Today we’ll talk about competition from China. United States sellers know that there’s more and more competition from Chinese competition on Amazon. We’re not seeing it as much in Europe. Nils caught up with a friend who gave him the update and now we’re wrapping it up in one single episode.
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(01:50) Here’s the background: a few years ago, Chinese was able to supply a cheap workforce and production of simple items. There were quality issues. Then companies around the world came to China with private labeling requirements.
(03:00) The next step: in-house production and design. The next race started with product development. Factories began to hire designers and competing with each other. Products were copied from each other.
(04:00) At the same time, factories began selling directly to customers on marketplaces like Taobao, which is Chinese eBay. Factories began branding their items. A larger workforce was needed consisting of salespeople, customer support, marketing and advertising. Due to increasing labor costs, Chinese companies are supplying to their own people and some companies are moving to places like Vietnam.
(06:00) The next phase for Chinese companies is selling Amazon, which is getting bigger every day. There’s no long-term thinking in China, just the next trend of making money.
(07:00) For example, bicycle rentals appeared in China. Within a year, 5-6 companies setup and China is full of bicycles. One thing is proven to work and everyone else jumps on the bandwagon. They supply the market until the limit is reached. That’s what’s happening with China and Amazon right now, and it’s giving people headaches.
(08:45) Chinese companies are willing to spend huge amounts of money compared to the budget of the average Amazon seller. They have lots of financial support. Let’s say the average Amazon seller is willing to pay $5,000 for a product and shipping, plus $1,000 to $2,000 in advertising. For the same product, a Chinese seller could spend $3,000 on the product (choosing a cheaper brand), then spend $10,000 to $20,000 on advertising.
(10:00) Nils has seen Chinese companies spending huge amounts on advertising. Not just on Amazon ads, but on fake sales and reviews. They have a huge human resource force to provide 24/7 customer support, people for reviews, for copywriting, they take product pictures in-house, and spend huge amounts of money on advertising to achieve page one dominance. They can also sell at a cheaper price than anyone else to win all the sales.
(11:20) Chinese companies are willing to sell based on volume to make more money. It’s dangerous to stick to one single way of thinking and selling. There are always other alternatives. A Chinese company doesn’t think long-term about building a brand. They have multiple accounts or multiple companies, already calculating the risks of having accounts banned, marketing very aggressively, and focused on raising themselves to top of Amazon.
We would never risk getting an account banned, but they calculate that. They still make a lot of money. They’re applying things that work in China into Amazon US, Amazon Europe, and Amazon Japan.
(13:00) Japan is a really great market for selling on Amazon, but China is coming. This problem will only become larger in the near future.
Here’s how you can protect yourself: first, know and accept that this is happening. There’s not much you can do if you find yourself competing against a Chinese company. They’re willing to risk more and market harder (with a bigger budget) compared to the average Amazon seller. Even if you’re sitting on page one, things can change in a day if a new company market against you aggressively.
(14:30) Second, build your own brand. Send external traffic into Amazon. Create better product packaging and have a better design. Only use Amazon as one channel and not as your mainstream business. This way, Amazon closes your account or competition takes over, you’ve only lost one single channel and haven’t lost your entire business. If you’re “only” selling on Amazon, begin to build your brand elsewhere.
(16:00) Create your own website and collect customer data that is yours. Competition is coming. Amazon is only one single channel.
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