Amazon Product Research And Barriers To Entry
Perhaps the most of important part of starting an Amazon FBA business is product research.
Conducting product research on Amazon is step one in order to get a feel for what the market is looking for, how much they’re paying for what products and to identify gaps in the market.
Once you’ve conducted a solid amount of product research and are considering a market to go into and compete, it’s time to consider the ‘barriers to entry’.
If you’re a beginner, basically a barrier to entry just means ‘how hard is it to get in to a market’. There are all sorts of barriers to entry and each one of them needs to be considered.
Are barriers to entry a bad thing? What are the various barriers to entry?
We’ll answer all these questions in this article, let’s get into it…
Product Research On Barriers To Entry
Barrier # 1: Capital
Capital, or the lack thereof is a big barrier entry because it can prevent you from even considering certain markets and certain products.
Some of my higher level friends in the e-commerce space love barriers to entry such as high capital outlay.
As part of their Amazon product research they only source products that are over $50 each because they know there’s only a couple of people that have the money to buy products in bulk at $50 each.
With my products, I’m going for $2,000,000 to $3,000,000 a year. I know that to get that type of revenue there’s only a couple of people that can really compete. I’m happy with a lower-priced product with high volume sales.
I’m even okay taking a lower margin on my product because I know that barely anybody has the capital to take such a risk.
But I’m willing to take a lower margin because I’m building out my brand.
Barrier # 2: No Back-End
If I have my brand and can sell my products at break-even or a loss up front because I know that I can get people onto my database, my software app or come check out my YouTube channel – and capture their details… I can then offer them products to buy because I have their contact details.
Capturing someone’s details in order to offer them products at a later date is what’s known as a ‘back end’… it’s a sales funnel that allows you to make money repeatedly from the same customer, rather than just getting a once-off sale.
I can offer a customer on my database different products with upsells that allow me to increase the lifetime value of my customer.
This allows me to lose money on the initial sale in order to gain a new customer, then continue to sell to them over and over. I make money on the back-end, as opposed to the front end (the initial sale)
So selling products at a loss up front is a barrier to entry.
You’ll see a lot of businesses lose money up front in order to sell you something on their back-end. Grocery stores often lose money on one product to get you in the door because they know they’re going to sell you other products while you’re in the store.
Barrier # 3: Product Size And Logistics
Some products are so big you can’t ship them affordably through Amazon. This is a huge factor to consider during your Amazon product research.
I was considering selling massage chairs but couldn’t ship them through Amazon.
We would have had to ship them through 3PL, which is a third-party logistics company. Can you imagine the returns or a broken massage chair?
We would have get a whole warehouse and a whole support team to manage the sale of such products. And even though they’re very profitable we decided not to because it was a headache. We know we could make money easier another way.
So if you’re just starting out, keep it simple and find smaller products that can be shipped affordably. It’ll save you money and a lot of frustration.
Barrier # 4: Innovation
When there’s a lot of barriers to entry, there’s rarely innovation.
With my solar eclipse goggles, there was no innovation in the glasses prior to my glasses because it’s a once off purchase.
Given a solar eclipse doesn’t happen often, there’s no demand to improve solar eclipse glasses.
So when I came in and added innovation, my sales blew up. And the rest is history as they say.
Barrier # 5: Certification
If there’s some type of certification necessary to sell a product, many people will simply move onto another product.
It can seem too hard to gain the required certification to sell a product, but therein also lies the opportunity.
With my solar eclipse glasses, by gaining certification I automatically separated myself from the rest of the market, and ultimately, it’s what eliminated the majority of my competition.
On the surface, it can seem difficult and expensive to obtain the necessary certification to sell a product, but the rewards can be there in the end. Only after extensive research should you pursue products that require certification.
My advice to anyone starting out is to keep it simple!
Barrier # 6: Liability
In the early stages of my Amazon entrepreneurship I wanted to import LED lights because my passion is lights. I created some really cool lighting inventions but I just couldn’t find a supplier that I trusted.
It wasn’t just that. It’s also the fact that it only takes one burned down apartment to completely take away everything you made.
So I didn’t proceed with my product. And you’ll also find that some products you come up with could be amazing, but they’re just not worth the risk.
Sometimes you have to leave certain products to ‘the big guys’.
Barrier # 7: Customer Support
With tech products as well as food and health products, you’ll get a lot of customer support inquires. The more support and hassle there is with something, people are going to be less likely to go into it.
This can be a barrier and an opportunity depending on your experience and your cash reserves.
The more problems that can occur with a product, the more customer support. This can also affect your reviews.
Product selection isn’t just a matter of research, it’s a matter of intelligence, money and you willingness and ability to handle the post-sales stress.
Barrier # 8: Multiple Manufacturers (Product Bundling)
As part of your Amazon product research and product selection, if you are putting together a bundle of products, you’ll be sourcing multiple manufacturers.
Bundling several products into one product gives you a strategic advantage.
Other people can’t just go on Alibaba and buy the product bundle. They have to go out and do that extra work themselves.
Because it takes extra time and effort, most people won’t choose to create and sell product bundles.
So this is a way to create a barrier to entry for your competitors.
Barrier # 9: Added Value Through Design
With my solar eclipse glasses I had the best design for certain markets such as women and children. It didn’t matter that the other solar glasses looked similar to mine, mine had the best design.
The value in the design, not in the product. Products could be the same but have a different design. This is another way to separate yourself from your competition.
Why do people buy certain brands of shirts or shoes? It’s the brand, the specific way they make their product look. So, many times it’s just someone thinking, “I love the design, I want it.”
Art is a good example. The way a product looks influences the way people feel toward the product. If you can make your product interesting, quirky, funny, unusual, outrageous, understated, stylish, cool or crazy, it could just strike a cord with a certain type of person.
There is a big difference between aesthetics and practicality. Are people purchasing this product for practicality or for aesthetics? This is something to take into consideration for deciding on a product to sell on Amazon.
Barrier # 10: Seasonal Products And Inventory Forecasting
A lot of people won’t enter a market with high barriers to entry because it’s hard to find.
One well known barrier to entry however the selling of seasonal products.
How do you know what seasonal products are going to sell the best? How do you know exactly what quantity to buy? You don’t want to be stuck with a bunch of products for the entire year.
This is where I suggest beginners stay away from seasonal products because you don’t want to mess up your first product and then be stuck with it for a year.
Barrier # 11: Change In Consumer Taste
Consumer behavior should be at the forefront of your Amazon product research and business in general.
I’m actually going to consider this a competitive advantage and not a barrier entry. We could call it a barrier to entry for somebody else.
It’s a barrier entry for others because if you develop the ability observe trends you can turn this into your competitive advantage.
Most people don’t pay close enough attention to what’s going on around them. Even if their livelihood depends on it.
If you can begin to not just research but also observe changes in consumer tastes relating to your products or in another industry or product, you can turn this into your competitive advantage.
This is the list of barriers entry. You want them when you’re in a certain market so it doesn’t get over-saturated. Typically, the more barriers to entry, the less innovation, the less competition, the more margin and the more opportunity.
But it’s also harder. So, take that into account. It’s risk vs reward.
Like everything in life, the more work you have to do to put in, typically, the greater the reward.
Barriers to entry are very important in my opinion because they’re the biggest reason most people quit.
So, if you can get over these barriers to entry that’s where I see the greatest opportunity for success.
If you look at my Eclipse glasses example, we had several barriers to entry such as: Seasonality, Capital, Legal Liability, Certification, Logistics, Added Value Through Design as well as a Change in Consumer Taste.
And I also had Multiple Manufacturers. I had to literally invent this new type of glasses. We had to get stuff from Germany. We had to get stuff from China and then pre-assemble and package them in the United States.
I literally had everything against me or everything for me. That’s why I killed it.
Choose your barriers to entry wisely. Sometimes a risk will pay off, sometimes it won’t.
There are two sides to the coin. There are barriers to entry and competitive advantage.
You can compete in the world’s most competitive markets but you have to have an edge.
In my Amazon FBA Course I outline in more detail how to conduct your product research as well as how to find a winning product.
And now that you know more about Amazon product research and barriers to entry, find out how to be adaptable in the constantly changing environment of business…