How to use barriers to entry in your Amazon FBA business

Throwing money away is fun ‘said no one ever.’ Then please, for the love of God, don’t do it. Make sure your ideas are thoroughly fed so you know exactly the market and what you have to do to launch to the first page. 

Why the first page? Because the action happens on the first page. Amazon is considered the same as real-estate. When you have a barbershop in the middle of nowhere customers will most likely not find you, however, if you have a barbershop at Fifth Avenue in New York, you will find yourself bombarded with customers. 

The same goes with your product, if you are on the 5th or 6th page, you will not get as many or even any impressions because it’s not as busy there, but on that juicy first page, customers are dropping by every second even though the product might not be better as yours. 

I always recommend Amazon sellers to work look at the market backward. I will talk more about this strategy later. 

Amazon FBA barrier to entry

This is actually such an important question and I’m so glad you asked, let me explain.

Before we start, we have to define the term “good idea”. For 1 seller a good idea might be a bad idea for another. That is because of what I call the barrier to entry and it’s not talked about enough. 

The barrier to entry is one of the most critical factors in selecting which markets to go into and I can write a complete book about it. A barrier to entry is ANYTHING that can make it difficult to enter a market and are rather a good thing as a bad thing.

First, let’s ask the question, how hard is it to enter into this market? Will any person that has the capital be able to compete with me on this product? If yes, you will be dealing with a lot of competition. On the flip side, you will not need that many resources to get started with your business. Thus there are positive and negative elements when considering barriers to entry.

Here is a list of barriers to entry that you have to look for: 

  • Capital required
  • Size and Logistics
  • Customer support
  • Connection in the manufacturing country
  • Seasonality
  • Creativity
  • Certifications
  • Liability
barrier to entry

Look for the above barrier to entry and consider if you have the resources to compete. A strong point can be that you have connections in China with a specific manufacturer where you signed a contract for the mold specific for your business. 

mold is a hollowed out block that sets the shape of the product being made. It can be made of different materials, the most common of which are aluminum, steel, alloys and copper.

This mold is your differentiator and your competition will have a barrier to entry if you are considering entering the market. 

Define a good product

All the time I read about rules within the Amazon FBA game that you have to hold yourself to when doing product research. It’s like a checkmark, you need to have a product that is lightweight, doesn’t break easily, is $20 dollar or more, blah, blah, blah.

It isn’t 2016 anymore, and you won’t be getting away with your business if you think about it that way. You probably have been told it’s fine because it’s easier as a seller of software to tell you what you have to look for, to give you a checklist that you can only get when you use their software or service. It’s good that you are reading this because now you know.

Don’t get me wrong, a tool like Jungle Scout is great and gives you data that is actually very handy, but it’s not the determining factor when doing market analysis alone. 

The next upcoming tips are considered to be beginner-friendly and for starters on Amazon

The first tip I can give you is: will it sell? 

When new sellers enter the market the first thing they need to consider is if their product is actually going to sell. You will need to look at the historical data of sales by using a software tool, further, you will need to check google trends if it isn’t down trending, and are able to put your product online and launch it onto the first page. 

Another good tip to consider is if it’s useful

Does your product solve a problem in the market? If not, why should customers buy from you? You will need to consider your market research by looking at the competition. I always recommend reading bad reviews to see what the market is looking for and then go and make it. Such an easy hack but oh so effective.

Demand vs supply

If you are studying how markets work (I recommend you do after you get better on Amazon). You will have a better judgment of what is necessary to compete in it. 

In short, the price of a commodity is determined by the interaction of supply and demand in a market. In Amazon language that means that the number of people searching for the product vs the competition. Demand vs supply is actually more advanced and if you want to get into it more, check this

Margin

Amazon is known for having razor thing margins to crush the competition. Most of the time when they bring out their financial quarterly earnings you look at it and think, HOW? 

Their profit margins are most of the time below 2 percent and their business model runs on the number of units they sell rather than the profit they pick up.

Amazon’s revenue versus profit

But because Amazon is using razor thing margins doesn’t mean you have to hold by this principle as well. No, not at all. That is why I recommend you focus on this part of the business because we need profit to survive. We don’t have the luxury that Amazon has to lose money year over year. 

I will say that in my launching startegy for my product I’m not expecting any profits for the first batch and second batch. Sometimes up to 6 months, I’m not expecting to have a profit and that is fine. In the most competitive section on Amazon, the supplement industry, only start to earn money after approximately 2 years of selling on Amazon. 

That is the exact reason you don’t want to enter into a competitive market. The strategy for starters is to enter very small niches where you are one of the only players around. At that point, you are able to build a need that has no set value at first, so you can ask for a higher price. 

Differentiation

It’s so hard to win on Amazon if you are selling the same product as everyone else. Don’t be that guy. please. 

Competition is for losers, build a product that is different from the competition by reading negative reviews and fix problems that accumulate there. 

This way, you are able to stand out and customers will know that. If you don’t, you are going to have to launch with a pocket full of cash to start ranking and hope you stick. Is it possible to make money with the same old product as everyone else? Yes, but not recommended. 

A differentiation factor can also be that you have a community of people willing to buy your product on Amazon. That is a marketing differentiation which is good as well. This sort of differentiation is almost always needed nowadays in competitive markets.

If you want more information about building a community then let me know. 

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The key to success is patience, persistence, and obsessive attention to detail. 

━ Jef Bezos