Pros and Cons of Having a Data-Driven eCommerce Business on Amazon

There are many ways that you can use big data to create a profitable business. One of the smartest ways for entrepreneurs to utilize data is by creating an ecommerce business.

You can run a profitable ecommerce business through Amazon. SellerApp author Dilip Vamanan wrote a great article on the merits of using data analytics as an Amazon seller. However, you might want to also consider other ecommerce platforms for your data-driven ecommerce business.

Using Data Analytics to Create a Successful Business on Amazon

So today, you have decided that it is time to change something in your life. Go to the gym, learn to play the guitar, or even learn a new business that will be both interesting and profitable. Take selling products on Amazon, for example.

Making purchases via Amazon.com is something most of us are familiar with. Still, we are a lot less knowledgeable when it comes to selling on Amazon. So if you are considering whether running a business on Amazon.com can be a highly profitable idea, you may want to keep reading. You will learn how to use data analytics to make the most of your efforts.

The first thing you might decide is to find out if there are any pitfalls with creating a data-driven Amazon business and if the advantages offered outweigh them. That’s what we will cover in this post. So, keep on reading.

Pros of Selling on Creating a Data-Driven Business as an Amazon Seller

There are some awesome benefits of creating a business on Amazon. You can leverage these benefits even more by utilizing big data. Here are some ideas to take into consideration.

1. Simplifying the logistics

Amazon has a great interface that automates a lot of processes for sellers. Sellers that understand data analytics can get even more out of this interface.

For instance, you can enroll in the Fulfillment by Amazon (FBA) program and free yourself from multiple tasks at once. Thus, the platform will store your products in its warehouses and take care of logistics and shipping. Moreover, this service deals with returns. You have to correctly fill out the product listing on the website, ensure that the items are always in stock, and engage in advertising.

If you take advantage of the data analytics capabilities that Amazon provides, you can streamline even more of the processes. For example, you can use any Amazon research tool that will simplify product listing monitoring, competitor analysis, and protection against hijackers. It is constantly accumulating more data on customers and sellers using their platform, so you can make more informed decisions.

2. Use analytics to reach customers with a high level of intent

As of 2022, Amazon.com is the most popular e-commerce platform in the US, with two billion visits every month. The second place went to eBay with approximately 689 million impressions, followed by Walmart with 389 million. Furthermore, these people do not just look through the items; they are ready to buy. For instance, the number of customers who chose the Prime plan from the fourth quarter of 2019 to the first quarter of 2021 increased from 150 million to 200 million. On average, they spend about $1,400 on the website, and 48% of these users buy something weekly.

You can use data analytics to reach customers that are more eager to make a purchase. SEO tools like Ahref collect data on Amazon search activity, which you can use to estimate the percentage of buyers ready to make a purchase rather than reaching random users. This is a benefit that other ecommerce platforms don’t offer.

3. Amazon uses big data to boost UX

Big data is a valuable part of user experience optimization. Amazon takes advantage of this, which is one of the reasons they have such a great site.

A survey of over 2,000 US customers found that 89% of shoppers are more likely to buy items on Amazon than other e-commerce platforms. It is one of the reasons why the conversion on this marketplace is higher than on others. It is worth noting that many people choose Amazon as their main place to find products. 63% of buyers start their search here, and 82% visit the platform regularly to compare prices.

4. AI helps you run the business remotely

You don’t have to rent an office or hire a huge team to trade on Amazon, especially if you’re just getting started. All you need is access to the Internet, which means you can manage all processes from anywhere in the world. It also gives you freedom in your schedule. According to recent research, 54% of Amazon sellers successfully combine trading with another job.

You can manage things even easier if you take advantage of AI. AI allows you to automate many processes as an Amazon seller. Data Driven Investor has a list of some great AI tools that Amazon sellers can use to automate processes, such as Feedback Five.

5. AI provides constant improvements on the platform

We can safely say that Amazon is continuously evolving and setting trends in e-commerce worldwide. The ecommerce giant is regularly using AI to update its platform and remove bugs. If you are aware of what is happening on Amazon, it is much easier for you to become a leader on other local marketplaces.

Drawbacks of Selling via Amazon as a Data-Driven Business

As much as we’d like to continue the list of pros, there are a few challenges you may encounter on Amazon, even if you already have e-commerce experience. Big data can help resolve some of these issues, but it won’t entirely eliminate them.

1. Initial investments

According to experienced sellers, you need to invest about $20,000 to fully launch a new product under your brand. At the same time, there are cases when $5-10,000 was enough. You need to remember that most of these funds are spent not on the purchase of goods but on their promotion.

You are going to have to spend even more if you want to create a data-driven business on Amazon. There are a lot of data analytics and AI tools that Amazon sellers can leverage, such as Jungle Scout, Helium 10, Ahrefs and AMZScout. However, these tools are not free and will add to your startup costs.

2. High competition

As the platform’s popularity among buyers is high, the number of sellers is constantly growing. Now their number has reached 9.7 million, of which 2 million are permanent and active. Therefore, to get on the first page and make yourself known, you will need to put in a lot of work and invest money in advertising and other promotion methods. You will have an edge if you understand big data, but you are going to still be competing against a lot of other sellers. Data-driven sellers might have an easier time standing out on other ecommerce platforms.

3. Complicated registration

Few people warn that troubles with Amazon can begin long before you start selling anything. Be sure to study all the registration guidelines to sign up for your account and list the goods properly.  

4. Permanent account suspensions

Unfortunately, the word “permanent” is not an exaggeration here. Amazon can suspend your account and require documents at almost any stage (from verifying your identity to providing invoices for goods). Sometimes the platform goes too far, and even if you have all the required paperwork, it can take a long time to get your access back.

Also, there are mass bans several times a year, which are often unjustified. Thus, you need to be prepared that you will need to contact support every time, and no one will make up for the loss of money. Most often, such blockings occur due to new security measures. Unfortunately, some sellers do indeed forge documents, sell low-quality goods, violate intellectual property rights, etc.

Should Data-Driven Sellers Use Amazon or Another Marketplace: Final Thoughts

Should ecommerce sellers with a background in big data use Amazon or another platform? It’s up to you. Every Amazon seller might face the above-mentioned pros and cons and they will have an easier time if they use data analytics properly. However, each experience differs depending on the selling strategy, product niche, and method of selling (FBA, FBM, etc.) Our opinion: if you invest enough work, approach promotion wisely, and are not afraid to solve problems (which can arise in absolutely any business), then your chances of success are very high. Anyway, trading on Amazon is an exciting and profitable process that expands your horizons.

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