What Is Amazon Business Models?

As the most popular and profit-generating marketplace, Jeff Bezos’ Amazon creates flexible conditions for buyers and sellers. While the first can take advantage of Amazon Prime, buy the best products at the best prices, and compare the items based on social proof, sellers also have a lot of business opportunities to choose from. In addition to the many marketing and branding programs, the platform allows merchants to choose from several business models to better tailor their financial capabilities and product ideas to the specifics of the marketplace.

What Is Amazon Business Model?

Amazon’s business model is an online commerce platform. However, over the years, it has made acquisitions and created its portfolio of business models and revenue streams. Still, fifty percent of the main proportion of sales came from the online marketplace.

AMZ measures its success based on lower pricing, reliable technical infrastructure, free cash flow generation, and client experience obsession. The firm’s service sales have been increasing at a fast pace allowing the company to expand globally. As more and more buyers flock to AMZ for its prices, product selection, and convenience, advertisers and third-party sellers are running toward it too.

From Amazon’s point of view, third-party businesses pay to play and provide higher margins and endless growth. Furthermore, marketplace growth is not limited by how much stock the giant can buy or the number of managers it can hire. AMZ is therefore incentivized to pursue marketplace expansion above its wholesale growth in forthcoming years despite its retail roots.

What does this mean for AMZ merchants? For starters, it will open up access to more resources that were previously limited to wholesale vendors. The marketplace is a land of great opportunity, but it is not without its obstacles. To succeed, you should understand how the platform will evolve and be able to anticipate changes that influence your business.

Now, let’s examine six Amazon models with their pros and cons to help you get started on the platform.

Retail Arbitrage

Retail arbitrage means buying physical goods from physical stores to sell on the Amazon Marketplace. Indeed, the goods you have to purchase should be heavily discounted to create an opportunity to make some profit by selling them on Amazon at a higher price. It is the most intuitive retail business model – buy an item somewhere and resell it elsewhere. Still, this tactic isn’t as simple as it might seem at first glance when it comes to Amazon.

Pros

You can start as an Individual seller and test how the Amazon Marketplace works.
You can buy only one or several items to avoid risking your costs.
There is nothing complicated about buying and reselling ideas as such.

Cons

Finding a winning product to buy in-store for further reselling can be challenging.
There is a chance that the goods will never be bought.
There is a need for careful product research since the customers are savvy enough to compare prices beyond Amazon, including in physical stores, before making a final purchase.

Online Arbitrage

The online arbitrage business model is pretty similar to the previous one. The only difference is that, in this case, you have to buy the items you want to resell from online stores instead of physical ones. Indeed, this is the most popular business model most third-party sellers follow, supplying their stores with the items ordered from Chinese marketplaces.

Pros

There is a good chance of getting high-profit margins.
You are welcome to choose the products from the global eCommerce pool.
You can manage your finances and risks by ordering as many products as you feel comfortable.

Cons

You should build on your supply chain carefully.
You should also be intelligent with shipping costs, Amazon FBA costs, and the final price you would like to sell the product.

Wholesale

This Amazon FBA business model also has a lot of similarities with the previous ones. However, its distinctive feature is that, in this case, an Amazon seller has to buy as many products on a bunch or wholesale terms and then resale them separately, one by one. It is a risky strategy that, in most cases, will require creating a Professional account, joining Amazon FBA, and investing a substantial sum depending on the product.

Pros

Buying your items on wholesale promises has no issue with running out of stock instantly.
There is a better chance to generate revenue than in previous business models.
Following the wholesale business model allows you to sell your products in a bunch, creating an additional purchase trigger for the buyers.

Cons

You should invest a solid sum at once
You must research the market and the niche very carefully since the cost of the mistake is high.
Wholesale promises higher operational expenses compared to the business models above.

Dropshipping

Dropshipping is one of the trickiest Amazon eCommerce business models. According to it, you have to list some goods on Amazon, and after someone orders them, transfer the responsibility for the order fulfilment to the supplier. In this case, you have to neither buy the products on your own nor have them in your stock – you just work as an intermediary between a buyer and the supplier using Amazon as an assisting tool.

Pros

It is the less riskiest business model.
You have to invest your time and effort only.
You can experiment with different goods and categories until finding the winning niche.
You can avoid Amazon FBA costs.

Cons

Gathering product reviews for drop-shipped orders can be challenging since customers interact with the supplier instead of your store or brand.
You should be 100% confident in the supplier and their honesty. Otherwise, you will risk your reputation and finally lose the customers.
You can’t personally ensure product and packaging quality; there is no way to influence customer service provided by the supplier.
Shipping time is long in this case, while most buyers don’t like to wait and are even ready to pay extra for faster delivery. That’s why they have their Prime memberships.

Private Label

Online retailers love the opportunities private labeling can offer since, in this case, they haven’t to produce the items on their own. Instead, they must find an unbranded item and sell it under their brand name. So, Amazon offers this option for those ready to invest in brand development. What’s more, the marketplace also has a lot of marketing and branding opportunities for this purpose.

Pros

There is no need to produce items on your own.
You can develop your brand and win buyers’ recognition.
You are welcome to take advantage of brand-specific Amazon marketing programs.

Cons

You have to invest in both product and its branding.
You must match the brand with the goods to help users develop associative bonds.
The quality of the product lines is paramount for your brand reputation in this case.
You also have to gather social proof to become as credible as possible in the opinion of the prospective leads.

Handmade

As the name suggests, handmade business models mean you have to create something on your own and then sell it on Amazon. This approach is suitable for unique and exclusive goods that are one of a kind, but, honestly, Amazon isn’t the best place to sell them. Most shoppers look for everyday products on this marketplace and turn to more dedicated places to buy something unique and outstanding. For example, ASOS can be a better marketplace to sell exclusive goods, especially if you want to create unique clothes and accessories.

Pros

The competition isn’t high for handmade products on Amazon.
You can create something outstanding.
You can sell your handmade items as an Individual seller.

Cons

Handmade products aren’t the top choices of Amazon shoppers. Social media can become better choices to promote handmade and your brand.

How to Choose the Right FBA Amazon Model?

Indeed, the choice of business model largely depends on the product you intend to solve, your financial capabilities, your readiness to take risks, and the availability of additional resources.

Choose retail or online arbitrage to find out how the platform works and decide whether it can work for your products.
Choose wholesale if you are ready to invest and are sure your items will sell well.
Choose a private label if you are ready to develop your brand and invest in it.
Choose handmade if you have a unique product, but remember that there are better places than AMZ, such as Etsy, ASOS, and the like.

Amazon eCommerce Business Models: Final Thoughts

Regardless of the business model, keep in mind that running an Amazon business is attractive, profitable, complicated, and challenging. So, let us facilitate your life a little, protect your business from common pitfalls and give some concluding pieces of advice.

To run a successful Amazon business, always prioritize your products’ quality. Modern customers are already tired of counterfeits and items that aren’t worth their money. So start building your store reputation from the beginning and choose the products to sell on Amazon very carefully.
Don’t underestimate the power of research. Comparing business models, product ideas, and Amazon programs is a way to cut your costs, avoid overspending and develop an intelligent business development strategy.
Use the power of social proof. This step is essential for building the trust and loyalty of Amazon shoppers. To do it, gather their reviews carefully and grow your product rating step by step. SageMailer is here to help you collect user feedback effectively, grow your product rating, and streamline your sales.