intentions.
Luckily consumers are aware of the current struggles their favourite neighbourhood shops and restaurants are facing and are motivated to support them. Surveys have shown that 82% of people would rather support a small company than big corporations with 8 out of 10 consumers even willing to pay more.
Amazon as an Opportunity to Overcome These Challenges
Amazon doesn’t have the best reputation among SMB owners and it’s easy to only focus on the negative aspects. It’s undeniable that Amazon has congregated a lot of market power that allows them to set impossible market standards for pricing and shipping, ask for high fees from their sellers and snatch up more and more customers from other shops.
However, there is also opportunity for small businesses on Amazon in using their platform which should not go unconsidered. After all Amazon needs SMBs – their products currently account for more than 50% of all sold products on Amazon.
Trust of New Customers
Consumers trust Amazon. Surveys show that 89% of people are more likely to buy products from Amazon than other Ecommerce shops. Small and new brands can benefit from the associated trust in Amazon if they sell their products on the platform. Users might be more inclined to buy an unknown brand and product simply because they know they can trust in the payment, shipping and return qualities Amazon is known for.
Starting Customer Journeys
Ecommerce and especially the current pandemic circumstances have made it harder to reach new customers since random exposure to shops has decreased. Selling products on Amazon may expose a brand to all the users that intentionally use the platform and are unaware of the brand. Amazon has built up a reputation for being the ultimate department store which leads most consumers to start their product search on Amazon. It may start customer journeys that lead to loyal customers (especially if you utilize subscription models).
Operating with limited resources
Limited resources are one of the key challenges of every small business; there is only so much you can do with a small team. Setting up digital distribution channels including an online shop and marketing channels is a task that requires either specialized knowledge or the necessary budget for outsourcing.
Selling on Amazon takes care of all of that since it provides the platform to sell, the marketing channels to promote and the logistics infrastructure to handle shipping and returns. Amazon’s Fulfilment by Amazon (FBA) program only requires you to ship your products to the Amazon warehouse and set up the listings. Amazon will take care of the rest. Especially for businesses just starting out online this partnership provides lots of value and enables them to use a distribution channel they otherwise wouldn’t be able to.
The COVID pandemic has only been the most recent but certainly the most impactful reason for small businesses with physical stores to seriously consider diversifying risk. With the mandatory shutdown of stores, revenue potential has dropped significantly for most businesses, even reaching levels of threatening survival for some.
Using an additional online distribution channel may increase revenues and can help to support a physical store that generates less or no income but serves different purposes like branding or reviving the neighbourhood.
Utilizing Amazon Use Case 1: Brick and Mortar Shops
Physical shops provide a lot of upsides – customer connection, branding potential, keeping neighbourhoods alive, etc. The shift to Ecommerce and even more so the pandemic has made it very challenging for SMB owners to justify carrying a physical store when the rest of the world is shifting towards online.
When the COVID pandemic recently hit and the world went into lockdown, lots of businesses had to close their shops and over the following months deal with waves of opening stores with limited capacity to once again shop closure, leading to losses in sales and revenue.
To diversify risk, small businesses on Amazon can utilize the platform as a second distribution channel to offset some of the lost revenue due to store closures, serve additional customers and substitute local stores. That practice allows business owners to keep shops that might not generate a lot of profit but serve one of the purposes discussed above.
Utilizing Amazon Use Case 2: Small Companies, Niche/Local Products
There are a number of companies with very small teams selling products that might be popular in their region but currently only have limited revenue potential due to the small local market size.
Selling on Amazon may increase the number of potential customers, especially if an expansion into other countries is being considered. The more connected our world becomes the more likely it is that a user in a very different part of the country or even in a different country is interested in that product because it’s exactly what they were looking for.
As marketing guru Seth Godin likes to point out ‘You don’t need everyone to be interested in your product, you only have to find the group that is looking for exactly the product you provide’. Sometimes that group of people is spread across different locations but they all shop on one big platform.
Utilizing Amazon Use Case 3: Start Ups, Innovative Products
Amazon can also prove to be helpful with testing how the market responds to a new product. Startups often operate with even more limited resources than small companies especially when it comes to budget. Setting up an online shop or fulfilment chain may be too big of an investment in the beginning. Amazon can help sidestep that process and provide a channel to test how consumers initially respond to a new product.
It requires limited upfront investment while providing a chance to expose the product to a lot of consumers and therefore testing its viability.
It’s tough times to be a SMB owner. While the current challenges of Ecommerce and COVID provide an easy answer to the question of whether small businesses should participate in Ecommerce the trickier one is how they should do it.
Selling on Amazon is not without its challenges. With the right intentions it can provide great opportunities for SMBs with limited resources and should therefore be considered as a possible distribution and marketing channel.
In this article we have outlined:
- Why the current times are especially challenging for small business owners.
- How selling on Amazon can lead to more sales and a higher revenue despite the limited resources small companies are facing.
- How startups, bricks and mortar shops and small brands with niche products can utilize selling on Amazon to gain customers, increase revenue and test the viability of their products in the real market.
Have we convinced you yet to give selling on Amazon a try? If the process seems intimidating feel free to reach out and we’ll be happy to assist you along the way.