On March 11, 2019, Amazon confirmed it has ended a longstanding policy that forbids sellers on its marketplace in the US from offering the same products for lower prices on other sites.
Amazon didn’t comment on why it removed this rule, which has become known as its “price parity” policy. But increasing pressure from politicians probably played a role. In recent months Senators Elizabeth Warren and Richard Blumenthal, and even President Trump, have publicly discussed investigating Amazon for possible antitrust violations.
Whether or not Amazon’s price parity rule actually stepped over the antitrust line, the ability to prohibit third-party sellers from underselling the company on any other website gave Amazon a significant amount of control over the eCommerce ecosystem of its sellers.
So, Amazon’s decision to remove this rule, and allow sellers to advertise products for less elsewhere, sounds like great news for both brands and retailers. But is it? Here’s our take.
The Good News About Amazon Removing its Price Parity Rule
This rule change definitely creates some new benefits and opportunities, such as:
It gives retailers more control over their pricing on marketplaces and websites other than Amazon.
It will allow brands (and retailers) to sell products on more marketplaces, which could lessen their dependence on Amazon. In essence, it could help sellers diversify their channel and become less vulnerable to any issues (rising fees, new restrictions) that might show up on Amazon.
It will also encourage other online marketplaces to create incentives to lure merchants—for example, making it less expensive to sell through their marketplace than on Amazon.
The Not-So-Good News About Amazon Ending Price Parity
As a brand or manufacturer, the end of this Amazon pricing rule could open a new challenge for your company. Here’s our concern.
For many brands, Amazon’s price parity policy might have served as a way of propping up prices on its products. In essence, acting as a sort of de facto MAP policy enforcer.
Although a brand might not do much to police its own MAP policy—in fact, even if it doesn’t have one—that brand’s retailers have always known that Amazon itself monitors its marketplace and the rest of the web, to make sure products on its site are always lowest. Moreover, Amazon has punished merchants who violated this parity rule—removing the buy box, suspending their seller accounts, etc.
In other words, the Amazon price for a product in many cases became its effective MAP price across the eCommerce landscape, whether the brand enforced it or not.
By ending this rule, Amazon is freeing up retailers to advertise products for less on other sites and marketplaces. So, if your company doesn’t have a MAP or other resale pricing policy in effect—as well as a program to monitor and enforce it—this could create price wars among your resale partners and, eventually, harm your brand through online price erosion.
That’s why we recommend that prospects explore creating and enforcing a successful resale pricing policy. For more information on this, download our free ebook: How to Draft and Enforce a Successful Reseller Pricing Policy.