Take Advantage of Consumer Demand on Amazon Without Losing Control, Part 2
In part one of this two-part series, I shared the two main options for selling to or on Amazon.com, as well as walked readers through the benefits of Seller Fulfilled Prime and the steps to make it happen. Critical to all of these decisions and paths is an understanding of Amazon’s dominance. As a reminder, Amazon’s U.S. e-commerce sales are expected to reach $258 billion this year, up nearly 30 percent from a year ago. Selling to Amazon or on its marketplace are appealing avenues to pursue, but to be successful you need to consider the following:
Amazon Seller Fees Continue to Climb
Last year, Amazon raised its third-party seller fees in a number of categories, including apparel, accessories, sunglasses and handbags. Fulfillment by Amazon (more on this later) fees were also increased for nearly all size categories, mainly targeting large and heavy items. These significant and seemingly abrupt changes underlined an undeniable truth: Amazon has great power in the marketplace and brands have limited control over what might come next.
As Amazon continues to gain popularity with consumers and win market share, it’s likely that other categories will suffer a similar margin-dropping fate. To maintain their margins, many brand manufacturers are now pursuing multichannel selling strategies.
Amazon Continues to Gain Leverage Over Brands
Regardless of how brands are choosing to sell on Amazon, the e-commerce titan continues to exert its control and the disparity seems to be growing. For example, brands pursuing 1P have no control over product pricing. In exchange for attractive bulk purchase orders by Amazon, brands must essentially wave goodbye to their minimum advertised price (MAP) policy. Perhaps most alarming is the compounding leverage and profits Amazon gains as a result of the wholesale relationship. One of the best ways to fight those losses is to pursue a hybrid Amazon selling strategy.
Amazon is Emerging as a Manufacturer
Nowhere is Amazon’s disruption to brands clearer than in its pursuit of manufacturing in-house. From private-label clothing lines to housewares, Amazon is selling more and more products across categories. Directly competing with marketplace sellers, Amazon’s strategy is clear: identify top-selling products, then manufacture and sell their own. This approach is shifting Amazon’s relationship with brands from harmonious ally to competitive rival.
Thanks to new technology and quickly shifting consumer preferences, today’s brands are facing massive disruption and profit pressures. As Amazon’s power grows, brands are losing control of the channel and need a viable solution. So how do you leverage the enormous reach and traffic of Amazon, while also building a direct-to-consumer channel? E-commerce is complex and constantly changing. A strategic partner can help manage the complexities of Amazon as well as help you build and execute a strategy for long-term success.
Craig Haynor is the vice president of account management and operations at Ally Commerce. Ally partners with brand manufacturers to drive their direct-to-consumer business, combining e-commerce expertise, technology and operational services.
Craig Haynor is the vice president of account management and operations at Ally Commerce, a provider of direct to consumer e-commerce as a service. Ally partners with brand manufacturers to drive their direct to consumer business, combining eCommerce expertise, technology and operational services.