Selling through Amazon Retail—where your brand wholesales to Amazon, and the company’s retail division sells your products to consumers on its marketplace—offers some major advantages.
For example, with Amazon itself actively marketing your products on Amazon.com, your brand will be introduced to an enormous number of consumers who might otherwise never have heard of you. Amazon Retail will also manage customer service and some other back-end services for its sales of your products. This can have a positive impact on your brand’s reputation. You also have the opportunity to make large sales to one customer.
But working through Amazon Retail also comes with several challenges. We briefly touched on a couple of these risks in a previous post: 4 Ways Amazon Lets Brands Down on MAP Pricing. We thought it was worth devoting a blog to highlight a few more reasons you might be better off not selling through Amazon Retail.
1. Amazon Retail Can Hurt Your Other Reseller Relationships.
If your brand decides to allow Amazon Retail to be your exclusive resale partner on the Amazon marketplace, this arrangement can work well. But having both Amazon Retail (sometimes called the first-party seller or “1P” on Amazon) and other third-party sellers competing on the same listings will likely create problems.
For example, not surprisingly, Amazon’s own algorithm to determine which seller wins the buy box gives a strong advantage to Amazon Retail’s own listings.
As your other resale partners discover that they’re losing sales on Amazon.com repeatedly to Amazon Retail, they might become frustrated with your brand, reduce their orders for inventory, and even stop carrying your products altogether (particularly if Amazon is their most lucrative channel). Or, you may find that other sellers start dropping prices (in violation of your policies) in order to try to win the Buy Box.
2. Amazon Retail Might Violate Your MAP Policy
Amazon Retail includes verbiage in its standard vendor agreements that it will honor a brand’s Minimum Advertised Price (MAP) policy. But the company also leaves itself one huge caveat: If Amazon finds another seller violating the brand’s MAP on a given product—not only on Amazon.com but anywhere on the internet—the Amazon Retail team will also drop its listing price to match or beat that MAP violator’s offer.
In other words, Amazon Retail might violate your brand’s MAP policy. And because Amazon is such a dominant online marketplace, soon your other resale partners (probably including your brick-and-mortar retailers) will start to see the violation and lower their own prices to stay competitive.
3. It’s Difficult to Estimate Your Costs with Amazon Retail
As they explain in their book The Amazon Marketplace Dilemma, authors James Thompson, PhD, and Joseph Hansen point out that the costs of selling to Amazon Retail are neither clear nor predictable. Brands often find charges on their invoices they’d never discussed with Amazon Retail, and those charges can vary widely over time.
To cite one example, the authors describe instances where Amazon Retail discovers another seller (even on another marketplace) listing a brand’s products at below-MAP prices, and in response Amazon Retail lowers its own prices to match. Then, when it comes time to pay the brand’s invoice, Amazon Retail will mark its payment down to reflect the estimated revenue it lost by having to lower its advertised prices.
4. Amazon Retail Might Pay You Less Than You’ve Estimated
In part due to the challenge we just described above—that Amazon Retail’s charges are difficult to calculate or predict— it’s common for brands to discover only after payment is sent for inventory that Amazon only pays about half of what the brand had anticipated.
Another reason for this is that, when Amazon Retail finds your products selling well on its marketplace, the company will often become even more aggressive in its negotiations over how much it will pay for future inventory. Suddenly this online channel, which your company had estimated would yield X, is now only returning half of X.
5. Amazon Retail Will Not Let You Share Inventory for Multiple Channels
If you set up a third-party seller account and use Amazon’s order-fulfillment service—Fulfillment by If you set up a third-party seller account and use Amazon’s order-fulfillment service—Fulfillment by Amazon (FBA)—you can ship one batch of inventory to Amazon and use it to fulfill orders across multiple online channels, including marketplaces other than Amazon.
But if you work through Amazon Retail, the inventory you ship to them will be used only for Amazon Retail’s own order fulfillment. This means if you are planning a multi-channel online sales strategy, you will need to maintain two sets of inventory—one for your Amazon Retail partners and another for everyone else.
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