While Amazon is a huge opportunity for brand building, revenue, and visibility, companies with established brands must consider the risks.
Amazon wishes to remain an open marketplace, which means that almost anyone can sign up as a seller and do business on the platform. Just like freedom in America, selling on Amazon comes with responsibility as well as accountability. Third party sellers can offer products without much oversight and keep doing it as long as Amazon consumers don’t make complaints about service or quality. Even counterfeit products don’t get figured out fast but Amazon implements some checks and rules in certain product categories.
I’m a Prime member and I love it, but I’ve had two situations where the product I purchased, by clicking the buy-box, turned out to be counterfeit. In both cases, Amazon stood behind them and gave me my money back but it was still a bad experience. One of the items was a gift, so it was a little embarrassing.
Amazon will suspend and even kick sellers off the marketplace in certain cases. Reviews and complaints get the ball rolling. But sellers are also able to jump on and off the site at will. One hour they’re selling an item, the next hour they’re gone. Is that kind of activity good for your brand?
For most consumers, it’s no big deal but if one of those sellers is listing your branded product, it’ll drive you nuts. And Amazon will do little to help. The way Amazon looks at this is that if you don’t have control of where your product is going, that’s not their problem. For those of us managing reputable brands, this is a major issue.
But this goes beyond managing your brand and intellectual property. The root of these kinds of issues comes from executives who are focused only on moving inventory out to hit their overly aggressive revenue goals. If your sales team is paid on commissions and bonuses, longer-term objectives, like growing brand equity, will give way to short-term rewards. I’ve seen cases where sales producers are selling inventory into multiple resellers within the same channel and the result is excessive channel inventory which typically results in price compression. Everyone is high fiving up on the sales floor at Friday afternoon happy hour, but they come back on Monday to find pricing in the tank and phone calls from angry channel partners.
In order to protect your brand while leveraging across multiple channels, you must have an advance strategic plan. It still stupefies me how many smart and seasoned executives don’t do it. The combination of overly aggressive revenue goals and short-term incentives can be a formula for brand erosion. Recovering from price, brand and equity erosion is costly, painful and takes time… too much time. And God help you if it happens on Black Friday.
I can always tell if a brand has its e-commerce act together by looking at them on Amazon. Here are the signs of a brand “out of control”:
- There are more than two pages of sellers for a product.
- There are large deviations in the selling price.
- Their company website says they won’t honor the warranty if consumers purchase the product on Amazon.
- The product is listed in several ASINs that are multi-product bundles.
- The product is available from 3rd party sellers that seem to make no sense. Like a toothbrush sold by Freds Auto Parts (seriously).
- The products are available from multiple sellers as “open box” or “used”.
It doesn’t take long to find a product listed on Amazon with 15+ pages of sellers. I was just looking at a simple computer accessory that has 153 sellers, all listing the product as “new”, the lowest price was $53.99 all the way up to $275. The lowest price at the top of the list was sold by, you got it, Amazon. Amazon wins the buy box in this case because they have the lowest price and it’s in stock. So you have to ask yourself, why do all these other sellers list this product when they obviously can’t complete. And if one of them decides to lower their price, Amazon’s system will follow, even if goes below cost. Also known as dumping inventory. Am I hitting any nerves yet?
This is the part where I usually get asked: “what the hell can we do?”. You can start by understanding the underlying motivations of Amazon and the reality of how their model works. Here’s my old school analogy…
Suppose a Sears store allowed anyone to place a counter and cash register in their showroom. Everyone is selling from the same inventory and there is only one display model that every seller shares and there is no talking with the customers. How long does it take for the price to drop? About 3 seconds. And every time one of the sellers drops the price, Sears sees it and prices it even lower. After all, it’s their store.
If Amazon offers the product on their site, they want to win the buy box about 97% of the time. That’s their goal, all things being equal. That leaves a small percentage of sales to the 3P’s. Not much right? And of course, Amazon retains the customer information regardless of who is the seller, and typically earn about 20% in seller fees and FBA charges.
So brands beware: Amazon will continue to be an amazing platform but if your strategic plan is not in place prior to posting your products… well, you might become a really great client for me. 🙂
To get the comprehensive “7 Steps to Preparing Your Business for Amazon”, click here.