The 3 Questions Every Amazon Seller Should Ask
The fourth annual Prime Day is in the books. It was a 36-hour frenzy and Amazon.com, yet again, topped sales records and units sold. While millions of consumers were buzzing about the 300,000 Instant Pots and 150,000 LifeStraw Water Filters sold, few were thinking about the logistical gymnastics sellers go through so Amazon can deliver what customers want, when they want it.
Amazon’s booming network of third-party sellers generated nearly $40 billion last year. Amazon offers a compelling opportunity for many businesses: sell through its marketplace, reach a larger customer base, and depend on its fulfillment network for fast, affordable and reliable delivery. It removes a lot of the complications of being a retailer. Whether your company is selling through Amazon or is considering it, there are three important questions you must ask yourself.
1. How important is controlling my brand experience?
Customers’ delivery experiences start before and extend beyond when a package arrives. Consider the packaging. Seventy-six percent of consumers say that packaging helps brands build trust by using high-quality materials. However, if you sell through Amazon, there’s no control over how products are packaged and presented to customers. Though Amazon offers high-quality packaging and a reliable delivery experience, it’s still in the Amazon box instead of your unique branding.
But how much does packaging and delivery experience really matter? Given 65 percent of consumers have tried something new because of the packaging, it’s certainly an opportunity to stand out, build customer relationships, and strengthen their shopping experience. Furthermore, the rise of influencer unboxing videos, new in-box advertisements, and demands for eco-friendly and sustainable shipping materials demonstrate that shoppers are paying attention to every detail.
2. What’s my Inventory Performance Index score?
Amazon Prime radically changed the e-commerce delivery standard — free, two-day delivery almost anywhere in the country. To uphold that promise, Amazon must continue to refine the operational efficiency of its fulfillment centers. Enter Amazon’s Inventory Performance Index (IPI).
Amazon’s IPI is a new tool to measure Fulfillment by Amazon (FBA) seller efficiency based on excess inventory, sell-through rate, stranded inventory, and in-stock rate. Sellers with low scores get dinged with higher storage costs and/or limits to the amount of inventory they can have in a facility. To avoid these penalties, sellers have to pay close attention to their overall efficiency.
Unfortunately, precise inventory management practices are not easily perfected, especially for newer companies with variable forecasting and inconsistent sales peaks, as well as those that are shipping to Amazon fulfillment centers from long distances. For some, Amazon’s increasing fees and tightening inventory regulations are manageable, but for others, a poor IPI score places significant pressure on their supply chain and profit margin.
3. Do I want to give Amazon my product and customer data?
No matter how you sell through and/or to Amazon (FBA, wholesale fulfillment, multichannel fulfillment), you’re inevitably giving the e-commerce giant a sneak peek into your customers’ purchasing behaviors.
Sharing customer data is particularly concerning when you consider the growing number of Amazon private-label brands. The above image depicts just a handful of Amazon’s 80-plus private-label brands that promote competing products alongside sellers’ products. It’s no wonder that sellers’ top concern is competing with Amazon on its own marketplace, and they're beginning to rethink how to protect their valuable customer data.
Amazon’s reach is undeniable — it captures nearly half of all e-commerce spend. Yet control over brand experience, storage fees, tightening regulations and protecting proprietary customer data are just a few of the reasons sellers may want to weigh their logistics options. If Amazon has taught us anything about consumer expectations, it’s that “the how” is just as important as “the what” — the product, the delivery promise, and the ability to follow through. With another Prime Day behind us and Q4 sales peak on the horizon, it’s critical to consider the opportunities and challenges associated with selling on Amazon.
Karl Siebrecht is CEO and Co-Founder of FLEXE, an on-demand warehousing and fulfillment company.