Dark Side of Fulfillment by Amazon (FBA)

If you’re a manufacturer or brand selling through a network of retailers, the Fulfillment by Amazon service can improve your brand’s reputation. That’s because when they use FBA to sell your products on Amazon, your retail partners create a consistently positive buying experience for their customers.

As you can imagine, Amazon runs a world-class shipping and delivery operation. This means the chances are overwhelming that your products will arrive on time and well-packaged from the FBA service. And consumers will attribute some of that outstanding experience to your company’s brand—even though it was actually your retailer, using Amazon’s fulfillment service, that was responsible for creating the experience.

But a brand victory is a brand victory, right? Take the win, and thank your retailers for using Fulfillment by Amazon.

However, you also need to be aware of the darker side of FBA, and how it could be used to hurt your brand.

How Unauthorized 3Ps Use FBA to Hide

The risk here is that an unauthorized 3P seller uses the FBA service to conceal their identity from your company—and to stay hidden even if you do a test buy to learn more about them.

Consider this scenario. Someone at your company spots a seller whose name they don’t recognize listing your products on Amazon. (Or worse, one of your authorized dealers catches the violation first.) You decide to conduct a test buy, hoping the packaging will reveal the seller’s DBA name, return address, and possibly some other information you can use to pursue that company for selling your inventory without permission.

Here’s the problem. If that seller is using FBA to fulfill customer orders, when you order your test-buy product from their Amazon listing, it will be delivered to your offices packaged in an Amazon box, showing only an Amazon return address. In other words, using FBA helps rogue sellers hide from the brands they know will want to learn their real identities so they can pursue them and shut down their listings.

And it gets worse. Amazon also commingles the inventory it stores in its warehouses and distribution centers. This means that when you do your test buy from the seller in question, if that seller is fulfilling the order through FBA, the actual item that Amazon pulls from its shelves could come from any number of sellers. You have no guarantee the test-buy product delivered to your offices will be one the mystery seller sold to Amazon.

This is why sophisticated 3Ps will use Fulfillment by Amazon to list products that the brand hasn’t authorized them to sell. And unfortunately, these unauthorized 3Ps have found another related benefit to using FBA, which you should also be aware of.

Another Reason FBA Is Attractive to Unauthorized Sellers

In addition to helping them hide from brands, rogue Amazon sellers have also learned that using FBA can help them win the coveted Amazon buy box. That’s because Amazon’s buy-box algorithm gives a more favorable position to a retailer that uses the FBA service.

Now consider the following nightmare scenario, and you’ll understand how much of a threat a sophisticated unauthorized 3P could create for your brand on Amazon.

A rogue retailer acquires your inventory from one of your wholesalers—let’s say by pretending to have a storefront in Latin America, so they can receive your pricing for that region. Of course, as soon as they get their hands on your products they create Amazon listings for them to sell in the US. Worse, because this retailer isn’t part of your authorized dealer network, they have nothing to lose by undercutting your legitimate sellers and violating your MAP pricing guidelines.

So now they create an Amazon listing for your product, offering it at a price far below all of your authorized sellers also listing it on Amazon’s marketplace, and they’re using FBA—so Amazon’s buy-box algorithm gives this rogue seller extra points for both having the lowest price and for using Fulfillment by Amazon.

Now this unauthorized 3P is regularly winning the buy box, infuriating your legitimate sellers, and driving down the public’s perceived value of your brand by consistently offering your products at a discount.

And who knows what types of experiences your customers have when they try contacting this retailer for a return or customer support?

Ironically, the only aspect of these sales that isn’t a risk to your brand is the shipping and delivery—because the Fulfillment by Amazon team is handling that aspect itself.

The good news, though, is that you can take a few steps to minimize these risks.

How You Can Fight Back

First, you’ll need to create that authorized dealer network, which will help you more easily spot an unauthorized seller on Amazon (or elsewhere on the internet).

Next, you’ll need to set up rules and consequences for your wholesalers and distributors about selling inventory to any individual or entity not on your authorized dealer list. Because your dealer agreement will include penalties for violating your rules about where they can sell, just having the agreement in place will create incentives for your distributors not to game the system. It’s not a bulletproof way to stop all product diversion and other trickery (there is no bulletproof solution), but it will help.

Finally, you’ll want to serialize your inventory. If you can track your products through each stage of your distribution channel, you’ll be able more easily to trace a rogue seller’s source for acquiring your products. Keep in mind, however, that because Amazon commingles inventory, an unauthorized 3P using the FBA service can still conceal its identity from you even if you’ve affixed unique serial numbers to your products. This is because when you place your test-buy order, you’ll have no way of knowing if the item Amazon pulls from its shelves came from your mystery seller.

Here’s how this can help you track down even an unauthorized 3P who’s hiding behind Fulfillment by Amazon. Let’s say you’ve placed serial numbers or other unique identifiers on each of your products. You discover a rogue seller on Amazon and conduct a test buy—only to discover the seller is using FBA, so even the item’s packaging doesn’t reveal anything new about their true identity.

But now you also have a serial number to work with, which you can trace back to a bulk purchase from one of your wholesalers. You can contact that wholesaler, give them the serial number—which they will be tracking as well, per your distributor agreement —and can get the company’s details from them. And now you’re in a position to pursue that rogue seller directly and aggressively.

This process isn’t a guarantee to eliminate all unauthorized 3Ps, of course. No such process exists, because Amazon is too big and too lucrative an online marketplace to keep out all rogue retailers. In fact, this process really works only when you suspect a seller is leaking product to someone on Amazon, and your test buy reveals the item has a serial number that should have been sold through another retailer. This will let you know that you do have a leak in your distribution channel, and you can work backward to find the source, but the test buy itself won’t tell you who the wholesaler or distributor is selling to.

This is why I said earlier that, although it has many benefits for a brand, there are aspects of the Fulfillment by Amazon service that can hurt a brand, and there is no guaranteed way to solve the problems it can create.

And although the process I’ve outlined above it not perfect, coupling a test-buy strategy with inventory serialization can definitely give your brand an edge in this ongoing fight.

To learn more strategies like these, or for help rolling out your own brand protection system, speak with a TrackStreet Solution Architect.

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