Imagine entrepreneur Jane is developing a product. With some initial testing in local marketplaces, her product garners rave reviews, and Jane realizes she has an opportunity to build a brand and a business. So Jane decides to globalize her product with online marketplaces. After setting up shop with Amazon, getting the rights to sell, and preparing the inventory to ship, within a few months, Jane’s sales skyrocketed. As her product receives more and more market interest, Jane scales her business and expands. She hires support staff, rents out a warehouse, and diversifies the products her brand offers. As a result, Jane’s business flourishes and provides her with a steady six-figure income within a couple of years.
This narrative, while oversimplified, parallels the story of many successful online business owners. But, unfortunately, as we’ll see, many such business owners can lose their rights to sell on Amazon and other online marketplaces through no fault of their own.
Disaster Strikes
One morning Jane signs into the Amazon marketplace and discovers something amiss with her account. She finds that her most recent sales profits, of several thousand dollars, are on hold. Jane immediately enters damage control mode as every minute to resolve the issue is a potential loss her business takes. She investigates her business’s product listing in the marketplace as perhaps one of her products has been flagged in some way. She observes that there is no longer a buy button on any of her brand’s items. Jane knows this means Amazon is blocking her products from being sold. With startling speed, Amazon blindsides Jane’s business. Before she has had a chance to finish her morning coffee, Jane confronts the jarring reality that she may lose everything.
This tragic story is the experience of many entrepreneurs who profit and provide value to customers via online marketplaces such as Amazon. We will explore why products get banned and how best to protect your hard-earned marketplace business from similar black swans such as Jane’s.
Did I Do Something Wrong?
You are not running a business that utilizes nefarious tactics such as price gouging, product concept plagiarism, and counterfeit items. However, this does not mean your products won’t be accused of such attributions by customers. If your quality product receives enough complaints from customers, Amazon may choose to eliminate the buy option on your item. How this could happen to a quality product may seem a bit baffling. The answer lies in incentive structures and bell curves.
The majority of the consumer market is not seeking to leave a poor review on a good product. However, according to a standard bell curve, consumers, like all population samples, exist on a spectrum, and outliers will account for uncommon behaviors. The outliers who leave bad reviews on products will tend to write them for subjective and often unsupported (by average consumer perception) points of critique. Herein enters the native incentive structure of Amazon for such reviewers. This system jeopardizes business owners through no fault of their own.
The Unscrupulous Reviewer
Suppose that Simon dislikes most products and has a penchant for sampling products and then sending them back. Simon is very picky and despises paying delivery costs. Simon has read the fine print of Amazon’s terms of service. He realizes that he will not owe any shipping cost if he files a complaint that a product is defective. So Simon does just that. According to marketplace algorithms, you only need a few Simons to come along before products risk blocking off the market. Fair or not, ornery outliers can threaten a completely legitimate business.
The Toxic Competitor
Suppose your competition uses insidious methods and decides to leave bad reviews on your products. Amazon is algorithm-based and measures the volume of specific categories of reviews on your products. You have hope if you discover that the competition is running a false advertising campaign against your product. In that case, you can undoubtedly dispute this and eventually (one hopes) resolve it. However, what happens if you do not discover that campaign before it’s too late for one of your products?
Additionally, Business owners must guard against competitors who make very similar products that are cheap knock-offs. Customers may order a copycat product and mistakenly leave a poor review of your business’s authentic version. The takeaway is clear: business owners must monitor their complaints and look for situations where the commentary does not add up.
Safety in Numbers
Diversification is an excellent safeguard for online business owners. However, much like diversification in the stock market, it pays to have more than one product and sell in more than one marketplace. While one marketplace will invariably provide the lion’s share of earnings for a business, having alternative channels will protect against the potential crisis of product blocking. A good company must factor in the resilience of its model. It is not enough to have a marketplace and a good product.
However, it is also essential to recognize that online marketplaces will scrape the prices of your products on other marketplaces. This means that your product could get blocked if your platform determines that your product pricing is not competitive relative to other sites. Therefore, a caveat to diversifying product offerings is that businesses must enforce pricing standardization to protect against marketplace scraping.
Takeaways
Jane’s story teaches some clear lessons about the potential pitfalls of online marketplaces. First, savvy business owners must insulate themselves against product blocking. The online market is not simply about having a good product and selling it. Like any economic game, there are rules to follow and incentive structures to work around to achieve optimal results. Business owners can keep their products on the market indefinitely and avoid sharing Jane’s story with some forethought and unwavering attentiveness.
