Spoiler Alert: It’s Probably You, Small Retailer
Amazon’s dominance in the marketplace has forced many retailers into a “If you can’t beat them, join them” position. Selling products via Amazon’s marketplace in addition to a retailer’s own eCommerce site and physical location affords greatly expanded reach.
55% of shoppers begin their product searches on Amazon – if you’re not there, customers can’t buy from you. But this access comes with a price: Amazon charges third party sellers fairly significant fees. Now a new policy may make the cost of doing business on Amazon even greater.
Discount Provider By Amazon: How It Works
Internet Retailer report that in a new program called “Discount Provided by Amazon”, Amazon is slashing prices on sellers’ products and covering the difference between the discount and listing price. This means these savings happen without the seller taking an immediate financial hit, but there may very well be other costs associated with the discount provided by Amazon program.
Minimum Authorized Price? Not So Much, Anymore
Many brands choose to sell to the public directly through Amazon, as well as making their products available via partner retailers. There is a long standing tradition in the retail world that brands will set and adhere to a Minimum Authorized Price to avoid the appearance that the brand is unfairly competing with its partner retailers. Additionally, MAP agreements prevent any partner retailers from discounting items more than anyone else can; it’s an effort to maintain a level playing field.
Amazon has launched the Discount Provided by Amazon program without providing sellers with notice. Sellers can opt out, of course, but it is a process the seller has to initiate. This can result in brands or partner retailers finding themselves in violation of the Minimum Authorized Price policies they’d agreed to abide by, which can be problematic.
Will Discount Provided By Amazon Impact Your Margins?
We all know that Amazon influences prices. Sellers who may have strictly maintained a certain price point to preserve brand equity and profitability may encounter pressure from other retail outlets who want to price match what Amazon’s offering – without anteing up the discount amount the way Amazon does. This means a decrease in the seller’s profitability, and it could have a negative impact on brand equity: customers’ valuation of a product can be swayed by the fact that the price has dropped.
Going Forward: Maintaining Awareness is Key
The relationship between Amazon and its sellers is very unequal. If you’re using Amazon as a sales channel, there are elements of the process you’re just not going to have any control over. However, you can make sure you maintain the most advantageous position for your business by maintaining awareness of Amazon’s changing terms and conditions, opting in and out of features like Discount Provided by Amazon based on your business needs. We’ll be doing our best to help keep you posted!