Karelia University of Applied Sciences

Bachelor of Business Administration

International Business

Risks of Selling on Amazon

Marketplace for Third-Party
Sellers

Lauri Pietarinen

Thesis, December 2024

 THESIS
November 2024
Degree Programme in International Business

Tikkarinne 9
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Author(s)
Lauri Pietarinen

Risks of Selling on Amazon Marketplace for Third-Party Sellers

Commissioned by: Eumer Finland Oy

Abstract

The thesis was commissioned by Eumer Finland Oy. The aim of the thesis was to
research risks related to selling on Amazon Marketplace. The research is important
since Amazon offers third-party sellers’ possibility to reach new customers. By
researching the risks associated with selling on Amazon, third-party sellers can prepare
better for a successful entry into the Amazon Marketplace.

The thesis uses two qualitative research methods: an integrative literature review and a
semi-structured interview to find answers to the research questions. The integrative
literature review provided essential insights into the risks of selling on Amazon. It also
provided strategies for third-party sellers to mitigate them. The findings from the
literature review were supported by two semi-structured interviews conducted with the
online store and Amazon store managers.

The findings from the integrative literature review and semi-structured interviews allowed
to form an overview of the risks sellers face on Amazon Marketplace as well as
strategies for mitigating the identified risk themes.

Language Pages 60
English Appendices 10
Pages of Appendices 10
Keywords
Amazon, E-commerce, Risk Management
Contents

1 Introduction ..................................................................................................... 4
1.1 Thesis Outline ...................................................................................... 6
1.2 Concepts .............................................................................................. 6
2 Methodological Choices of the Thesis............................................................ 7
2.1 Integrative Literature Review ............................................................... 7
2.2 Semi-Structured Interviews .................................................................. 8
3 Amazon's Business Model and Its Impact on Sellers ................................... 10
4 Risks of Selling on Amazon .......................................................................... 13
4.1 Financial Risks ................................................................................... 14
4.2 Logistical Risks .................................................................................. 18
4.3 Logistical Risks of Fulfilment by Amazon (FBA) ................................ 19
4.4 Logistical Risks of Fulfilment by Merchant (FBM) .............................. 20
4.5 Legal and Regulatory Risks ............................................................... 21
4.6 Data Privacy and Consumer Protection Laws.................................... 23
4.7 Platform Policy and Competition Risks .............................................. 24
4.8 Strategies for SMEs to Enhance Market Visibility .............................. 26
4.9 Impact of Market Saturation on SME Profitability............................... 27
5 Case Studies and Theoretical Perspectives................................................. 28
5.1 Application of Transaction Cost and Risk Management Theories ..... 29
6 Synthesis and Gaps in Existing Literature.................................................... 31
7 Findings from Integrative Literature Review ................................................. 33
8 Setting for Semi-Structured Interviews ......................................................... 34
9 Thematic Analysis of the Semi-Structured Interviews .................................. 36
9.1 Legal Risks ......................................................................................... 37
9.2 Logistical Risks .................................................................................. 38
9.3 Financial Risks ................................................................................... 39
9.4 Platform Policy Risks ......................................................................... 40
9.5 Additional Insights .............................................................................. 41
10 Conclusions and Discussion ........................................................................ 42
11 Validity and reliability .................................................................................... 46
References ........................................................................................................ 48

Appendices

Appendix 1. Comparison of cost between Amazon FBA and Amazon FBM

Appendix 2. Semi-structured interview questions
Appendix 3. Amazon Business Model
Appendix 4. Comparison between Shopify and Amazon platform costs
Appendix 5. Risk Assessment Heat Map
Appendix 6. Financial Risks
Appendix 7. Logistical Risks
Appendix 8. Legal Risks
Appendix 9. Platform Policy and Competition Risks
Appendix 10. Risk Assessment Table
 4

1 Introduction

Amazon is an online retailer founded by Jeff Bezos in Seattle, USA. Initially, it

was an online store selling books, but Bezos noticed the opportunity to expand
its selection to other categories. Currently, Amazon is one of the world’s biggest
e-commerce sites. One aspect that made Amazon acquire a significant portion
of the total e-commerce market was opening its online store to third-party
sellers, who could start selling their products on the website. (Hopkins 2023.)

While Amazon offers third-party sellers an opportunity to list their products in its
marketplace, it limits the customer data these sellers receive, ensuring their
dependence on Amazon. This has raised concerns among sellers and
legislators, as a significant portion of global e-commerce is done via Amazon
Marketplace. It is a risk that Amazon competes with third-party sellers by using
the data from the sellers, risking the future of the smaller online stores and
damaging the customers in the long term.

The thesis researches the logistical, financial, legal, and platform policy risks of
selling on the Amazon Marketplace. Noticing and managing these risks is
crucial for entering the Amazon Marketplace successfully. Since Amazon has
hundreds of millions of monthly visitors in the US and the EU, it is a lucrative
opportunity for companies looking to reach new customers. However, the risks
of entering the marketplace are not openly disclosed since Amazon does not
share this information publicly. Amazon is leaving companies to make market
entry decisions based on Amazon’s marketing materials. This thesis aims to
close this information gap by examining three research questions.

The research questions are:

• What are the most common risks associated with operating an online
store independently or through the Amazon Marketplace?
• Is Amazon Marketplace a more suitable sales channel for Finnish SMEs
than an independent online store in terms of customer reach and
profitability?
 5

• How can SMEs in Finland manage the risks related to the Amazon
Marketplace and policies?

The first question forms a perception about the perceived risk of operating an
independent online store and compares the findings to the dangers of running
an Amazon store. The second question is relevant since companies want to
know which sales channel offers the highest profit margin and customer reach.
The third question is about how Finnish SMEs can manage the identified risks.

Eumer Finland Oy commissioned this thesis. It is a well-known consumer brand

that sells high-quality fishing tackle in Scandinavia. Founded by Jaakko and Olli
Ojamo in 2007 in Merkikarvia, Finland, Eumer Finland Oy employs over 15
people. I worked at Eumer Finland Oy as an intern. The idea for the thesis
came from exploring new international sales channels.

Two different qualitative research methods are used to find answers to the
research questions: an integrative literature review and semi-structured
interviews. An integrative literature review is used to analyse current knowledge
about the risks of the Amazon Marketplace, and semi-structured interviews are
used to get up-to-date risk information from online stores and Amazon store
managers. The purpose of these interviews is to complement the findings from
the research literature.

Chat GPT's artificial intelligence was used in the writing process. It was used to
get feedback, fix grammatical errors, and help structure the thesis. Using Chat
GPT made the writing process more efficient and increased the overall quality
of the thesis by providing ideas for improvement and notifying about the errors
in the document.

The hypothesis is that selling on Amazon is less profitable and riskier for small
companies than operating an independent online store. Although the Amazon
Marketplace has more customer traffic and sales volume, it is a challenging
sales channel for new sellers due to its strict policies and saturated competition
 6

in numerous product categories. The following chapters will discuss the thesis'
key concepts and academic background.

1.1 Thesis Outline

The introductory chapter provides background information for research

questions. Chapter 2 discusses the chosen research methods, followed by
Chapter 3, which discusses Amazon’s business model and its effect on third-
party sellers. Chapter 4 is about the identified risk themes based on the
research literature. The relevant theories are discussed in Chapter 5. Chapter 6
concludes the findings from the research literature, and chapter 7 discusses the
gaps in the research literature. Chapter 8 explains the semi-structured interview
setting. Followed by a thematic analysis of the risk themes in chapter 9. Chapter
10 concludes the thesis findings, and Chapter 11 discusses the reliability and
validity of the research.

1.2 Concepts

In this chapter, the most common concepts and terms used in the thesis are
explained briefly. Most of the concepts are related to the Amazon Marketplace.
Amazon has unique features and services for third-party sellers. Therefore, it is
essential to explain these services to make the thesis more straightforward for
the reader.

Amazon FBA = Fulfilment by Amazon. Amazon handles order fulfilment and

customer service. The seller is responsible for delivering the inventory to the
Amazon fulfilment centre.

Amazon FBM = Amazon Fulfilment by merchant. The seller is responsible for

fulfilling the order and providing customer service. The seller can list products
on the Amazon Marketplace and handle the fulfilment process from their
facilities, avoiding Amazon's inventory and fulfilment fees.
 7

Amazon Marketplace = Amazon Marketplace is a website where third-party

sellers can list and sell their products. The marketplace allows several sellers to
sell similar products.

Amazon Prime = Prime is Amazon's subscription service that allows Amazon

customers to get their orders delivered in one or two days with Prime delivery.
Prime service also includes access to streaming services. Prime members can
purchase products without delivery fees.

Amazon Seller Central = Seller Central is a website where new sellers can learn
about selling on Amazon. The page contains information about the setup
process and all the other details necessary for starting to sell on Amazon.

E-commerce = All the commerce that is conducted via the Internet. This
includes all the physical and digital products that are ordered through the
Internet.

2 Methodological Choices of the Thesis

This thesis employs a qualitative research methodology, combining an

integrative literature review, analysis of research articles, and semi-structured
interviews. The primary objective is to develop a comprehensive understanding
of SMEs' risks when selling on Amazon and through their online stores, thereby
aiding these businesses in making informed market entry decisions. This
chapter will explain the research methods used and why they were chosen.

2.1 Integrative Literature Review

An integrative literature review is a research method that broadly uses different

sources. Typically, a literature review focuses solely on the academic articles
 8

written on the subject. Using online sources and information from other than
academic articles is possible when using an integrative literature review. This
suits the research questions of the thesis better since online sources contain
essential information about the risks of selling on Amazon Marketplace that
academic articles do not have or that they have not yet researched. (Lubbe
2020,1.)

The integrative literature review focuses on identifying and analysing the

problems companies encounter when selling on Amazon. Only research articles
and news pieces published from 2019 onward are considered to ensure the
relevance and accuracy of the findings. This approach acknowledges the rapid
changes in e-commerce services and market conditions, providing an up-to-
date assessment of the risks involved. The review highlights recurring
challenges and risks documented in recent literature, synthesising the most
critical issues Amazon sellers face. Furthermore, it seeks to develop a
theoretical context for understanding market entry risks grounded in
contemporary academic discourse.

2.2 Semi-Structured Interviews

Semi-Structured interview is a research method that allows the interviewer to

ask additional questions. This differs from structured interviews since it does not
allow interviewees to ask further questions. The semi-structured interview
method was chosen since the interviews aimed to explore risk themes and
determine if some risk themes may differ from those found in the research
papers. (Barclay 2018, 1.)

Semi-structured interviews were used to obtain additional information about the

risks researched in the literature review. The interviews determined whether
these risks are the same ones that online stores and Amazon sellers have
faced or if companies are concerned about different risks, helping to highlight
risks found in the literature review.
 9

Semi-structured phone interviews were conducted in August 2024. Emmi

Kirjavainen and Eero Salmi were chosen for the interviews because they
manage their employers' online stores. The interviews were essential to gaining
new information about the perceived risks and their relevance for companies.
An interview with Emmi Kirjavainen gave insight into Amazon store managers’
perspectives, while an interview with Eero Salmi revealed the risks independent
online store managers perceived.

Emmi Kirjavainen, who wrote a thesis on the Amazon Marketplace and

managed Piippo Oyj’s daughter company, Manilla Oy’s Amazon Store, was
chosen for the interview. Piippo Oyj manufactures ropes and lines for B2B and
B2C, and Manilla Oy sells and markets Piippo brands products. Kirjavainen was
responsible for entering the Amazon marketplace and managing the store
afterwards.

Eero Salmi was selected for the interview because I was familiar with his
position as an online store manager for Eumer Fishing and his other
responsibilities from my internship at Eumer Finland Oy. He is responsible for
the day-to-day activities of Eumer Finland Oy’s online store, including logistics
handling and production planning.

I provided the attendees with a list of questions beforehand. The interview

consisted of 16 questions about the risks of both sales channels (see Picture 2).
Both attendees were asked the same questions about the differences between
an online shop and an Amazon Marketplace.

In this manner, the interviews shed light on the risks of the two sales channels,
allowing the thesis to compare them. The risks identified from the interviews are
based on these findings. Semi-structured interviews allow asking additional
questions and deepening the conversation based on the answers. This is
important for this thesis as it will enable information gathering from risks not
mentioned in the interview questions.
 10

After the interviews, the answers were thematically analysed. The thematic
analysis focused on the risk themes of the research questions. Each theme was
analysed separately to ensure an in-depth analysis of the interviews.

3 Amazon's Business Model and Its Impact on Sellers

Amazon’s Marketplace has increased its influence over global e-commerce

(Israeli, Schlesinger, Higgins & Semerkant 2022, 1; Laudon & Guercio. 2021;
762). Various perspectives have been analysed to assess the risk of selling on
Amazon Marketplace. (Israeli et al. 2022; Laudon & Guercio. 2021; Smith 2019;
Hoppner & Westerhoff 2018; Crawford, Courthoud, Seibel & Zuzek 2022;
Straubert, Sucky, Felch 2023). These studies have shown that Amazon’s dual
role as marketplace and seller has caused issues for third-party sellers.

The Amazon business model can be divided into International and North
American segments. Within those two segments, Amazon serves both
consumers and merchants. Amazon sells its products in both segments and has
multiple other revenue sources, including Amazon Web Services, the Amazon
Kindle e-reader, and Amazon Prime. Amazon allows third parties to sell their
products in the marketplace. This decision has enabled Amazon to increase the
number of products available to customers. Amazon focuses on making all
products and services convenient and easy for their customers. Serving
customers is a crucial strategy Amazon is focused on (Figure 1). (Laudon &
Traver 2021, 762-763.)
 11

Figure 1. Amazon Business Model (Garyfox 2024).

Amazon is one of the most significant companies in the global e-commerce

market. According to market data from Statista (Statista 2024), Amazon's
market share is 12% of the worldwide e-commerce market in gross
merchandise value (GMV). In 2023, Amazon's total revenue was recorded at
542,40 billion US dollars, according to the Companies Market Cap 2024 report.
E-commerce sales contributed 89 billion US dollars, or 62% of the total sales.
(Saibil 2024; Companies Market Cap 2024.)

[Link] received 2.3 and 2.7 billion monthly customer visits worldwide in
2024 (Statista 2024). Making it one of the biggest e-commerce platforms in the
world. Amazon is constantly increasing the number of items sold in its
selections. Amazon does this independently and through third-party sellers,
which can introduce new products into the marketplace. Amazon has hundreds
of millions of products in its selection, with tens of millions added yearly. By
widening its product selection, Amazon has increased its attractiveness to all
online buyers. (Amazon Investor Relations 2024, 2.)
 12

Amazon's customer-centric business model has multiple downsides from the

perspective of third-party sellers. Amazon has been known not to cancel sellers
selling counterfeit products of well-known brands. The false customer reviews
and their negative impact on the customer’s image of the seller’s brand have
also been issues Amazon has not taken seriously. (Israeli et al. 2022, 6.)

Amazon can block seller accounts that counterfeit other sellers' products. A
seller account block means that the seller whose account is blocked cannot
access Amazon Seller Central and, therefore, cannot manage the store.
Amazon can block the seller’s count if the seller has violated Amazon policies or
failed to deliver products. (Israeli et al. 2022,8-9.)

Another downside of entering the Amazon Marketplace is the negative brand

image created by competition through false customer reviews. Due to saturated
competition, a product's decreased selling price can also make it less profitable.
The optimal product for Amazon is a small product with an excellent profit
margin and a well-known brand that differentiates it from the competition.
(Israeli et al. 2022, 1-2; 16; Connolly 2024.)

In the case of counterfeit products that follow Amazon policies. The process
takes time, and the blocked Amazon seller can easily create another account.
They are making it difficult and time-consuming for sellers to compete with
them. Counterfeits affect not only brands that have a presence on Amazon.
Third-party sellers can sell counterfeit products of all well-known brands on
Amazon. Birkenstock, a shoe manufacturer, was the most noticeable example
of this. Birkenstock experienced inaction from Amazon to stop the fraudulent
sellers on the platform. Because of the inaction, Birkenstock banned selling on
Amazon from its resellers. (Israeli et al. 2022, 6.)

Overall, Amazon's business model focuses on serving customers, which

benefits third-party sellers by providing a marketplace with a vast customer
reach. Customers are happy to shop at Amazon because they can trust that
Amazon will be on their side if problems occur with products or delivery.
 13

However, siding with customers in all scenarios increases third-party sellers'

difficulties in the marketplace. (Laudon & Traver 2021,762-763.)

4 Risks of Selling on Amazon

The risks of selling on Amazon Marketplace can be divided into four main
categories: financial risks, logistical risks, platform policy-related risks, and legal
risks. This chapter will discuss all four risk categories in detail. Each chapter will
also have a risk assessment heat map focusing on its risk theme.

The Risk assessment matrix visualises the risks’ likelihood and effects. Each
risk was given two values: probability and impact. The likelihood metric ranged
from low to high, and the effect metric ranged from mild to catastrophic. The
numeric metric for both values was 1-5. A risk score was calculated by
multiplying these by values with each other (Figure 2).

Figure 2. Risk Assessment Heat map.

 14

4.1 Financial Risks

The financial risks associated with Amazon stores relate to platform fees,
pricing mistakes and advertising costs. These are the key risks of selling on
Amazon financially. The Platform fees consist of the seller’s monthly account
subscription, which is 39,99 US dollars. The fulfilment and referral fees are
added to the seller account fee. These two fees, including shipping costs, can
increase over 30% of the item’s sales price. Since Amazon marketplace has
multiple sellers competing with similar products, it is often necessary to
purchase advertising for Amazon marketplace to grow the sales numbers.
These three chapters form a tremendous financial risk for third-party sellers
entering the market (Figure 3). (Israeli et al. 2022, 7; Amazon 2024c)

5
Financial Risks
Referral fee
fullfilment fee
4

3
LIKELIHOOD

Advertising
costs
2

1
High
Low

0
0 2 4
Insignificant IMPACT

Figure 3. Financial Risks, Risk Assessment Heat Map.

Amazon offers third-party companies the ability to list their products in the
marketplace using two models—fulfilment by Amazon (Amazon FBA) and
fulfilment by Merchant (Amazon FBM). (Amazon 2024a; Amazon 2024b). Both
models cost the third-party seller 39.99 US dollars a month for the seller
 15

account. Depending on the product category, the referral fee varies from 8% to
45%, with 15% being the most common. (Amazon 2024d.)

The Fulfilment by Amazon (FBA) model includes warehousing and fulfilment

fees, the referral fee, and the seller account subscription. The cost of
warehousing the products varies depending on the season and product size.
The more extensive and heavier the products are, the greater the warehousing
fee (Amazon 2024a). The cost of warehousing varies depending on the month
of warehousing. The standard storage fee from January to September is 0.78
USD per cubic foot. The standard storage fee goes up to 2.40 USD per cubic
foot between October and December due to the holiday season. (Amazon
2024c.)

In the Fulfilment by merchant model, the seller handles the warehousing and
fulfilment in their facilities. The seller can more easily sell heavier items
delivered to customers through a logistical partner because they do not use
Amazon's warehousing. Since the products ship from the seller's warehouse,
FBM sellers do not need to pay the fulfilment fee. The fulfilment cost depends
on the product's weight, starting at 2,48 US dollars, and the high-end cost for
fulfilment being over two hundred US dollars. (Amazon 2024b.)

As shown in (Figure 4), both models' referral fees are the same. The FBM
model increases the profit margins for sellers with more oversized products.
The profit margin for kayak sellers was 11% higher, saving over 100 dollars per
sold unit. The FBA model's fulfilment cost is 160 dollars, whereas the kayak's
sale price is 769.99 US dollars. This makes the FBM model more suitable for
selling kayaks. (Connolly 2024.)
 16

Figure 4. Cost comparison between Amazon FBA and FBM (JungleScout

2024).

When a third-party seller decides to enter the market, it is necessary to

compare the platform fees of the Amazon marketplace and the independent
online store to make the right decision and avoid financial costs related to failed
market entry. In (Figure 5), the cost of an Amazon seller account is compared to
running an independent online store using the Shopify platform. The
comparison shows that companies can make a higher profit margin from
operating an independent online store due to high fulfilment fees.
 17

Figure 5. Shopify and Amazon Costs. (Statrys 2024)

Third-party sellers should enter the Amazon Marketplace if the product is

complex to counterfeit and demand is in the product category. The product
should also be small and have a profit margin of over 30% of the sales price if
the seller considers Amazon FBA. The Amazon FBM is more beneficial for
larger products since the fees are lower on heavier products in the FBM model.
(Israeli et al. 2022, 6.)

The increase in customer reach is considerable compared to the costs of

Amazon services. Third-party sellers should enter Amazon Marketplace with
careful fee calculation and unique products. The possibility for Amazon FBM
makes it a viable option for sellers with an existing online store and fulfilment
capabilities.
 18

4.2 Logistical Risks

Selling on Amazon has multiple logistics risks (Figure 6). Delayed deliveries can
easily lead to dissatisfied customers. This affects sellers’ product reviews. In
Amazon marketplace, customer reviews are one of the most essential
marketing tools to compete with other sellers offering similar products. Excellent
customer reviews offer sellers the best possible long-term growth on the
platform. Thus, making the bad reviews due to delayed or missed deliveries
risky for the seller. That is looking to succeed in the marketplace. (Israeli et al.
2022, 13.)

Since Amazon receives hundreds of millions of orders each month, the chance
for mistakes in Amazon’s logistical network increases as well. This applies to
both Amazon fulfilment methods differently. In the Fulfilment by Amazon
fulfilment method, the seller is only responsible for the product delivery to the
Amazon fulfilment centre, where the products are inspected and repackaged for
Amazon’s delivery network. As in the fulfilment by merchant model, the sellers
outsource the delivery to one logistical partner that delivers the product directly
to the customer. (Amazon 2024, 2.)

Regardless of the fulfilment method, logistical risks can be divided into delayed
and lost deliveries. Since Amazon or other logistic partners rarely lose the item
in delivery, considering the number of packages both Amazon and other
logistics companies handle daily. The most common logistics risk is the delivery
delay.
 19

Figure 6. Risk Assessment Heat Map about the Logistical Risks.

4.3 Logistical Risks of Fulfilment by Amazon (FBA)

Fulfilment by Amazon (FBA) is a service that allows companies to list their

products in Amazon Marketplace, while Amazon handles storage, packing,
transportation, and customer service. Amazon charges a 15% fee plus
additional costs from the seller. The critical advantage of Amazon FBA is that it
enables sellers to offer prime delivery to their clients, a feature that has become
the norm among Amazon buyers due to its shorter order delivery times.
(Amazon 2024a.)

Using Amazon FBA has challenges relating to the logistics and control over the
fulfilment. Despite having limited control over the process, the seller remains
accountable for any issues encountered during the fulfilment process. For
instance, the seller needs a reliable partner to ensure the products meet
Amazon’s requirements for sale on the marketplace. The seller is responsible
for checking products for errors and packaging and labelling them by Amazon's
guidelines. For Finnish SMEs, ordering products from manufacturers abroad
adds a risk factor. The company's inability to inspect the products before
 20

dispatching them to the fulfilment centre poses a risk. The manufacturer might
not pack the products according to the instructions provided by the SME.
(Amazon 2024a.)

Another risk factor FBA sellers face is inventory fees. Amazon charges sellers
based on the cubic feet of products, product dimensions, and the month. The
holiday season inventory fee is higher than the rest of the year. Amazon also
charges sellers a long-term storage fee if the products are at the fulfilment
centre for a prolonged time. Inventory fees can be hazardous for third-party
sellers as they devour the profits if products are not sold fast enough. (Amazon
2024a).

4.4 Logistical Risks of Fulfilment by Merchant (FBM)

Efficient fulfilment and accurate estimations of delivery times to the target

market are essential for Amazon FBM sellers. To estimate the delivery time, the
seller needs efficient order fulfilment and a trustworthy logistic partner to deliver
the products within the given period. (Amazon 2024b)

Fulfilment by the merchant (FBM) is Amazon's service that allows a company to

list its products on the Amazon Marketplace while independently managing
logistics and customer service. This helps companies avoid the high inventory
costs of storing products in Amazon warehouses. This option suits companies
that need warehousing and customer support and can meet Amazon's fulfilment
requirements (Amazon 2024b.).

Amazon FBM is suitable if the company has an existing logistics system and
can easily handle customer service. Seller Fulfilled Prime is an option for FBM
sellers who can deliver products within two days in the target country. Prime
status allows Prime members to receive free shipping on their orders. To be
eligible for Seller Fulfilled Prime, 90% delivery punctuality must be maintained
for 30 days. ([Link] 2024; Amazon 2024b.)
 21

Amazon FBM offers better profitability and more straightforward fulfilment for
sellers with existing fulfilment operations. These sellers can use the same
delivery partners to ship Amazon orders as they do for other online orders,
making selling on Amazon as an FBM seller less complicated than the logistics
and warehousing of an FBA seller. (Amazon 2024a; Amazon 2024b.)

4.5 Legal and Regulatory Risks

Legal and regulatory challenges can be complicated in global e-commerce. The

seller needs to consider customer rights and the protection of customer data
according to effective legislation. Because e-commerce is international, a seller
needs to be aware of the regulations of the target market. Customer privacy,
customer rights and tax legislation of the target market need to be carefully
assessed to avoid legal risks from realising (Figure 7). (Laudon & Traver 2021,
623.)

Figure 7. Risk Assessment Hot Map, Legal Risks

 22

E-commerce is Internet commerce. This encompasses all commerce conducted

over the Internet, where clients can order physical or virtual products. The term
"e-commerce" also includes Amazon Marketplace, which makes Amazon sellers
liable for e-commerce regulations. (Laudon & Traver 2021, 45.)

Third-party sellers must acknowledge the legal requirements when selling

products to customers. Failure to meet these obligations can result in additional
fees and potential customer lawsuits. The biggest ones are customer
protection-related regulations. In addition, the General Data Protection Act
(GDPR) is important to acknowledge. (Eurlex 2024; Hoppner & Westerhoff
2018, 1-2.)

Tax legislation differs between countries, even within the European Union. The
value-added tax (VAT) on all sold items differs among European countries. This
can be difficult for third-party sellers when customers from other parts of the EU
can purchase from them. The seller faces a legal risk if the VAT is incorrectly
paid. (European Commission 2024.)

EU legislation has addressed this issue through a one-shop-stop VAT

procedure that allows small companies to pay all the VAT to their home country.
This allows small companies to avoid paying taxes to every country where they
sell products separately. (European Commission 2024.)

Although there are many regulations related to e-commerce, the legislation is

similar for online stores and Amazon sellers. All products sold must have a
warranty, and customer data must be handled according to the bill. Not all the
legislation is against third-party sellers. For example, one-stop-shop tax
legislation allows sellers operating within the EU to avoid complicated VAT
payments and pay all the VATs to their country of origin up to 10,000 euros
annually. (European Commission 2024.)
 23

4.6 Data Privacy and Consumer Protection Laws

Data privacy and consumer protection laws are now essential for global third-
party sellers. The push for data privacy and customer protection stems from
globalisation. With digital marketing and advertising directing targeted ads
based on customer preferences, customer data has become highly valuable.
(Jenny 2021, 10; Laudon & Traver 2021, 539-540.)

Consequently, companies have ramped up data collection from their users. This
has heightened the need for data protection since individuals have little control
over data collection. The United States and the EU have implemented laws to
restrict data collection and empower individuals with the right to be forgotten
and control over their data. (Laudon & Traver 2021, 539-540.)

Consumer protection has also improved as more e-commerce is conducted

between different countries. Consumer protection includes legislation that gives
customers rights to return purchased products and warranty if the product is
liable or breaks too soon after the purchase. Consumer rights like customer
data protection are active in the United States and the EU. Amazon has offered
its customers one of the best return policies. Allowing customers to have
extensive return policies and efficient customer support in the case of problems
occurring with products or deliveries. Amazon also covers the costs of
purchased goods even if the third-party seller does not return the money. These
measures are in place to decrease the barrier of buying from Amazon. (Laudon
& Traver 2021, 539-540.)

Legal cases argue the responsibility of the marketplace. In the US, there is a
legal case where third-party sellers' products cause damage to a customer. The
issue was complex since the seller had exited Amazon Marketplace before the
incident. The customer held Amazon responsible for the damage the third-party
sellers' products had caused. Despite conducting the transaction on Amazon
Marketplace, the court decided that Amazon was not responsible for the
damage. (Oberdorf vs. [Link] 2018, 3-7, 55-59.)
 24

Since Amazon does not provide individual customer data to third-party sellers,
there are no data privacy risks related to selling on Amazon. These risks
primarily affect sellers who collect customer data through their websites.
Independent online stores can effectively manage data privacy regulations by
implementing systems that facilitate the deletion of customer data. Also, storing
customer data properly helps avoid leaks of sensitive customer data, ensuring
compliance with GDPR. (Laudon & Traver 2021, 556-568.)

4.7 Platform Policy and Competition Risks

Third-party sellers' main risks in the Amazon marketplace are counterfeit

products, Amazon’s entry, seller account blockage, and competitors’ entries for
similar products (Figure 8). Third-party sellers entering the Amazon Marketplace
face competition from other third-party sellers and Amazon itself. Multiple third-
party sellers can offer the same product under one listing, creating a
competitive environment for new sellers. Amazon's entry into product categories
with its product must be considered, as the company is known for introducing its
products directly into various categories. Amazon is also known for stealing
third-party sellers’ sales with increased listing visibility and lower prices, which is
more attractive to customers. (Israeli et al. 2020, 2; Crawford et al. 2020, 2–9.)
 25

Figure 8. Platform Policy and Competition Risks.

The study, funded by Amazon, examined the impact of Amazon's entry into the
home and kitchen category on third-party sellers from 2016 to 2021. It
concluded that Amazon's introduction into the product category did not
significantly boost the sales of third-party sellers. The research revealed the
opposite view on the effects of Amazon's competition. Since Amazon Inc.
funded the study, we must critically assess the results. (Crawford et al. 2020,
39-40.)

Having an extensive product catalogue can help sellers compete with other
sellers. However, this does not mean they are safe from Amazon's competition.
According to (Crawford et al. 2022, 39-40) and (Israeli et al. 2022, 6), Amazon
has shown interest in entering popular categories and offering products with the
highest sales volume.
 26

Third-party sellers can mitigate the risk of Amazon's entry by selling products in
niche categories that require much effort to grow. According to the research
data, Amazon entered categories with high growth and a limited number of
sellers. This indicates that upfront investments in marketing benefit third-party
sellers in the long run since Amazon is less likely to join low-growth categories
with multiple sellers. (Crawford et al. 2022, 5.)

SMEs based in Finland can use this data to mitigate the risk of Amazon
entering the market by identifying the most likely product categories. Investing
upfront in advertising and having multiple products helps third-party sellers in
case Amazon decides to enter the same category. (Crawford et al. 2022, 5.)

4.8 Strategies for SMEs to Enhance Market Visibility

Third-party sellers can use several methods to increase their market visibility in
the Amazon Marketplace. These methods include pricing, differentiating,
advertising, and search engine optimisation. The suitable method for each
product differs based on the category and the competition. Using methods the
competition does not utilise can increase sellers’ visibility in the market.
(Amazon 2024f.)

Product reviews on Amazon are essential when competing with other sellers.
Amazon search tools and customers favour products with many favourable
reviews. Having Amazon search engine-optimized listings helps sellers
compete with other sellers. Sellers can get more positive customer reviews by
listing the product at a lower price point rather than pricing it at a higher price
point from the beginning. This was the case for Sour Patch Kids when they
entered the Amazon Marketplace. (Israeli et al. 2020, 11-16).

In addition to strategic pricing, Third-party sellers can use paid advertising to

compete with other sellers on the platform. Amazon offers several different
 27

advertising methods on its marketplace, including pay-per-click campaigns that

charge sellers only when customers open the listing. Sellers can also advertise
their brand and store. Promoting the brand or store suits sellers with multiple
products, while pay-per-click advertising works best for sellers with single
products or products in different categories. (Amazon 2024e.)

The third method sellers can use to increase listing visibility is search engine
optimisation (SEO). SEO means making the product information easier for
Amazon’s search algorithm to notice. When a listing contains keywords that
potential buyers use to search for a specific product, Amazon’s search engine
shows the listed products in the customer’s search results. Customers are more
likely to buy the product when a listing appears in the search results. (Amazon
2024f.)

4.9 Impact of Market Saturation on SME Profitability

Amazon’s marketplace allows multiple sellers to offer customers similar or even

the same products. This leads to market saturation. Market saturation means
that the number of sellers offering the same product increases. This decreases
the profit margins as sellers try to get more sales by reducing the price of their
listing when competing with the same number of customers. The reduced
selling price makes sellers vulnerable to sudden increases in fees on the supply
chain. They are increasing the financial risks of selling on the market for third-
party sellers. (Israeli et al. 2022, 5.)

Competition on the Amazon Marketplace is not only between third-party sellers.

Amazon has made several market entries to several product categories by
offering customers “Amazon Basic” products. These entries have affected
sellers negatively since it is difficult to compete with Amazon. It has unfair
advantages in competing with third-party sellers, including access to market
data that is not available for third-party sellers. Amazon addressed the issue
with its seller data protection policy in 2014. The policy means that Amazon
 28

cannot use third-party sellers’ data to compete against them. However, there is
no information on how this policy is enforced inside Amazon. (Crawford et al.
2022, 36.)

A case study examined the effects of Amazon's entry into the home and kitchen
category in the [Link] marketplace. Based on Amazon's data, the study
found that Amazon's entry did not negatively affect third-party sellers. However,
Amazon’s funding must be considered when analysing the study's results.
(Crawford et al. 2022, 2.)

The more competition there is on similar products, the more likely sellers will
compete with pricing since all the listings look identical to the customer. The
second tool sellers can use to compete is to outspend the competition on
advertising. Both ways negatively affect profitability since third-party sellers
need to pay more for each sale made on the marketplace. (Crawford et al.
2022, 39-40.)

5 Case Studies and Theoretical Perspectives

Multiple academic articles have been published on Amazon Marketplace. The

following databases were used to locate pertinent research papers: Ebsco
Business Source Elite and Google Scholar. Finding relevant research articles
from the databases proved to be complicated. Most of the research papers
were not appropriate for the research questions. Only one comprehensive
research article was relevant to the research questions.

The only research article analysing the effects of Amazon’s entry into the
Amazon Marketplace was by (Crawford et al. 2022). “Amazon entry on Amazon
Marketplace”. This research highlighted that Amazon’s market entry aims to
increase product selection instead of stealing sales from third-party sellers.
 29

These market entries increased overall sales in the product category. The sales
also increased for third-party sellers. These findings are relevant to the thesis
since Amazon’s entry into the Amazon marketplace can result in financial loss
or forced market exit for SMEs. The study was based on Amazon's data for the
research team on [Link]’s kitchen and home category. The data was from
years between 2016-2021.

The study analysed all the sales data for market entries in the kitchen and home
categories. According to the research team, this product category is the 8th
largest in the marketplace. The findings could easily be applied to other product
categories in the Amazon marketplace and were also seen as relevant to other
countries. (Crawford et al. 2022, 6.)

The research showed that Amazon’s entry into the category resulted in mild
market expansion. Since Amazon entered with products that widened the
selection, its market entry did not damage the sales of third-party sellers. This
result is relevant since Amazon makes revenue from third-party sellers through
referral and fulfilment fees, which are around 15% of the total sales value of
third-party sellers. (Amazon 2024c.)

Amazon's presence in the product category is not static since the data showed
that Amazon also exited products 40% of the time. This means a potential
Amazon entry into a product category might not affect third-party sellers in the
long term due to exits. The fact that Amazon also exits product categories
makes the risk of Amazon entry less hazardous for third-party sellers. However,
Amazon does not exit from all categories it enters, which needs to be
considered by third-party sellers. (Crawford 2022, 3.)

5.1 Application of Transaction Cost and Risk Management Theories

An economic theory known as Transaction Cost Theory (TCT) describes the

expenses incurred when conducting an exchange or transaction. These
expenses cover information gathering, contract negotiation and enforcement,
 30

and risk management for asset specificity or opportunism; according to the

theory, markets and companies set up economic operations to minimise
transaction costs. Relative transaction costs influence decisions such as
producing goods internally (within a firm) or outsourcing them to the market.
(Cuypers et al. 2021, 27-28.)

When a company decides between entering the Amazon Marketplace and an

independent online store, it decides based on each channel's value. In this
case, Amazon's fees are higher than similar fees for operating an online store.
In that case, the company is better off operating an independent online store
since Amazon's transactional costs are higher. (Cuypers et al. 2021.4-7.)

Amazon benefits from independent online stores entering the platform.

Therefore, the fulfilment services provided by Amazon merchants help acquire
new sellers by reducing the transactional costs associated with the platform.
However, for some companies, entering Amazon is not beneficial, even with
FBM fulfilment. These companies benefit from continuing to operate
independent online stores (Amazon 2024b; Cuypers et al. 2021, 27). While
transactional cost theory explains why companies enter Amazon Marketplace,
risk management theory is essential to clarify how companies assess and
mitigate risks when making market entry decisions.

The risk management theory explains how companies manage risk. According
to the literature, risk management has four steps. First, potential risks are
identified, assessed, and determined relevant and probable. The third step
involves risk mitigation, which aims to prevent risk occurrence. Managers need
to evaluate and control risks as they evolve and change continuously. The
organisation must communicate risk. This allows decision-makers and
stakeholders to understand the risk in the whole organisation. (Aven 2016, 1-2).

Risk management is essential for Finnish SMEs when deciding about potential
market entry. They need to be aware of the risks associated with selling on
 31

Amazon. By identifying risks and assessing their relevance to the company,

they can increase their chances of mitigating hazards and succeeding in the
chosen sales channel.

Information from transactional cost and risk management theories can benefit
the company. Comparing the transactional cost of sales channels helps the
company avoid expensive market-entry decisions made without acknowledging
the actual cost of the sales channels. This analysis is integral to the risk
identification and assessment steps within the broader risk management
framework, helping companies avoid costly mistakes in their market entry
strategies. Both theories are relevant for making the right decision about market
entry. (Aven 2016, 1-2; Cuypers et al. 2021, 111-113.)

6 Synthesis and Gaps in Existing Literature

This chapter aims to highlight the gaps in the existing research on the risk
associated with Amazon Marketplace. It researches the key findings, gaps, and
unresolved questions using various resources. This chapter highlights the
critical gaps in the research literature that third-party sellers need.

The main financial risk factors for third-party sellers were Amazon’s fees and
the costs involved in fulfilment. These factors formed sellers' most critical
financial risk when entering the marketplace. Some sources mentioned the risk
of high fees and logistical costs. However, the economic risk of advertising on
the platform was non-existent. Advertising can be seen as an optional cost
factor, but it becomes essential for newcomers in the saturated market. The
research surrounding the overall financial risk and the risk associated with
marketing formed a significant gap in the literature.
 32

The main logistical risk identified in the literature was information about the
differences between Amazon FBA and Amazon FBM fulfilment models. There is
a significant gap in the analysis of Amazon-related logistics. Third-party sellers
must carefully assess the two fulfilment models they choose from since they suit
different products and companies. FBA is ideal for companies without fulfilment
capabilities and small product sizes, making inventory fees less significant. The
research showed that the FBM model works well for companies that have
existing fulfilment capabilities. The product size was not an issue in the FBM
since the third-party seller handles the warehousing. (Amazon 2024a; Amazon
2024b.)

The legal and platform policy risk research mainly focused on the GDPR and
customer rights in e-commerce. However, the platform policies and their effect
on third-party sellers were discussed more thoroughly (Israeli et al. 2022, 8-10).
The main issues with platform policies were the uncertainty surrounding
Amazon's decision, the time it took to fix the problems, and the wrong decision
(Smith 2019, 1-2). Third-party sellers could benefit from additional research on
the legal cases they face from Amazon.

The literature did not showcase any research comparing an independent online
store and an Amazon store. Due to the FBM fulfilment method, these two
cannot be thoroughly compared since the third-party seller can operate both
simultaneously, utilising the existing fulfilment capabilities for online and FBM
orders. More research on the subject could have helped answer the question
about which sales channel SMEs should use. Also, neither model's long-term
effects nor benefits have been researched.

To conclude, the gaps in the research have been identified. None of the
mentioned topics was well researched, and many lacked directly related
studies. The most crucial would be detailed research about long-term
comparisons of profitability between an independent online store and an
 33

Amazon store. Without this, it is impossible to determine which sales channel is

better for SMEs over a long period of time.

7 Findings from Integrative Literature Review

After reading academic articles and other sources about Amazon's risks, the
core message was that Amazon’s market entry and harsh competition are the
most significant risks for new sellers. Amazon competes with similar products
and has policies that affect third-party sellers' profitability. (Israeli et al. 2022, 2-
3; Smith 2019,1-2.)

Amazon operates this way toward third-party sellers because of its strategy to
be as customer-centric as possible (Amazon Annual Report 2023, 3). This
means that Amazon will always take the customer's side when dealing with
customer complaints, even when the claims are false. These false complaints
and returns can block sellers’ accounts, increasing customer satisfaction and
risks for third-party sellers.

Increased competition in the marketplace, especially from branded products,

poses a financial risk. This means that a product's profit margin can decrease
significantly during the time it takes for it to arrive at the Amazon fulfilment
centre. This leads to unpredictable profit margins for third-party sellers, as the
selling price for the product can fluctuate rapidly.

The key findings from the literature review were the possibility of operating an
independent online store and being present in the Amazon Marketplace. One
research question was which sales channel is better for SMEs. Amazon's
findings proved that SMEs could operate an existing online store and benefit
from it in the Amazon Marketplace by increasing the profitability of the products
by taking care of the fulfilment. This makes it unnecessary for SMEs to decide
between the independent online store and the Amazon Marketplace.
 34

This benefits the SME by allowing it to build two customer bases: Amazon
buyers and buyers who shop from independent online stores. This makes the
business more robust against sudden changes in either market. Operating both
stores increases customer acquisition costs since advertising is essential in
competition among Amazon sellers.

The integrative literature review found no risks that SMEs could not mitigate by
identifying them in the market entry planning phase. Legal risks were the
easiest to mitigate, especially for Amazon sellers, since Amazon handles
customer data and return policies. The same applies to the other risk themes
mentioned. The main risk related to Amazon is its products. Since the products
are sold in specific categories, this can increase the risk of Amazon entry.
Product selection is also one-way SMEs can mitigate the risks and issues
caused by saturated competition.

8 Setting for Semi-Structured Interviews

In addition to the literature review, semi-structured interviews were used to

gather information about the risks Amazon and online store managers
encountered. One online store manager and one Amazon store manager were
chosen for interviews to gain a wide range of knowledge about the risks. An
interview with an independent online store manager was vital since it allowed a
comparison of the dangers of both sales models. This also makes the thesis
findings applicable to more SMEs considering starting to sell on Amazon.

A semi-structured interview method was chosen for flexibility and allowance to

ask follow-up questions. Follow-up questions allowed for delving deeper into the
question. This allowed us to get more detailed answers that could highlight the
risk management process and the identified risks. Using semi-structured
interviews was a good decision as it allowed the finding of the dangers of global
 35

events and the related risk management process mitigating them. (Barclay
2018,1.)

The semi-structured interviews were conducted in four steps: identifying themes

for questions, forming the question lists, conducting the interviews, and
analysing the results. Two participants were chosen for the interviews: Emmi
Kirjavainen from Manila Oy and Eero Salmi from Eumer Finland Oy. Emmi
Kirjavainen manages Manila Oy’s Amazon store, and Eero Salmi manages
Eumer Finland Oy’s online store. Both attendees were asked to participate in
the interviews by phone, conducted during August 2024.

Both interviews were recorded and took around one hour to conduct. Attendees
were asked 16 questions about risk related to the financial, platform policy,
legal, and logistical challenges e-commerce managers face. The questions
were sent upfront for attendees to help them prepare for the interview and
inform them about the phone call recording to ensure ethicality. Follow-up
questions were asked to form a deeper understanding of the topic.

The interviews lasted approximately one hour. The phone calls were recorded,
and consent was obtained during the contact and via email, which also
contained the list of questions used in the interview. The interviews were
recorded for later analysis. They provided valuable information on how both
managers perceived the risks and what steps they had taken to mitigate them.
The flexibility to use follow-up questions allowed for the discovery of new risk
themes during the interviews.

The small sample size was a limiting factor. Two participants represented
Amazon and an independent online store, providing a focused comparison.
However, the findings might not be generalisable to other SMEs. The sample
size also limits the possibility that the attendees might have experienced certain
risks. Attendees might mitigate specific risks without being intentional about
them, leaving gaps in their perceptions of the dangers even though they have
already been addressed.
 36

After the interviews, the data was analysed using a thematic approach.
Thematic analysis is a research method that finds patterns in the data. In this
case, the themes identified risks in the main themes, such as financial, legal,
platform policy, and logistical risks. The thematic analysis highlighted new risk
themes concerning global events and their effects on inventory and logistic
risks. At this stage, a strategy for mitigating the impact of these global events
was also analysed.

The findings from the semi-structured interviews complemented the conclusions

of the integrative literature view by providing a current and practical
understanding of the risks SMEs face in the Amazon Marketplace and
independent online stores. The next chapter will focus on the thematic analysis
of the interviews, where the findings are critically analysed and compared to the
literature.

9 Thematic Analysis of the Semi-Structured Interviews

The interviews were conducted to get firsthand risk information from online
stores and Amazon store managers. Emmi Kirjavainen and Eero Salmi were
selected for interviews due to their position as online store managers. Emmi
Kirjavainen was interviewed about the identified risk of managing an Amazon
store, and Eero Salmi was interviewed to get information about the dangers an
independent online store identified. The interviews aimed to answer the first
research question about the most common risks for each sales channel.

The data from semi-structured interviews was analysed using thematic analysis,
identifying central themes. The themes of the interviews are divided into four
categories: logistical, financial, legal, and platform policy-related risks. The data
from both interviews was analysed for each theme, and the findings were
connected to the related literature. Eero Salmi’s points are in white, and points
from Emmi Kirjavainen are in black font.
 37

9.1 Legal Risks

Neither Emmi Kirjavainen nor Eero Salmi mentioned significant risks associated
with platform policies or legal processes. The EU legislation that affects the
processes is the leading risk considered. Legal risks were identified as areas
requiring careful attention to ensure compliance. Eumer avoided the legal risks
by consulting a law firm to form the appropriate terms of service for the store.
After that, only minor adjustments were required to ensure they remained
current. Kirjavainen mentioned that the Lucid database was used by a company
selling products in Germany that needed to register to sell on [Link].
(Kirjavainen 2024.)

In the interview, Emmi Kirjavainen mentioned that the Lucid database is

necessary for all sellers operating on [Link]. The Lucid database is a
system where companies selling products in Germany must provide information
about how much material their sales generate and pay a fee for the material
usage. The need for registration for the lucid database was not mentioned in the
literature concerning the legal risks of the Amazon Marketplace.

Amazon Seller Central did not mention the need to register for this database.
When Kirjavainen created the seller profile, Amazon informed him that
registration was required. The late notice about registration made the process
take longer than expected. In Manilla Oy’s case, the late notice delayed the
start of the operation by one month. (Kirjavainen 2024.)

According to Emmi Kirjavainen, EU regulations pose a greater risk to new

sellers than Amazon Marketplace policies (Kirjavainen 2024). However, the
research on the legal risk of the Amazon Marketplace did not mention legal
issues that concern Amazon sellers. This is because, as mentioned in the legal
part of the integrative literature review, Amazon needs to ensure the
marketplace meets the necessary legislation and that customer data is handled
according to the regulations. (Eurlex 2024; [Link] 2024.)
 38

Eero Salmi mentioned that piratism and fake sites caused problems that
needed outside help to solve. Agreements with suppliers can mitigate piratism
by preventing them from manufacturing products like other sellers. Only a
minority of the manufacturers agreed to sign this agreement. The manufacturers
did not view piratism as a threat to their brand image or a source of significant
financial damage. Branding and marketing, according to Eero, are the most
effective strategies to combat counterfeit products because they are harder to
copy than manufactured products. (Salmi 2024.)

However, Eero Salmi mentioned that branding and marketing are the best ways
to mitigate the risk posed by counterfeit products. A well-established brand that
customers recognise helps mitigate counterfeit products with different logos. If
the company’s brand is recognised and positively associated by customers. It
makes it less likely that customers would buy counterfeit products. (Salmi
2024.)

Several consumer brands, such as Birkenstock and Duracell, have exited the
Amazon Marketplace due to the lack of action against counterfeit products.
Amazon’s actions towards counterfeit sellers resulted in Birkenstock blocking
resellers from listing Birkenstock products in the market. (Israeli et al. 2022, 1-
2,6-7.)

In conclusion, both sellers perceived legal risks as simple to avoid. After forming
the terms of service, legal risk management only needed periodic adjustments
to ensure their currentness.

9.2 Logistical Risks

The second theme discussed during the interviews was the logistical risk
managers faced. Finding research papers debating the logistical risk of the
Amazon Marketplace proved difficult since scholars had not studied the subject.
The questions about the dangers were meant to get additional data on how
independent online store sellers and Amazon stores assess the logistical risks.
 39

No significant risk factors were mentioned in Emmi Kirjavainen's interview.

Manilla Oy had outsourced the delivery to a previously used logistics partner.
Accurate delivery estimations could mitigate almost all logistical risks
(Kirjavainen 2024.)

Manilla Oy needed to calculate the delivery estimates accurately to prevent

delayed deliveries. The process with a third-party logistical partner was
convenient to set up since Manilla Oy delivered products to other clients using
the same logistics handler. Emmi Kirjavainen did not mention that using a third-
party logistical operator had created problems. The main concern was the
potential delivery delays (Kirjavainen 2024.)

The data from the interview with Eero Salmi were similar in that the logistics
operations were performed without problems using a third-party logistic partner.
Thus, the shipments from the factories did not cause any unexpected risk to
Eumer Finland Oy’s operations (Salmi 2024.)

Both managers acknowledged the potential for delayed delivery and missing
packages. However, this was not a significant concern for either of them. Both
attendees had processes that could be used if delivery was late or lost.
(Kirjavainen 2024; Salmi 2024.)

9.3 Financial Risks

The financial risk mentioned is primarily related to marketing budgets and

product pricing. (Kirjavainen 2024; Salmi 2024). The budget spent on marketing
was seen as risky since the outcome of these campaigns was unsure. Paid
advertising was seen as necessary in Amazon Marketplace, where the
company needed to spend money upfront on platform advertising to get reviews
and sales. This makes the Amazon business model riskier for new companies
since advertising needs to be paid upfront before the sales are enough to cover
the advertising costs. (Kirjavainen 2024.)
 40

The integrative literature review mentioned the financial risk of marketplace fees
and advertising. Amazon fulfilment services require fixed monthly payments,
and a percentage of sales is added. Since Manilla Oy used the Amazon FBM
model, Amazon did not pay for warehousing and order fulfilment. (Kirjavainen
2024, Amazon 2024c.)

The financial risk in running the independent online store was mainly focused
on product pricing. Eero Salmi mentioned that product pricing needed constant
monitoring to ensure products were priced according to their market position.
(Salmi 2024.)

Financial risks were the most challenging theme in the interviews since they can
occur due to several other aspects of the operation. Financial risks are complex
and should be considered an individual risk category since failure or challenge
in other processes usually results in economic loss for the company.

9.4 Platform Policy Risks

Neither Eero Salmi nor Emmi Kirjavainen saw that the platform policies were a
risk factor for their current online store operation. Both attendees mentioned
that the platform policies and legislation risk came from EU legislation instead of
third-party policies. Emmi Kirjavainen brought up the delay in registering for the
Lucid database, a point Amazon had not previously addressed. Other than this,
the attendees mentioned no other risks related to the platform policy.
(Kirjavainen; Salmi 2024.)

The absence of platform policy risks mentioned in the interviews is surprising,

considering that Amazon has been criticised for its policies in the literature
(Smith 2019, 2; Israeli et al. 2022, 8). Amazon's platform policies have resulted
in the closure of the sellers’ accounts, which has led to financial loss for the
seller.
 41

9.5 Additional Insights

The interview with Eero Salmi discussed the risk from major world events like
wars or pandemics as an additional risk for online store operations. Since
Eumer manufactures most of its products outside of Finland, all the events
affecting the global supply chain also affect Eumer Finland Oy’s operations.
(Eero Salmi 2024.)

Eero Salmi mentioned that since the COVID-19 pandemic and the war in
Ukraine, the company has intentionally increased its inventory to a higher level
than before the pandemic. This is according to the risk management theory,
which states that companies identify, assess, and manage risks.

Eero Salmi said a significant global supply chain crisis affected Eumer Finland
Oy’s operations. For example, as factories shut down in the middle of the
pandemic, delivery times increased by several months. As a result, Eumer
Finland Oy had to order inventory and products up to a year before planned
sales to mitigate delays caused by global supply chain disruptions. (Salmi
2024.)

Additionally, the risk of selling on Amazon was discussed, and the

characteristics of Amazon's marketing and advertising were discussed in
greater detail. The conversation with Emmi Kirjavainen gave insight into
Amazon's advertising. The key findings were that SMEs should focus on
advertising individual products instead of the brand and that advertising on the
Amazon Marketplace is expensive compared to other services such as Google
(Kirjavainen 2024).

The additional finding about expensive advertising was surprising, considering

the limited amount of customer data Amazon shares with its sellers. This
increases the financial risks of advertising for third-party Amazon sellers, as
choosing the correct advertising method can be challenging. (Kirjavainen 2024).
 42

Finding the right advertising services requires extensive testing from the third-
party seller. Since Amazon does not provide customised advertising
recommendations to sellers, it conducts mass marketing campaigns to increase
the sellers' advertising spend. According to Kirjavainen, a suitable advertising
method can only be found through extensive testing on Amazon Seller Central.
(Kirjavainen 2024).

10 Conclusions and Discussion

This chapter discusses the findings from the research literature and semi-
structured interviews regarding the research questions. After the findings are
concluded, the answers to each research question will be addressed individually.
The chapter provides practical implications for risk management to help SMEs
avoid the identified risks when entering the Amazon marketplace. After the
practical implications for risk management, the thesis writing process is discussed
among the potential directions for future research.

The research questions were:

(1) What are the most common risks associated with operating an online store
independently or through the Amazon Marketplace?
(2) Is Amazon Marketplace a better sales channel for Finnish SMEs than an
independent online store?
(3) Can SMEs in Finland manage the risks related to the Amazon Marketplace
and policies?

Based on the information gathered from the research papers and the findings
from the semi-structured interviews, financial, logistical, and platform policy risks
were the most essential risks for SMEs. Within each identified risk category,
several individual risks existed. To answer the first research question, each of
these risk factors will be discussed.
 43

Independent online and Amazon stores had similar logistical risks because they
use identical logistic networks. The main dangers in this category were delayed
deliveries, lost deliveries, and global events affecting logistics. Most SMEs use
logistics partners to deliver goods to customers. SME’s have limited control over
the logistics process. The same applied to the second logistical risk of lost
deliveries. Global events were considered the most serious logistical risk since
these events resulted in long delays and inventory issues due to insufficient
inventory. Based on the semi-structured interviews, some delivery delays were
expected, and both independent online stores and Amazon sellers had processed
to compensate for the logistical problems for customers. Mitigating the adverse
effects on the brand image and overall customer satisfaction. (Kirjavainen 2024;
Salmi 2024.)

The financial risks of selling on Amazon and independent online stores include
Pricing mistakes, platform fees, and advertisement costs. Pricing mistakes have
the most significant adverse effect, as they can lead to diminishing profit margins,
which can be detrimental for SMEs with limited financial resources. Platform fees
were not seen as a significant risk theme in semi-structured interviews, but they
were discussed in the research literature since Amazon platform fees could
quickly add up to over 30% of the item's sales price. (Amazon 2024c; Salmi 2024;
Kirjavainen 2024.)

In addition to the high platform fees, Amazon is known for entering its
marketplace with its Amazon Basic Products. These market entries can be
detrimental to SMEs selling similar products. Since Amazon does not need to pay
the same platform fees as third-party sellers, it can sell products profitably below
the marketplace. The research data showed that Amazon’s market entry aims to
expand the product selection in the category and make the product cheaper for
customers in case a single third-party seller dominates the market. It is not
interesting to enter into categories with a considerable upfront cost for market
entry. SMEs should consider this when entering product categories. (Israeli et al.
2022, 6; Crawford 2022, 2.)
 44

The competition among other third-party sellers should be considered and a part
of platform policy and competition-related risks. Multiple sellers can offer similar
or even same product in the marketplace. This results in extremely competitive
environment for new third-party sellers. Third-party sellers’ main tools for
competing with other sellers are product pricing and advertising in the
marketplace. Lowering the products price can quickly decrease the profit margin
to and unsustainable level. Also, Amazon's advertising can be seen as risky since
Amazon does not provide detailed customer information that would allow
targeting advertising according to the targeted customers. (Israeli et al 2022, 6.)

While the limited amount of available customer data makes advertising in the
platform riskier for SME’s. It makes the legal risks of selling on the platform more
easily manageable. The most relevant legal risks for Amazon and independent
online store seller are customer data legislation and customer right legislation.
Tax legislation affect sellers regardless of their sales channel. Based on the
interviews the legislative risks were easy to manage as both sales channels offer
services that automizes the customer data handling according to the current
legislation such as GDPR. Amazon handles the GDPR compliance itself, since
it does not share personalized customer data with sellers. (European
Commission 2024.)

The second legal risk theme was the customer rights violation. Both Amazon and
independent sellers need to offer customers right to return the product as well as
warranty in case the product breaks. Both legal risks were assessed and
mitigated by both sellers according to the semi-structured interviews. This is due
to pressure to offer customers great customer service to increase the sales and
brand image. To increase the changes of customer returning to buy again.

The second research questions where about which sales channel is better for
Finnish SMEs in terms of customer reach and profitability. After the research from
interviews and the research papers it seems that Amazon offers customer reach
that independent online stores have difficulties reaching. Hundreds of millions of
monthly visitors each month make the platform great opportunity to gain new
customers and increase revenue. However, the customer reach has price in
 45

terms of profitability. Amazon fees add up to 30% of the sales price. Accompanied
with advertising cost often necessary to increase the sales in competitive
platform. This can make selling on Amazon unprofitable for some sellers.
(Amazon 2024; Amazon 2024c.)

The independent online stores can manage profit margins in better level more
easily, but they also need to advertise and provide marketing material to get
visitors for their page. Usually, independent online stores need to have their own
warehousing facilities and personnel who fulfil the orders or bey these services
from other companies. Either way the profits can be easily devoured by these
expenses. The comparison between the two models is made more difficult by the
fact that Amazon offers fulfilment by merchant (FBM) model that allows company
to fulfil orders by themselves from their own facility. This model is also more
profitable since the seller does not need to pay for the fulfilment fee averaging
15%. (Amazon 2024c.)

My advice for SME’s thinking about choosing between these two models is to
pursue both channels simultaneously. This is since by getting orders through
SME’s own online store would provide important customer data that could be
used to target Amazons advertising better. This would also decrease the SME’s
dependence on one or the another of the sales channels. If the Item SME sells is
small, I would suggest putting more emphasis on the Amazon sales and
marketing since smaller products have smaller platform related fees. SMEs with
larger and heavier items should therefore pursue their own independent online
store in the beginning and then enter the Amazon marketplace using the fulfilment
by merchant model.

By carefully planning their operations, SMEs can avoid realising the risks
mentioned (Table 10). I suggest that SMEs use Risk Assessment tools to
independently identify and analyse each risk. Risk assessment tools and matrixes
allow for a detailed and thorough risk management process. Familiarising key
personnel with the risks other companies in the same field have faced should also
be part of the risk mitigation process.
 46

Table 10. Example of the Risk assessment table based on the risk mentioned in
the thesis.

Researching the effects of Amazon’s market entry into all product categories
would be important since the effects may vary between them. Current research
on market entry's impact is limited to a few categories. The current research on
the platforms makes owners’ entry into the marketplace unreliable. This can limit
the success rate of SME market entries into Amazon.

The second suggestion for future research is a long-term comparison between

Amazon sellers and independent online store sellers’ performance in terms of
revenue and profitability in the same product category. This kind of research will
showcase if platforms like Amazon hurt SMEs’ profitability and growth in the long
term.

11 Validity and reliability

The Validity and reliability of the thesis can be analysed in two parts—the
reliability and validity of the research articles and interviews used as sources in
the thesis. Using two different research methods improves the reliability and
validity of the findings compared to using only qualitative research methods.
This way, the thesis can draw better conclusions about the current risk
information related to the risk of entering the Amazon marketplace.
 47

The reliability of the research papers used in the thesis is questionable since
the researcher needed to rely entirely on the data Amazon gave them on their
chosen topic. Amazon may have refused to cooperate with research teams that
have asked for data from product categories, and Amazon’s entry has
negatively affected customers and third-party sellers. Therefore, companies
planning to enter the Amazon marketplace need to see Amazon’s entry as a
considerable risk, even though the research papers have not come to this
conclusion.

The same applies to the semi-structured interviews, as the sample size was
limited, limiting the reliability of the results. The limited sample size was due to
the assumption that multiple researchers would have researched the risks
related to Amazon in more detail. This was a wrong assumption since Amazon
is known for not sharing customer data, even with third-party sellers. The lack of
research on this subject was surprising, considering the relevance of the
Amazon marketplace to today’s e-commerce sector globally.

After conducting the interviews, risk identification among SME managers raised
questions. Since it was difficult for attendees to identify risks related to the
themes of this thesis, most risk themes did not raise any concerns among the
attendees. This might not be because the risks do not exist but because they
are more related to the fact that managers at SMEs might be more familiar with
risk prevention actions instead of risk identification.
 48

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 Appendix 1 1(10)

Comparison of cost between Amazon FBA and Amazon FBM

 Appendix 2 2(10)

Semi-Structured interview questions

 Appendix 3 3(10)

Amazon Business Model

 Appendix 4 4(10)

Comparison between Shopify and Amazon platform costs

 Appendix 5 5(10)

Risk Assessment Heat Map

Risk Assessment Heat Map

5
Platform Policy
Financial risks

3
LIKELIHOOD

Legal risks

1
High
Low

0
0 1 2 3 4 5

Insignificant IMPACT
 Appendix 6 6(10)

Financial Risks
 Appendix 7 7(10)

Logistical Risks
 Appendix 8 8(10)

Legal Risks
 Appendix 9 9(10)

Platform Policy and Competition Risks

 Appendix 10 10(10)

Risk Assessment Table