Though the dog days of summer are here, retailers know the holidays are fast approaching. And if you’re in retail, no holiday plan is complete without considering your strategy for selling on Amazon this season.
Defining The Benefits
When talking to retailers, I usually take a moment to ask what they expect to get out of selling on Amazon — not in terms of dollars and cents, or even order volume, but in terms of what business need they think it fills. It’s interesting how often retailers tell me they’re selling on Amazon to acquire customers.
Amazon is an incredibly strong channel, but it is not a good vehicle for customer acquisition for retailers. It is, however, a great place to pick up some additional revenue, help turn over product, and grow the bottom line (especially in the holiday season).
For brands, it’s quite the opposite. Amazon is a legitimate way to find new customers. However, brands face their own unique dangers selling on Amazon, including (but not limited to) potentially weakening the retail price of their products. Brands should look to Amazon for its incredible reach, but approach with caution.
Before determining how you’re going to sell on Amazon, you must take time to decide if it’s really the best fit for your business. But once you know that Amazon will play a part in your sales strategy, there are many more factors to consider.
Is FBA On The Table?
Fulfillment by Amazon (or “FBA”) is a game changer; it can drastically alter your entire Amazon strategy so it’s important to consider whether or not you plan to use FBA before thinking about any other pieces of the puzzle.
There are two ways to approach fulfillment by Amazon:
Stickered Inventory. You apply pre-printed stickers to inventory you ship to Amazon. They receive and store your product, to be picked at a later date.
Stickerless Inventory. Your product (if eligible) is sent to the appropriate FBA fulfillment center without a sticker. Amazon then places your product in a pooled inventory with other merchants selling the same product via FBA. When an order is placed, Amazon picks any of the products in the pooled inventory to fulfill the order. If you are the merchant that sold the inventory, your quantity on hand is reduced by one.
With stickerless inventory, you can find yourself selling product that someone else actually sent to Amazon’s fulfillment center. There are plenty of cases of fraudulent generics being passed off as the brand name equivalent, used or damaged products being sold as new, and several other problems that can arise from using this option. If you go the route of stickerless inventory, be aware of the potential complications.
However, that said, there are some upsides to going with stickerless inventory.
Commingled Inventory. Your commingled inventory has a deeper integration with Amazon’s fulfillment centers. As the inventory is treated as one unit, instead of as your dedicated inventory. This means potentially getting the product to the customer faster.
Labeling. Eliminate the need for labeling. This is pretty straightforward; no labels means no time spent affixing these to your shipments.
Whether you’re sending inventory with stickers or not, the decision to use FBA usually boils down to one main consideration: sales tax.
When retailers send products to Amazon for fulfillment, they are responsible for abiding by laws in the state where the fulfillment center is located. In some cases, this makes a retailer responsible for collecting sales tax. Merchants aren’t able to choose which fulfillment center their goods are shipped to, so they must find out where each particular product will wind up and then determine if they’re on the hook for sales tax.
For merchants that do a lot of online sales without Amazon — and don’t already charge sales tax — FBA can be more trouble than it’s worth. But if FBA fits nicely into your business model, it can be an incredible boost to your sales on Amazon.
Winning The Buy Box
When it comes to selling on Amazon, “winning the buy box” is the name of the game. Amazon does its best to group all the merchants selling one product on the same ASIN (Amazon’s unique product ID). Being the default merchant to supply a product when a customer hits the buy button is called “winning the buy box.”
Because most customers won’t riffle through multiple merchants to find one they would most like to buy from, winning the buy box means that merchant receives the lion’s share of orders on that particular product. Amazon makes customer service a priority, and that holds true for choosing a default merchant for their shoppers.
You can read Amazon’s official explanation of how the buy box works, but here’s a summary of the major factors that go into winning the buy box:
Seller Reputation. Amazon maintains four feedback periods for a merchant: 30 days, 90 days, 365 days, and a lifetime feedback rating. Maintaining a high rating is critical in winning the buy box. (Amazon explains how your Seller Rating is calculated here.)
Shipping Settings. Both shipping price and total delivery time factor in to the equation. If you’re not hitting your projected delivery dates, your rating will suffer. Likewise, if you’re taking too long to ship an item, your rating will suffer.
Total Price. This includes the item’s price plus shipping costs. On Amazon, you should offer free shipping and build the cost of shipping into your product whenever possible.
Prime Eligibility. A merchant that is Prime eligible — meaning it will give Prime members special treatment — is favored over a merchant that is not. Amazon doesn’t disclose to what extent Prime eligibility trumps things like price, but from my experience, it does cover a good deal of other sins.
Competing With Amazon.com. If Amazon sells an item itself, it’s not likely you (or another merchant) will ever win the buy box. While Amazon says it won’t default to its own product if the price difference is too great, Amazon is known to match prices — even in cases when the item becomes non-profitable. The long and short of it is, you don’t want to be involved in items Amazon itself is fulfilling, unless you’re waiting for them to stock out.
Merchandising Strategy
We established earlier that selling on Amazon is a means of generating new revenue (presumably profits) — and not a vehicle for customer acquisition — for retailers. Since this is the case, it should go without saying that merchants need to focus on products that maintain their margins.
We’ve heard it before, and Amazon is no different: in a price war, nobody wins. Instead of trying to concoct how you can win price wars on Amazon, I would suggest investing your time in finding products that help you avoid them entirely.
Here are my tips for finding good, relatively high-margin products to sell:
Favor Brands That Enforce Minimum Advertised Prices (MAPs). Some brands are very good about making sure merchants aren’t unloading their product 40% below MSRP. Some are not. When brands lose control over their minimum price, it’s very likely a price war is just around the corner — especially if they have decent demand on Amazon.
Focus On Brands With A Limited Number Of Resellers. Brands that have a strict approval process for becoming a licensed reseller are the dream here. However, many of them will also have restrictions about selling on places like Amazon.
Don’t Expect Late-Lifecycle Products To Maintain Margin. If a product has been on the market for a long time, chances are someone has some inventory they’re going to liquidate, and they aren’t worried about MSRPs. The caveat, of course, is that it’s harder to predict the performance of newer products than it is of products that are tried and true. My suggestion is to avoid stocking up on products late in their lifecycle for purposes of selling on Amazon.
Review Last Year’s Performance
The brands that protected margin last year are likely to do it again this year. The brands that let their price slip last year are probably going to again this year (barring big changes).
The same goes for your competition. Where were competitors irrationally aggressive? Where was their opportunity? What holes in your armor can you address before the bulk of consumers start shopping for the holidays?
A little known trick to doing Amazon research is go to camelcamelcamel.com and enter the URL. They’ll show you the price charted over a period of time, complete with the lowest and highest price. You can also set price alerts for important products.
[CLICK TO ENLARGE] The Monopoly board game sold for as low as $4.95 during the holidays, over 70% off MSRP.
Finally, Track Your Performance
You would think it goes without saying. Yet it’s incredibly common for merchants to know their overall sales on Amazon, but not what’s driving them.
Here are my favorite Amazon KPIs. I look at each of these on a product-by-product basis:
Buy Box Win Rate. For each product, how frequently are you winning the buy box? Is it up or down this week?
Lost Impressions. A buy box win rate doesn’t illustrate how much visibility is actually lost when you don’t win, but checking your lost impressions does. Together, they give you a great picture of the product’s visibility as well as its potential.
Product Sales. It may sound like a given — but again, you’d be surprised….
Download the data from Amazon every week and trend it.
First, sort your products by top sellers last week; did any of them start to trend downward on your buy box win rate? That would foreshadow lower sales and competitor aggression.
Are there products you’re constantly losing the buy box on and have a high number of lost impressions? Sometimes small adjustments can get you big wins if you focus on products with high visibility.
If you know the ingredients that go into winning the buy box and know where you’re losing the most visibility, you’ve got a nice list of action items for the week. This is a great way to approach Amazon sales on a weekly basis during the holiday rush.
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