Amazon is now one of the top 10 retailers in America, joining the likes of Lowes, Safeway, and Walmart as a top destination for consumer purchases. It’s growing much faster than any other company in the top 10 at 27.2% yearly growth, so you can expect it to climb several places in the coming years.
One of the main pillars on which Amazon’s success has been built is low prices. In addition to Amazon’s willingness to sell products at razor-thin margins from their own inventory, there is strong pressure on third-party marketplace sellers to offer low prices because of the buy box. Amazon combines all of the offers for a product on a single page and uses one offer as the default offer (that’s the buy box).
The Hidden Danger of the Buy Box
If you are a product company that sells through Amazon’s third-party marketplace, winning the buy box is critical for generating sales, but offering a lower price on Amazon than your retailers will cause major conflict. Even if you offer a similar price to your retailers, you’ll still be left with a problem if third parties continue to offer your product for less. Winning the buy box for a product company should be defined as any time your offer is the default offer on Amazon without undercutting your retail partners’ prices. Removing third party sellers or forcing them to comply with pricing guidelines is the only way to win the buy box 100% of the time and support your retailers.
The Goal is Control
There are other articles that go into great detail on the buy box algorithm so I won’t list every detail here but the main factors are price, fulfillment options, and seller ratings (here is Amazon’s article). For a product with several offers, you typically need to use Amazon’s fulfillment service (Fulfillment by Amazon), have a near-perfect seller rating, and offer the lowest price. If you have a 99% seller rating, utilize FBA and beat the next lowest price by 2-3%, you’ll be in the buy box close to 100% of the time.
It may take some time to achieve those guidelines but that’s pretty simple, right? Once your retail partners notice your pricing on Amazon it will become difficult very quickly. Your retailers will either force you to raise your price on Amazon and lose the buy box or demand lower wholesale prices, which will cost you much more money in the long-run. The only solution is to start removing other sellers who list your products.
Seller Cleanup is About Distribution
The first step to removing third-party sellers is to revise your wholesale processes. Anyone with inventory of your products can cause a major problem with your retailers so you must only sell inventory to companies who agree to adhere to pricing guidelines. Ideally, they will also sign an enforceable contract that states the minimum advertised price (MAP) for your products and prohibits resale through any channels beside pre-approved retail outlets.
For instance, if you sell 10,000 units of gloves to REI, REI must agree to sell them for at least $45 per pair. Additionally, REI may only sell the product from their retail stores and on REI.com. Any other outlet must be approved before they are offered there.
Implementing agreements like this with every company who purchases inventory will cut off much of the uncontrolled inventory that finds its way to Amazon. Many third-party sellers will disappear as they run out of stock.
How to Remove Third-Party Sellers
If some sellers continue to acquire inventory and list it on Amazon your distribution system has a leak. Now it’s time to begin enforcing your distribution agreements.
There are three basic situations with third-party sellers.
- I sold inventory to them
- A known distributor (or retailer who is reselling) sold inventory to them
- I don’t know where they are acquiring inventory
In situation one you can stop fulfilling purchase orders to this organization. For situation two, inform the distributor of the violation and require them to halt supply to this seller. Situation three will require some research.
The lowest-effort method of removing a mystery seller from Amazon is to tell them to stop. You won’t discover how they are acquiring inventory, which may be more important, but try sending them a forceful letter through their Amazon customer service form. Find the seller’s detailed seller information page and click on the link to contact customer service.
If the seller does not respond to your request or you want to discover how the seller acquired your inventory, you will need to purchase a unit from them. If inventory is available through both a merchant-fulfilled source and FBA, purchase a merchant-fulfilled unit. Here is all the data you can glean:
- Serial number or Lot number: Do you track these when you sell inventory? If you do, this provides a definitive link to your distribution system. You can use it to contact the offending party or tighten up your internal processes.
- Address: If the unit was fulfilled by the manufacturer, you now have the address of their fulfillment center. Did you ship any units to this address? Can you do some internet research on the address to find out more about the organization? Pro tip: if the seller only uses FBA for your product, check their Amazon profile to see if they self-fulfill any other product. Purchasing another product will get you their address just as easily.
- Packaging: Is this unit’s packaging unique to a specific channel?
- Counterfeit: Is this an official unit produced by your manufacturer? If it’s counterfeit, you can report it to Amazon.
If this amount of information isn’t enough to determine how they acquired inventory, you need to revisit your distribution system to ensure that you capture enough data to track down leaks. Consider adding a serial number to all units and tracking who has each serial number. Also consider adding a unique packaging element to each sales channel such as a sticker or small insert in the packaging. Anything that allows you to track the unit to its source will do the trick.
I’ll Go Straight to Amazon!
Lastly, let me save you some time. Amazon will not remove third-party sellers or enforce a price for all sellers. Any company in possession of product has a right to sell it and Amazon enjoys a big advantage by encouraging low prices. A trademark infringement lawsuit is possibly an option but I haven’t seen any successful examples, and while the tactics I’m suggesting can be expensive, they are probably cheaper and faster than a lawsuit.
Is It Really Worth the Effort?
Is it really worth all the cost of adjusting distribution strategy, changing packaging, and monitoring third-party sellers just to maintain price on Amazon? If your retail relationships are important, the answer is yes. An issue that starts on Amazon will begin to affect a much larger portion of your business. It’s a classic case of the tail wagging the dog. The only way to establish healthy, long-term relationships with retailers and maintain sustainable margins for your own business is to maintain control over distribution and monitor sales channels like Amazon for infringements. If you don’t make a plan to win the buy box 100% of the time, you’ll be dousing some pretty large fires.
Nathan Grimm is Director of Product and Marketing at DNA Response.