Amazon News Roundup, Volume 16 – Sold by Amazon
Before I was an Amazon seller, I sold cars.
Most car salespeople earn commissions on the front-end gross profit of a vehicle. That means if you sell a car for $30,000 and the dealership owns it for $25,000, you make a percentage of the $5,000 (customarily 10%-20%).
This might sound attractive to you. After all, who wouldn’t want to earn $1,000 for a day’s worth of work?
Trouble is, it’s pretty rare that a sold car ever sells for $5,000 in gross profit. More often than not, the car sells for less than what the dealership owns it for. Where the dealership ends up earning a profit is in the back end of the car sale. The backend gross comes from warranties, rate-holding, GAP insurance, etc. In the end, the salesperson only earns what’s known as a “mini”, or minimum commission. Typically, this is only $100.
So while $1,000 for a day’s worth of work might sound attractive, only $100 kinda stinks.
In a nutshell, this could be what Amazon is trying to do with its Sold-by-Amazon program.
What is Sold-by-Amazon?
Sold-by-Amazon is a new program that allows current Amazon FBA sellers to submit products to Amazon that Amazon prices for them.
To enter the program, sellers must already be enrolled in Fulfilled by Amazon, have a professional selling account, and have their products within Amazon’s Brand Registry.
There is no additional cost for entering the Sold-by-Amazon program. With SBA, Amazon also exerts control over the product’s sale price, by dynamically pricing products to make sure Amazon’s prices are lowest. In exchange, sellers earn a minimum payout.
According to Modern Retail:
This is framed to sellers as a competitive advantage. Since only brands in Amazon’s Brand Registry can apply for [Sold-by-Amazon], the pitch is that SBA will guarantee that the brands themselves won’t be priced out of ownership of Amazon’s buy box by other gray market sellers that focus on undermining retail prices.
The buy box all but ensures the product listing on Amazon that will get sold over competitors, and sellers “win” the buy box by offering the lowest price.
Sold-by-Amazon: Is this a bad thing?
In theory, the Sold-by-Amazon program sounds great. “Find us the products, and we’ll take care of the pricing for you.” Amazon has effectively deleted competition by taking the wheel on price.
“Amazon is the largest retail data repository in the world, so they’re going to know exactly what the price should be [for a product]. They can play with it and they can move product at the quickest rate of sale,” said Chris McIntire, the founder of Batty Fang, a digital marketplace consultancy that works with brands on Amazon strategy. “But Amazon is smart and they know when your — for lack of a better word, addiction — to Amazon increases. Once Amazon is 20% of your business, it starts to claw back that profitability.”
Sold-by-Amazon: make sure you read the fine print
The scariest part of this program — beyond Amazon taking total control of your brand — is that Amazon’s minimum gross proceed (MGP) is not a fixed number. In its FAQ regarding Sold-by-Amazon, Amazon wrote that the MGP can be “revisited once every six months.”
Sure, Amazon may offer up a minimum-gross proceed of $1.00 or $2.00 per unit starting out. But what’s to stop them six or twelve months down the road renegotiating that amount to $0.50 or less? Once you rely on their SBA system, it’s hard to go back.
Sold-by-Amazon: what are Amazon sellers saying?
Once the news of the Sold-by-Amazon program hit, we turned to our Facebook group, Amazon FBA Competitive Edge, to see what other Amazon FBA sellers thought. And the knee-jerk reaction of our sellers was mostly negative:
“‘Slaughtered or sheared, what will it be?’ said the shepherd to the lambs.” – Michael D.
“Sounds like a test before becoming mandatory.” – Norman C.
“This is where Amazon [screws] everyone.” – Russell Morgan
“Subsidizing losses on items with the profit they make on Prime memberships. All this is doing is giving Amazon more control to try and take over brands that either never gave in or have recently pulled out of 1P selling to Amazon because they got sick of the BS and Amazon just doing whatever they wanted.” – Rob N.
Sold-by-Amazon: there is a scary precedent for this
Jess G, a conversation starter and experienced seller agent in the ACE group, had some experience with Amazon’s aggressive attitude towards its sellers. “I agree with the doom and gloom outlook for [Sold-by-Amazon], unfortunately,” Jesse told us on Amazon FBA Competitive Edge. “When I handled the Amazon account for a vendor, [Amazon was] always leaning on us to give them better pricing so they could lower the price of the item, meaning less money for us, not them. We would periodically get a notice that they determined our price was not competitive enough, so they paused advertising on an item, when in fact we were very competitively priced in the market. The next week, the item would show up in advertising and be selling again. I always thought it was just their way to try to scare us into lowering prices.”
Jesse continued, “Despite the large orders we would get from Amazon each month, we definitely got to a point where we had second thoughts about the vendor relationship because they had so much control over our success.”
Sold-by-Amazon: is Amazon playing the role of a dirty car sales manager?
One time I sold a car for a few grand over sticker price. The sale was going to make me a pretty good commission, and the customer thought the whole deal was totally fair. When payday came around, I got my commission sheet and noticed right away that something changed. The car deal went from making $3,000 on the front end to losing $500. Meanwhile, the deal earned $2,000 on the backend, still making money for the dealership. What happened?
Turns out that the finance manager, in order to sell the backend products that only he would earn a commission on, changed my deal. The finance manager couldn’t get the deal bought by a bank with both the front end gross and back end gross present. So in order to ensure his own commission, he reduced the front end gross and paid himself. I got a mini.
Is this what Amazon will do with Sold-by-Amazon? Hard to say. But as some sellers have mentioned, Amazon may subsidize its overall losses to ensure that their backend product — Amazon Prime — continues to bring them profit.
I should note I left the car business for this type of manipulation four years ago. And what did I do?
I left to become an Amazon seller.
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Amazon FBA seller news this week
Need to know for Amazon FBA Sellers
- Amazon quietly debuts a new program for donating leftover products instead of destroying them- Business Insider
- 4 Reasons Amazon Ads Are Better For E-Commerce Than Facebook – My San Antonio
- These senators want Jeff Bezos to explain what Amazon’s Choice is – Buzz Feed News
Also of interest:
- Video captures Amazon delivery driver taking girl’s bike, riding away – Wesh.com
- California lawsuit says Amazon should pay billions in back taxes – Forbes
- Amazon opens 4-star store at Seattle headquarters as online giant grows physical shopping presence – Seattle Times
Anything we missed?
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