16 ms·

Amazon wants to control third-party sellers’ product pricing

242 points by ilamont 7y ago

jakelazaroff 7y ago
> With SBA, Amazon also exerts control over the product’s sale price, by dynamically pricing products to make sure Amazon’s prices are lowest. > Since only brands in Amazon’s Brand Registry can apply for SBA, 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. > To ward off concerns over margins, Amazon is offering SBA sellers a minimum gross proceed — which guarantees set profit for sellers based on a set selling price, even if Amazon lowers the price — for each product. The catch: Amazon wrote in its FAQ about SBA that MGP would be revisited “typically once every six months,” and that brands would have seven days to accept the new MGP, or reject it and deactivate a product from SBA. So basically, Amazon always promotes the cheapest products, and they'll automatically lower your product's price to make it cheaper than the knockoffs. You get a guaranteed profit no matter the price, but that can also lower every six months. This strikes me as a bad deal for sellers.
- prklmn 7y ago
  It’s not only knockoffs. A friend of mine works in CPG and their company’s biggest problem with sales through amazon is that they sell at a loss to compete with grey market sellers who are selling stolen at a much reduced price.
  - dpark 7y ago
    You cannot “compete” by selling at a loss, unless you’re competing for the first spot at bankruptcy court. Whenever I hear about someone selling at a loss, I automatically assume that either they’re buying market share as a long bet (e.g. typical new gaming console) or more commonly misrepresenting the actual economics (e.g. car dealers neglecting to mention all the rebates they get off their supposed price).
    - unreal37 7y ago
      There are going to be times (a few days or weeks) where sellers think they can "outlast" the competition in a price war. You're basically betting that the other guy doesn't have the stamina to survive at this price. Of course, if what the OP says is true, if the other seller has a much lower price point than you do, you can't outlast them. They could still be making a profit at $20 while you're losing $5 per unit trying to push them out.
    - kd5bjo 7y ago
      The other common case (not applicable here) is a loss leader: sell something at a loss in the hope that the customers it attracts will buy high-margin items at your store instead of the one they usually frequent.
      - deleted 7y ago
        [deleted]
    - prklmn 7y ago
      Think about inventory holding costs. Not only do you have capital tied up in that product in the warehouse, but you also have the opportunity cost of not being able to stock something else to sell. And to your car dealership point - the way it works for GM at least is that GM sets sales goals for their dealers. Dealer X's monthly sales target is 75 vehicles. They will happily sell lets say vehicles 73, 74, and 75 on August 31st to get their $20k bonus for the month of August. They might not be misrepresenting their supposed price like you think. Also, the same concept of inventory holding costs applies really well for car dealers. It's purely an inventory turnover business. If your lot is full of fusions and you can sell 2 f150s in the time that you can sell 1 fusion at similar profit, you're going to want to get those fusions off the lot potentially at a loss so you can sell more f150s.
  - plink 7y ago
    This reminds me of a time I needed a blower fan for my refrigerator and Amazon’s recommended one for next day delivery seemed suspiciously underpriced. I ordered it despite my trepidation that the item was going to be made out of silly putty by a Chinese pirate. Upon receipt, I discovered the serial number was filed off and I rested assured that it was a quality OEM but probably stolen. The motor is still working great which is more than one can say for Amazon.
    - vageli 7y ago
      > This reminds me of a time I needed a blower fan for my refrigerator and Amazon’s recommended one for next day delivery seemed suspiciously underpriced. I ordered it despite my trepidation that the item was going to be made out of silly putty by a Chinese pirate. Upon receipt, I discovered the serial number was filed off and I rested assured that it was a quality OEM but probably stolen. The motor is still working great which is more than one can say for Amazon. Did you notify Amazon or any authorities about this? Would be curious to hear the response.
      - plink 7y ago
        I didn't. My sense of disgust and disillusion was heightened by the fact that it was an Amazon recommended product. Of late, I am more and more spare about shouting into the wind.
  - zeroego 7y ago
    I work at a CPG and another issue we have to deal with is an individual having an "in" at a distributor and being able to purchase our products at rock bottom prices. We can usually track these people down, but they can really throw a wrench into an ASINs profitability for a while.
    - ummonk 7y ago
      How does this work? By "our products" you mean products your company produces, right? Are you sending the products to the distributor at a price that is too low to make a profit? Why does it matter to you whether they products are bought directly from you on Amazon or through one of your distributors and resold on Amazon by a third party?
      - zeroego 7y ago
        There's a couple reasons it matters. Unauthorized third parties rarely care about representing our brand correctly. When a consumer has a problem with a product they received the first person they blame is the brand, not realizing they bought it from a completely separate entity. The product breaking during shipment, the customer buying at a price just to go back and check days later and see a lower price, the product being expired...All of these things are outside of our control, yet as a brand we take the blame. In my particular case, there is an "anti-FBA" culture at the company I work for. No one can sell our product for as cheap as we can because we make it. However, without access to FBA, it's much more difficult to have complete control over your pricing on amazon. With complete control over pricing you can ensure that your margins will be better than whatever distributor pricing is. Also the competitiveness of our products on the platform against other brands is directly affected by how much the seller (either us or an unauth)can afford to sell the product to the consumer. If a competing brand sells the same thing for cheaper, they will get more sales and thus more market share. I say "my particular case" but in reality I know of several CPG companies where the anti-FBA culture exists, even though it is the most advantageous approach to selling on amazon with regards to pricing. I wrote this kind of fast so I hope it all makes sense.
- vorpalhex 7y ago
  For an opt-in program, how is that a bad deal? Either being the lowest price seller isn't worth it (and so you don't care to opt in) or it is, and you spend a lot of effort to constantly deal with price fluctuations (at which point you want to opt in and get covered by the minimum profit limit..)
- nkrisc 7y ago
  Sounds this solution only exists because Amazon allows itself to be flooded with knockoffs in the first place. Funny how that works.
  - newguy1234 7y ago
    Amazon is paying dearly for that which is why amazon is getting so strict on sellers these days. Also the overall shopping experience on amazon is going to hell. Just look up something like a USB battery pack. You'll see dozens if not hundreds of dubious weird sounding packs for sale. I'm convinced that half of them don't even hold the amount of energy they claim to hold.
    - nkrisc 7y ago
      That's absolutely been my experience as well. I used to shop a lot on Amazon around 2007. I've seen the decline firsthand. These days I treat it like a (somewhat) American Alibaba when I'm looking for cheap stuff where the idea of "knockoff" almost doesn't even really apply. Last thing I bought was some connector pins and what I expect to be harbor freight quality crimping pliers. If I'm spending serious money, it's not going to be with Amazon.
- hammock 7y ago
  It's literally what every mass retailer does. CVS, Walmart, etc will use their power to decide your shelfspace/merchandising, combined with private label products and a pipeline of new branded products in your category (e.g. ever wonder why so many new jerky brands pop up and disappear overnight?), to put downward price pressure on you until your margins are razor-thin. This isn't that different. Anyone who has worked in/adjacent to retail understands how cutthroat the industry can be. Retailers also force suppliers to buy advertising in their owned media channels (e.g. in-store and online) as another way to squeeze them. Amazon is doing/will do the same.
  - mooreds 7y ago
    > ...put downward price pressure on you until your margins are razor-thin And consumers benefit. This is the power and peril of the free market. Everyone loves competition as a consumer and hates it as a seller. I include folks that sell labor aka employees.
    - pytester 7y ago
      I don't feel like I benefit from a new brand of jerky brand with razor thin profit margins every week. It makes me wonder about what kind of crap is in the jerky, in fact. Consumers might benefit if mass retailer accumulates liability when it does this but the mass retailer shoves it right on to the party with the razor thin margins.
      - SpicyLemonZest 7y ago
        There are plenty of retailers that go out of their way to fight against the race to the bottom, charging a bit more and taking a bit more care to ensure they only stock good stuff. Amazon even owns one such store, Whole Foods. If other people would prefer to buy dirt-cheap jerky from whoever can offer the lowest price this week, I don't see why it's bad to have stores catering to them too.
        jcoffland 7y ago
- pravda 7y ago
  > This strikes me as a bad deal for sellers. ...but a good deal for buyers!
- femto113 7y ago
  It's common for people outside of retail to focus on margins and ignore turns/sales velocity when considering retail issues, but it misses a lot of the reasoning. Obviously consistently making a loss on a product is a bad idea, but making $1 per sale and selling one per day produces more income than making $5 per sale and selling once per week. On Amazon if you don't "win the buy box" your stuff doesn't sell, or doesn't sell as frequently. What Amazon is trying to do for sellers is ensure that doesn't happen to them, and ultimately is likely to increase their income even if it reduces their margins. Fixing a minimum margin for six months actually seems quite reasonable to me, it gives sellers a chance to make inventory plans on a practical time scale while also ensuring that Amazon doesn't have to absorb any losses indefinitely.
swamp40 7y ago
Great quote: “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.”
- delfinom 7y ago
  But Walmart does the exact same thing to their suppliers. They attract suppliers with dangling sales numbers in front of them. Next year they demand the suppliers bill of materials and tell them the exact price they are going to pay and not their problem if they can't meet it.
  - naravara 7y ago
    If you want a benchmark for "ethical and well liked company that is not chronically plagued by anti-trust concerns" Walmart probably shouldn't be your reference point.
    - dsfyu404ed 7y ago
      Walmart is well liked by the people who shop there.
      - RankingMember 7y ago
        One data point: I have to shop there sometimes and it is the opposite of well-liked. It's a last resort. The employees are miserable, the shelves are disorganized (trash, items in wrong places, just a mess), and the customers are impatient and angry. They do have self-checkout at least now which helps a bit with my biggest complaint (the checkout lines taking forever), but definitely not a place I'd call "well liked". My above criticisms apply uniformly to the 3 Walmarts in my area.
        dsfyu404ed 7y ago
        Do you live somewhere decently upscale? Walmart in upscale areas tends (in my unscientific observation, n = approx 10) to be full of people who are working there and shopping there as a last resort and it shows.
reroute1 7y ago
Less slippery if they keep both a user rating and an Amazon rating.
sct202 7y ago
So basically you have to manage your own inventory for Amazon, pay Amazon for fulfillment of orders of your product, pay Amazon for storage of your product, and also let Amazon control the pricing to get preference on the buy box. I can see that there may be advantages, but it seems like an awful lot of the burden is shifted to the vendor. Edit: On second thought, if Amazon has dynamic control of the pricing it may be difficult for the vendors to accurately forecast and stay in-stock.
- unreal37 7y ago
  Don't forget, if you're successful, Amazon will create their own version of your product as "Amazon Basics" and you lose.
  - jwin742 7y ago
    Many amazon basics products are just white labeled products. Amazon isn't actually spinning up assembly lines
    - swagasaurus-rex 7y ago
      No but Chinese companies will be happy to spin up assembly lines making a product identical to yours and undercut your product, while Amazon slaps on the 'Basic' brand and pushes it to the top of the rankings.
      - dbuder 7y ago
        They totally have relationships with multiple tier 1 manufacturers and have teams pouring over data to pick products to undercut. I hate it when people say this, but I don't know why you've been downvoted.
- newguy1234 7y ago
  Yup, sellers need to look very carefully before they decide to sell with amazon. I used to sell on that platform but pulled out. At the end, I wasn't even making money on my sales after fees, shipping etc. Also amazon shoppers are overly picky about product quality and amazon just bends over backwards. That's what really nailed the coffin for me. Now I only sell on ebay and I suggest other sellers to do the same, especially if your margins on amazon are low.
acollins1331 7y ago
Stop selling your stuff on Amazon. eBay is better. If you're too large to sell on eBay, then get out of retail right now, are you crazy? Selling products other people make used to have bigger margins because it was a lot of work (opening and running a store). If your only work is buying stuff wholesale and boxing it up and sending it to Amazon then you, frankly, don't deserve much profit for a few hours of monkey level work.
- adossi 7y ago
  My brother has an Amazon store. He pulled in about $400,000 in sales last year and saw a profit of close to $200,000 doing exactly what you stated (buying wholesale, boxing it up and sending it to Amazon). Huge margins, I know. However he doesn't work a few hours a day, its more like 9 hours a day driving around to different auctions to buy wholesale. Its a lot of work.
  - acollins1331 7y ago
    9 hours a day of driving pays every other job about 1/5th what your brother makes. Not advocating a race to the bottom, but expecting to clear 200k a year by driving around to auctions all day is still insane relative to what other people make doing similar work.
    - jeromegv 7y ago
      Are you serious? He's not being paid to drive around. He's being paid to go to auctions, analyze the price of things being sold in large quantities, and decide if there is a business opportunity to sell products in a different market. He then ends up with a large inventory that he must sell, otherwise he is stuck with unsold inventory (risk). He also has no guarantee that the aunction will be selling the same products the week after, so it seems like there is a scarcity risk as well (not having a homerun product to sell constantly) This is what the retail business is. He's not just "driving around".
      - ccvannorman 7y ago
delfinom 7y ago
So the same exact thing that Walmart does? You know, the retailer that's bigger than Amazon? It is terrible but they aren't exactly breaking new ground here.
- buckminster 7y ago
  Walmart is the retailer. With third party sellers Amazon is not. So they sidestep sales tax (in the UK anyway) and various consumer protections. With this change Amazon becomes the retailer in all but name. I hope the tax authorities and consumer groups take note.
  - takeda 7y ago
    Walmart also has third party sellers.
    - gamblor956 7y ago
      Not in their stores they don't.
      - Spivak 7y ago
        Does that matter when we're talking about online retail? Walmart the physical store might as well be a separate business.
        gamblor956 7y ago
        People are mixing up Walmart's retail practices with their online practices. Walmart's retail arm will squeeze water from a stone. However, their online division actually works with suppliers since they're still trying to compete with Amazon and eBay.
        hinkley 7y ago
        For now.
viburnum 7y ago
Amazon should just distribute everything themself and market financial instruments tied to prices and quantities (gambling on retail).
ilamont 7y ago
The really interesting dynamic would be if a seller doesn't participate in this program, but its competitor for a similar, essentially non-differentiated product does (or more than one competitor) and Amazon optimizes pricing according to what the non SBA-seller is charging. As sales of the SBA product picks up, network effects kick in for search, detail page carousels, and recommendations to customers with similar profiles to the buyers. The non-SBA seller is forced to manually reduce prices, or lose a huge chunk of market share. The key here would be product differentiation, reviews, external marketing, or something else to keep sales up. But for sellers competing on price, SBA could be a disaster, regardless of participation.
vfc1 7y ago
It's for sure true that an algorithm setting the price instead of a human is going to increase sales and be beneficial to both the retail seller and Amazon, but where does it end? Right now it's optional but it's clear that it's only a matter of time until it becomes mandatory. I think these companies, especially Google & Amazon are only going to stop when they are split apart by the government due to monopoly concerns.
segmondy 7y ago
Not surprised, they already do this with ebook. You sell your book for $10 or less you get 70%, you sell it for more, you get 30%
SilasX 7y ago
HN Monday: "It's an atrocity when Walmart/Amazon use their monopoly/sony power to force down supplier prices. That's unsustainable, destroys market signals, and hugely disincentivizes the production process for goods." HN Tuesday: "It's awesome when governments use their monopsony power to force down pharmaceutical prices, that has no downsides except for lower profits for someone who didn't deserve them anyway."
- acomjean 7y ago
  Lets note that we can see what people are paying in other countries for medicine and its less that we in the US pay. Not to mention there has been some egregious mark ups. Drug companies are highly regulated anyway, and the "free market" is failing, which is why the market price for some generics is increasing.
  - SilasX 7y ago
    Amazon: "We can see what other markets charge for these goods and it's more than we charge. And the free market's failing. So, there's nothing to worry about regarding what we're doing."
- JoeAltmaier 7y ago
  Be fair, the 'victims' in those two scenarios are vastly dissimilar. Just noticing "force down prices' is a common phrase, is disingenuous.
  - SilasX 7y ago
    That's the point: the sympatheticness of the victim is completely irrelevant to the dynamic, yet seems to be enough to treat the cases as different.
    - rocha 7y ago
      Do you think that the current pharmaceutical prices in the US are the result of fair market valuation?
TheGoodBarn 7y ago
I mean we all remember what happened to the Grand Exchange right
Aloha 7y ago
This is just a way of amazon moving the carrying costs of merchandise off of its balance books and on to someone else's, without the complexity of a floor lease. It mostly sounds like a win-win.
j-c-hewitt 7y ago
The headline is pretty misleading and I have not seen people in the seller community interpret it in this way. SBA is just a different way to sell. They're not getting rid of the other options. It can be a good option for some kinds of brands. You would probably not pick the option otherwise. Also big nitpick here: gray market has a specific definition and this author misuses the term. The sellers he refers to are not necessarily selling gray market products. Another inaccuracy is that you win the buy box by having the lowest price. This is not true. Any experienced Amazon person could tell you that it is a blend of price, fulfillment method (prime or not), delivery latency (is this offer for a product that is in a warehouse physically close to you), and seller feedback rating. SBA is actually a good idea from Amazon and they even put in some volatility protections for people who enroll. It is also a good alternative to the Vendor program with some of the benefits without some of its headaches. If you look at it from the perspective of it being a better alternative to Vendor for some brands, it makes a lot more sense. It is not pitched to conventional sellers who stock tons of brands. It's pitched to brands who want to sell direct to consumer on Amazon. Historically Vendors have also gotten the kinds of indirect marketing benefits that are being pitched to new users of SBA, so even that is not actually a big change. For example, Vendor products (those shipped and sold by Amazon.com) have always received a massive buy box benefit even if the price is not the lowest. In the weighted buy box system Amazon has always assigned itself a massive bonus score. So in that there is not much that is changing. Naturally, "incremental bureaucratic change pitched to brands as a middle ground between two existing bureaucratic programs at gargantuan mega-company pitched to other faceless corporations" is not that interesting of an article. This type of opt-in program would work for a very specific type of company and isn't really indicative of a big upcoming change of how the whole thing works.
Aperocky 7y ago
What an awful title, people should stop using logical fallacies to label their argument.
JohnAtCC 7y ago
The reason why this is happening, because it drives traffic back to the seller's website outlets. I learned this from power tools. Dewalt, Grizzly , etc. have learned to price their tools HIGHER on Amazon, so the customer returns to Dewalt, Grizzly, etc. owner's website for a cheaper price. It's disruptive pricing to force Amazon to seem more expensive. If someone BUYS at that price - WIN WIN no matter what, if the consumer doesn't come back. Regardless, its brilliant if you ask me.
privateSFacct 7y ago
Once again a click-bait headline that misses why these companies domination continues to grow. First - a link to actual FAQ: https://www.reddit.com/r/FulfillmentByAmazon/comments/cl7jll/sold_by_amazon_sba_faq/ https://www.reddit.com/r/FulfillmentByAmazon/comments/cl7jll... Second: This is an OPT-IN offer to sellers who want it. Third: Amazon will be seller of record. That means Amazon will handle all sales tax issues. That alone is a big win. Amazon is handling all return costs (huh?). So in short run until that changes another win. Amazon probably thinks they can do a better job pricing products than sellers, increasing the cut for both parties potentially. I'll let reader decide if amazon has any skills in pricing. This continues a trend towards automation that amazon has adopted when they think computers can do (on average) a better job than people. If this is a stupid idea, ebay won't copy it. If it isn't a stupid idea - look for SBE (sold by Ebay) in the future :)
- lonelappde 7y ago
  This seems like it's moving FBA to "traditional" Amazon retail, with a migration plan that makes sense for people who already know FBA.
- bertil 7y ago
  I don’t think the problem here is that Amazon is doing something unhelpful. Of course, they have more information than anyone and can set prices better. The issue is that (according to legal theories on anti-trust) market control, no matter how helpful, is anti-competitive in the long run. Even if companies don’t have to set their own prices, they would be crazy not to: over-price and they don’t sell anything; under-price and they leave money on the table. I know those rules sound like we are punishing success and good service but the idea is that if a company dominates, no one will challenge them. The service won’t improve or innovate, new companies won’t be able to scale to prove their ideas. It has happened repeatedly in the past, for beloved services. Thinking about those things dynamically helps.
  - dwild 7y ago
    > over-price and they don’t sell anything Well, that depends on the service itself. I often buy from Amazon not because it's cheaper, but because I know that shipping will be quick, even if it's imported the charge won't be taken by the carrier with an absurdly high fee, that if something has to be returned it will be easy. I even usually avoid third-party sellers on Amazon because of that, even if they are much cheaper. > under-price and they leave money on the table You just said that overprice and they won't sell anything. Seems like the alternative isn't money on the table but nothing at all on the table. > if a company dominates, no one will challenge them I think that's the wrong part. If someone can do just as good or better than Amazon, they'll do it. Amazon is the proof itself, there's so many products that still have third party on Amazon itself that compete against Amazon. This option will just let Amazon have access to a bigger inventory for a lower cost than owning it themselves... That's not a huge advantage. I'm sure their algorithmns are already pretty good to balance the right amount of stock.
lazyant 7y ago
This is an example of something fishy: https://www.amazon.ca/dp/B00JE36GLQ/?coliid=I3I52QIK9800LI https://www.amazon.ca/dp/B00JE36GLQ/?coliid=I3I52QIK9800LI this is a $40 coffee maker offered at $2 (plus $15 shipping) from a newly created shop. Another example of fraudulent products is posting an existing ($10) book at $100 and have it at the top of the results because they changed the publication date with a fake one.
- newguy1234 7y ago
  Looks like he got one victim already: "Still have not received my package even after paying for expedited shipping. Order was shipped 4 days after ordering. I would like a refund for payment of expedited shipping." Seller now has a 0% feedback score so it is pretty obvious to any buyers that the seller is garbage. The real interesting thing though is the buyer is complaining about a refund on the review so it kind of leads me to believe that the buyer doesn't know how to do a refund lol?
bitL 7y ago
I think this addresses two problems: 1. Allowing brand owners to completely remove 3rd party sellers and sell directly on Amazon without much effort 2. Helping new sellers to sell at least something; these days one has to immediately subscribe to some realtime algorithmic repricer if they want to get buybox for/sell a single item; this makes algorithmic repricer a part of SBA
binarysolo 7y ago
SBA is an interesting offering meant to address long tail brandowners who can't qualify for vendorcentral now that they raised the requirement for it to be ~$10M/year. That's all, nothing insidious here, Amazon is just trying to recapture some of the long tail it cut off earlier this year when they stopped buying direct from small vendors. This is not a good thing for boutique shops selling premium goods because Amazon will not respect your MAP. This is a reasonable deal if you're selling commodity CPG items and less sensitive to MAP but are not a big player. Source: low eight-figure seller on Amazon, had a few manufacturer/wholesaler friends get booted off vendorcentral during the VC purge earlier this year.
canada_dry 7y ago
> Amazon exerts control over the product’s sale price, by dynamically pricing products to make sure Amazon’s prices are lowest. I believe their automatic pricing checking engine only bothers to go to work when it notices a sudden drop in sales of a product. Otherwise, their 'dynamic' pricing seems to try to increase the price as often as possible!
telaelit 7y ago
All hail our Amazon overlords
deleted 7y ago
[deleted]
Judson 7y ago
Am I missing something, or does this render “Ships and Sold by Amazon” useless as a heuristic for receiving an authentic product since sellers who opt into the program also receive the label?
happycube 7y ago
More accurately, Amazon wants third parties to pay for carrying their inventory... (which isn't always a bad idea, mind... especially at the beginning, before Amazon whittles away at the margin)
8bitsrule 7y ago
"To participate in the program, called Sold by Amazon, sellers have to already be enrolled in Fulfilled by Amazon..." Not to be confused with Fulfilled by Amazon Donations, which will donate unsold merch to non-profits instead of trashing it. https://www.theverge.com/2019/8/14/20806167/amazon-marketplace-donate-products-fba-sellers-vendors-unwanted-inventory https://www.theverge.com/2019/8/14/20806167/amazon-marketpla...
NicoJuicy 7y ago
Illegal in Europe

242 points by ilamont 7y ago

> With SBA, Amazon also exerts control over the product’s sale price, by dynamically pricing products to make sure Amazon’s prices are lowest. > Since only brands in Amazon’s Brand Registry can apply for SBA, 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. > To ward off concerns over margins, Amazon is offering SBA sellers a minimum gross proceed — which guarantees set profit for sellers based on a set selling price, even if Amazon lowers the price — for each product. The catch: Amazon wrote in its FAQ about SBA that MGP would be revisited “typically once every six months,” and that brands would have seven days to accept the new MGP, or reject it and deactivate a product from SBA. So basically, Amazon always promotes the cheapest products, and they'll automatically lower your product's price to make it cheaper than the knockoffs. You get a guaranteed profit no matter the price, but that can also lower every six months. This strikes me as a bad deal for sellers.

prklmn 7y ago
It’s not only knockoffs. A friend of mine works in CPG and their company’s biggest problem with sales through amazon is that they sell at a loss to compete with grey market sellers who are selling stolen at a much reduced price.
- dpark 7y ago
  You cannot “compete” by selling at a loss, unless you’re competing for the first spot at bankruptcy court. Whenever I hear about someone selling at a loss, I automatically assume that either they’re buying market share as a long bet (e.g. typical new gaming console) or more commonly misrepresenting the actual economics (e.g. car dealers neglecting to mention all the rebates they get off their supposed price).
  - unreal37 7y ago
    There are going to be times (a few days or weeks) where sellers think they can "outlast" the competition in a price war. You're basically betting that the other guy doesn't have the stamina to survive at this price. Of course, if what the OP says is true, if the other seller has a much lower price point than you do, you can't outlast them. They could still be making a profit at $20 while you're losing $5 per unit trying to push them out.
  - kd5bjo 7y ago
    The other common case (not applicable here) is a loss leader: sell something at a loss in the hope that the customers it attracts will buy high-margin items at your store instead of the one they usually frequent.
    - deleted 7y ago
      [deleted]
  - prklmn 7y ago
    Think about inventory holding costs. Not only do you have capital tied up in that product in the warehouse, but you also have the opportunity cost of not being able to stock something else to sell. And to your car dealership point - the way it works for GM at least is that GM sets sales goals for their dealers. Dealer X's monthly sales target is 75 vehicles. They will happily sell lets say vehicles 73, 74, and 75 on August 31st to get their $20k bonus for the month of August. They might not be misrepresenting their supposed price like you think. Also, the same concept of inventory holding costs applies really well for car dealers. It's purely an inventory turnover business. If your lot is full of fusions and you can sell 2 f150s in the time that you can sell 1 fusion at similar profit, you're going to want to get those fusions off the lot potentially at a loss so you can sell more f150s.
- plink 7y ago
  This reminds me of a time I needed a blower fan for my refrigerator and Amazon’s recommended one for next day delivery seemed suspiciously underpriced. I ordered it despite my trepidation that the item was going to be made out of silly putty by a Chinese pirate. Upon receipt, I discovered the serial number was filed off and I rested assured that it was a quality OEM but probably stolen. The motor is still working great which is more than one can say for Amazon.
  - vageli 7y ago
    > This reminds me of a time I needed a blower fan for my refrigerator and Amazon’s recommended one for next day delivery seemed suspiciously underpriced. I ordered it despite my trepidation that the item was going to be made out of silly putty by a Chinese pirate. Upon receipt, I discovered the serial number was filed off and I rested assured that it was a quality OEM but probably stolen. The motor is still working great which is more than one can say for Amazon. Did you notify Amazon or any authorities about this? Would be curious to hear the response.
    - plink 7y ago
      I didn't. My sense of disgust and disillusion was heightened by the fact that it was an Amazon recommended product. Of late, I am more and more spare about shouting into the wind.
- zeroego 7y ago
  I work at a CPG and another issue we have to deal with is an individual having an "in" at a distributor and being able to purchase our products at rock bottom prices. We can usually track these people down, but they can really throw a wrench into an ASINs profitability for a while.
  - ummonk 7y ago
    How does this work? By "our products" you mean products your company produces, right? Are you sending the products to the distributor at a price that is too low to make a profit? Why does it matter to you whether they products are bought directly from you on Amazon or through one of your distributors and resold on Amazon by a third party?
    - zeroego 7y ago
      There's a couple reasons it matters. Unauthorized third parties rarely care about representing our brand correctly. When a consumer has a problem with a product they received the first person they blame is the brand, not realizing they bought it from a completely separate entity. The product breaking during shipment, the customer buying at a price just to go back and check days later and see a lower price, the product being expired...All of these things are outside of our control, yet as a brand we take the blame. In my particular case, there is an "anti-FBA" culture at the company I work for. No one can sell our product for as cheap as we can because we make it. However, without access to FBA, it's much more difficult to have complete control over your pricing on amazon. With complete control over pricing you can ensure that your margins will be better than whatever distributor pricing is. Also the competitiveness of our products on the platform against other brands is directly affected by how much the seller (either us or an unauth)can afford to sell the product to the consumer. If a competing brand sells the same thing for cheaper, they will get more sales and thus more market share. I say "my particular case" but in reality I know of several CPG companies where the anti-FBA culture exists, even though it is the most advantageous approach to selling on amazon with regards to pricing. I wrote this kind of fast so I hope it all makes sense.
vorpalhex 7y ago
For an opt-in program, how is that a bad deal? Either being the lowest price seller isn't worth it (and so you don't care to opt in) or it is, and you spend a lot of effort to constantly deal with price fluctuations (at which point you want to opt in and get covered by the minimum profit limit..)
nkrisc 7y ago
Sounds this solution only exists because Amazon allows itself to be flooded with knockoffs in the first place. Funny how that works.
- newguy1234 7y ago
  Amazon is paying dearly for that which is why amazon is getting so strict on sellers these days. Also the overall shopping experience on amazon is going to hell. Just look up something like a USB battery pack. You'll see dozens if not hundreds of dubious weird sounding packs for sale. I'm convinced that half of them don't even hold the amount of energy they claim to hold.
  - nkrisc 7y ago
    That's absolutely been my experience as well. I used to shop a lot on Amazon around 2007. I've seen the decline firsthand. These days I treat it like a (somewhat) American Alibaba when I'm looking for cheap stuff where the idea of "knockoff" almost doesn't even really apply. Last thing I bought was some connector pins and what I expect to be harbor freight quality crimping pliers. If I'm spending serious money, it's not going to be with Amazon.
hammock 7y ago
It's literally what every mass retailer does. CVS, Walmart, etc will use their power to decide your shelfspace/merchandising, combined with private label products and a pipeline of new branded products in your category (e.g. ever wonder why so many new jerky brands pop up and disappear overnight?), to put downward price pressure on you until your margins are razor-thin. This isn't that different. Anyone who has worked in/adjacent to retail understands how cutthroat the industry can be. Retailers also force suppliers to buy advertising in their owned media channels (e.g. in-store and online) as another way to squeeze them. Amazon is doing/will do the same.
- mooreds 7y ago
  > ...put downward price pressure on you until your margins are razor-thin And consumers benefit. This is the power and peril of the free market. Everyone loves competition as a consumer and hates it as a seller. I include folks that sell labor aka employees.
  - pytester 7y ago
    I don't feel like I benefit from a new brand of jerky brand with razor thin profit margins every week. It makes me wonder about what kind of crap is in the jerky, in fact. Consumers might benefit if mass retailer accumulates liability when it does this but the mass retailer shoves it right on to the party with the razor thin margins.
    - SpicyLemonZest 7y ago
      There are plenty of retailers that go out of their way to fight against the race to the bottom, charging a bit more and taking a bit more care to ensure they only stock good stuff. Amazon even owns one such store, Whole Foods. If other people would prefer to buy dirt-cheap jerky from whoever can offer the lowest price this week, I don't see why it's bad to have stores catering to them too.
      - jcoffland 7y ago
pravda 7y ago
> This strikes me as a bad deal for sellers. ...but a good deal for buyers!
femto113 7y ago
It's common for people outside of retail to focus on margins and ignore turns/sales velocity when considering retail issues, but it misses a lot of the reasoning. Obviously consistently making a loss on a product is a bad idea, but making $1 per sale and selling one per day produces more income than making $5 per sale and selling once per week. On Amazon if you don't "win the buy box" your stuff doesn't sell, or doesn't sell as frequently. What Amazon is trying to do for sellers is ensure that doesn't happen to them, and ultimately is likely to increase their income even if it reduces their margins. Fixing a minimum margin for six months actually seems quite reasonable to me, it gives sellers a chance to make inventory plans on a practical time scale while also ensuring that Amazon doesn't have to absorb any losses indefinitely.

swamp40 7y ago

Great quote: “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.”

delfinom 7y ago
But Walmart does the exact same thing to their suppliers. They attract suppliers with dangling sales numbers in front of them. Next year they demand the suppliers bill of materials and tell them the exact price they are going to pay and not their problem if they can't meet it.
- naravara 7y ago
  If you want a benchmark for "ethical and well liked company that is not chronically plagued by anti-trust concerns" Walmart probably shouldn't be your reference point.
  - dsfyu404ed 7y ago
    Walmart is well liked by the people who shop there.
    - RankingMember 7y ago
      One data point: I have to shop there sometimes and it is the opposite of well-liked. It's a last resort. The employees are miserable, the shelves are disorganized (trash, items in wrong places, just a mess), and the customers are impatient and angry. They do have self-checkout at least now which helps a bit with my biggest complaint (the checkout lines taking forever), but definitely not a place I'd call "well liked". My above criticisms apply uniformly to the 3 Walmarts in my area.
      - dsfyu404ed 7y ago
        Do you live somewhere decently upscale? Walmart in upscale areas tends (in my unscientific observation, n = approx 10) to be full of people who are working there and shopping there as a last resort and it shows.

reroute1 7y ago

Less slippery if they keep both a user rating and an Amazon rating.

sct202 7y ago

So basically you have to manage your own inventory for Amazon, pay Amazon for fulfillment of orders of your product, pay Amazon for storage of your product, and also let Amazon control the pricing to get preference on the buy box. I can see that there may be advantages, but it seems like an awful lot of the burden is shifted to the vendor. Edit: On second thought, if Amazon has dynamic control of the pricing it may be difficult for the vendors to accurately forecast and stay in-stock.

unreal37 7y ago
Don't forget, if you're successful, Amazon will create their own version of your product as "Amazon Basics" and you lose.
- jwin742 7y ago
  Many amazon basics products are just white labeled products. Amazon isn't actually spinning up assembly lines
  - swagasaurus-rex 7y ago
    No but Chinese companies will be happy to spin up assembly lines making a product identical to yours and undercut your product, while Amazon slaps on the 'Basic' brand and pushes it to the top of the rankings.
    - dbuder 7y ago
      They totally have relationships with multiple tier 1 manufacturers and have teams pouring over data to pick products to undercut. I hate it when people say this, but I don't know why you've been downvoted.
newguy1234 7y ago
Yup, sellers need to look very carefully before they decide to sell with amazon. I used to sell on that platform but pulled out. At the end, I wasn't even making money on my sales after fees, shipping etc. Also amazon shoppers are overly picky about product quality and amazon just bends over backwards. That's what really nailed the coffin for me. Now I only sell on ebay and I suggest other sellers to do the same, especially if your margins on amazon are low.

acollins1331 7y ago

Stop selling your stuff on Amazon. eBay is better. If you're too large to sell on eBay, then get out of retail right now, are you crazy? Selling products other people make used to have bigger margins because it was a lot of work (opening and running a store). If your only work is buying stuff wholesale and boxing it up and sending it to Amazon then you, frankly, don't deserve much profit for a few hours of monkey level work.

adossi 7y ago
My brother has an Amazon store. He pulled in about $400,000 in sales last year and saw a profit of close to $200,000 doing exactly what you stated (buying wholesale, boxing it up and sending it to Amazon). Huge margins, I know. However he doesn't work a few hours a day, its more like 9 hours a day driving around to different auctions to buy wholesale. Its a lot of work.
- acollins1331 7y ago
  9 hours a day of driving pays every other job about 1/5th what your brother makes. Not advocating a race to the bottom, but expecting to clear 200k a year by driving around to auctions all day is still insane relative to what other people make doing similar work.
  - jeromegv 7y ago
    Are you serious? He's not being paid to drive around. He's being paid to go to auctions, analyze the price of things being sold in large quantities, and decide if there is a business opportunity to sell products in a different market. He then ends up with a large inventory that he must sell, otherwise he is stuck with unsold inventory (risk). He also has no guarantee that the aunction will be selling the same products the week after, so it seems like there is a scarcity risk as well (not having a homerun product to sell constantly) This is what the retail business is. He's not just "driving around".
    - ccvannorman 7y ago

delfinom 7y ago

So the same exact thing that Walmart does? You know, the retailer that's bigger than Amazon? It is terrible but they aren't exactly breaking new ground here.

buckminster 7y ago
Walmart is the retailer. With third party sellers Amazon is not. So they sidestep sales tax (in the UK anyway) and various consumer protections. With this change Amazon becomes the retailer in all but name. I hope the tax authorities and consumer groups take note.
- takeda 7y ago
  Walmart also has third party sellers.
  - gamblor956 7y ago
    Not in their stores they don't.
    - Spivak 7y ago
      Does that matter when we're talking about online retail? Walmart the physical store might as well be a separate business.
      - gamblor956 7y ago
        People are mixing up Walmart's retail practices with their online practices. Walmart's retail arm will squeeze water from a stone. However, their online division actually works with suppliers since they're still trying to compete with Amazon and eBay.
        hinkley 7y ago
        For now.

viburnum 7y ago

Amazon should just distribute everything themself and market financial instruments tied to prices and quantities (gambling on retail).

ilamont 7y ago

The really interesting dynamic would be if a seller doesn't participate in this program, but its competitor for a similar, essentially non-differentiated product does (or more than one competitor) and Amazon optimizes pricing according to what the non SBA-seller is charging. As sales of the SBA product picks up, network effects kick in for search, detail page carousels, and recommendations to customers with similar profiles to the buyers. The non-SBA seller is forced to manually reduce prices, or lose a huge chunk of market share. The key here would be product differentiation, reviews, external marketing, or something else to keep sales up. But for sellers competing on price, SBA could be a disaster, regardless of participation.

vfc1 7y ago

It's for sure true that an algorithm setting the price instead of a human is going to increase sales and be beneficial to both the retail seller and Amazon, but where does it end? Right now it's optional but it's clear that it's only a matter of time until it becomes mandatory. I think these companies, especially Google & Amazon are only going to stop when they are split apart by the government due to monopoly concerns.

segmondy 7y ago

Not surprised, they already do this with ebook. You sell your book for $10 or less you get 70%, you sell it for more, you get 30%

SilasX 7y ago

HN Monday: "It's an atrocity when Walmart/Amazon use their monopoly/sony power to force down supplier prices. That's unsustainable, destroys market signals, and hugely disincentivizes the production process for goods." HN Tuesday: "It's awesome when governments use their monopsony power to force down pharmaceutical prices, that has no downsides except for lower profits for someone who didn't deserve them anyway."

acomjean 7y ago
Lets note that we can see what people are paying in other countries for medicine and its less that we in the US pay. Not to mention there has been some egregious mark ups. Drug companies are highly regulated anyway, and the "free market" is failing, which is why the market price for some generics is increasing.
- SilasX 7y ago
  Amazon: "We can see what other markets charge for these goods and it's more than we charge. And the free market's failing. So, there's nothing to worry about regarding what we're doing."
JoeAltmaier 7y ago
Be fair, the 'victims' in those two scenarios are vastly dissimilar. Just noticing "force down prices' is a common phrase, is disingenuous.
- SilasX 7y ago
  That's the point: the sympatheticness of the victim is completely irrelevant to the dynamic, yet seems to be enough to treat the cases as different.
  - rocha 7y ago
    Do you think that the current pharmaceutical prices in the US are the result of fair market valuation?

TheGoodBarn 7y ago

I mean we all remember what happened to the Grand Exchange right

Aloha 7y ago

This is just a way of amazon moving the carrying costs of merchandise off of its balance books and on to someone else's, without the complexity of a floor lease. It mostly sounds like a win-win.

j-c-hewitt 7y ago

The headline is pretty misleading and I have not seen people in the seller community interpret it in this way. SBA is just a different way to sell. They're not getting rid of the other options. It can be a good option for some kinds of brands. You would probably not pick the option otherwise. Also big nitpick here: gray market has a specific definition and this author misuses the term. The sellers he refers to are not necessarily selling gray market products. Another inaccuracy is that you win the buy box by having the lowest price. This is not true. Any experienced Amazon person could tell you that it is a blend of price, fulfillment method (prime or not), delivery latency (is this offer for a product that is in a warehouse physically close to you), and seller feedback rating. SBA is actually a good idea from Amazon and they even put in some volatility protections for people who enroll. It is also a good alternative to the Vendor program with some of the benefits without some of its headaches. If you look at it from the perspective of it being a better alternative to Vendor for some brands, it makes a lot more sense. It is not pitched to conventional sellers who stock tons of brands. It's pitched to brands who want to sell direct to consumer on Amazon. Historically Vendors have also gotten the kinds of indirect marketing benefits that are being pitched to new users of SBA, so even that is not actually a big change. For example, Vendor products (those shipped and sold by Amazon.com) have always received a massive buy box benefit even if the price is not the lowest. In the weighted buy box system Amazon has always assigned itself a massive bonus score. So in that there is not much that is changing. Naturally, "incremental bureaucratic change pitched to brands as a middle ground between two existing bureaucratic programs at gargantuan mega-company pitched to other faceless corporations" is not that interesting of an article. This type of opt-in program would work for a very specific type of company and isn't really indicative of a big upcoming change of how the whole thing works.

Aperocky 7y ago

What an awful title, people should stop using logical fallacies to label their argument.

JohnAtCC 7y ago

The reason why this is happening, because it drives traffic back to the seller's website outlets. I learned this from power tools. Dewalt, Grizzly , etc. have learned to price their tools HIGHER on Amazon, so the customer returns to Dewalt, Grizzly, etc. owner's website for a cheaper price. It's disruptive pricing to force Amazon to seem more expensive. If someone BUYS at that price - WIN WIN no matter what, if the consumer doesn't come back. Regardless, its brilliant if you ask me.

privateSFacct 7y ago

Once again a click-bait headline that misses why these companies domination continues to grow. First - a link to actual FAQ: https://www.reddit.com/r/FulfillmentByAmazon/comments/cl7jll/sold_by_amazon_sba_faq/ https://www.reddit.com/r/FulfillmentByAmazon/comments/cl7jll... Second: This is an OPT-IN offer to sellers who want it. Third: Amazon will be seller of record. That means Amazon will handle all sales tax issues. That alone is a big win. Amazon is handling all return costs (huh?). So in short run until that changes another win. Amazon probably thinks they can do a better job pricing products than sellers, increasing the cut for both parties potentially. I'll let reader decide if amazon has any skills in pricing. This continues a trend towards automation that amazon has adopted when they think computers can do (on average) a better job than people. If this is a stupid idea, ebay won't copy it. If it isn't a stupid idea - look for SBE (sold by Ebay) in the future :)

lonelappde 7y ago
This seems like it's moving FBA to "traditional" Amazon retail, with a migration plan that makes sense for people who already know FBA.
bertil 7y ago
I don’t think the problem here is that Amazon is doing something unhelpful. Of course, they have more information than anyone and can set prices better. The issue is that (according to legal theories on anti-trust) market control, no matter how helpful, is anti-competitive in the long run. Even if companies don’t have to set their own prices, they would be crazy not to: over-price and they don’t sell anything; under-price and they leave money on the table. I know those rules sound like we are punishing success and good service but the idea is that if a company dominates, no one will challenge them. The service won’t improve or innovate, new companies won’t be able to scale to prove their ideas. It has happened repeatedly in the past, for beloved services. Thinking about those things dynamically helps.
- dwild 7y ago
  > over-price and they don’t sell anything Well, that depends on the service itself. I often buy from Amazon not because it's cheaper, but because I know that shipping will be quick, even if it's imported the charge won't be taken by the carrier with an absurdly high fee, that if something has to be returned it will be easy. I even usually avoid third-party sellers on Amazon because of that, even if they are much cheaper. > under-price and they leave money on the table You just said that overprice and they won't sell anything. Seems like the alternative isn't money on the table but nothing at all on the table. > if a company dominates, no one will challenge them I think that's the wrong part. If someone can do just as good or better than Amazon, they'll do it. Amazon is the proof itself, there's so many products that still have third party on Amazon itself that compete against Amazon. This option will just let Amazon have access to a bigger inventory for a lower cost than owning it themselves... That's not a huge advantage. I'm sure their algorithmns are already pretty good to balance the right amount of stock.

lazyant 7y ago

This is an example of something fishy: https://www.amazon.ca/dp/B00JE36GLQ/?coliid=I3I52QIK9800LI https://www.amazon.ca/dp/B00JE36GLQ/?coliid=I3I52QIK9800LI this is a $40 coffee maker offered at $2 (plus $15 shipping) from a newly created shop. Another example of fraudulent products is posting an existing ($10) book at $100 and have it at the top of the results because they changed the publication date with a fake one.

newguy1234 7y ago
Looks like he got one victim already: "Still have not received my package even after paying for expedited shipping. Order was shipped 4 days after ordering. I would like a refund for payment of expedited shipping." Seller now has a 0% feedback score so it is pretty obvious to any buyers that the seller is garbage. The real interesting thing though is the buyer is complaining about a refund on the review so it kind of leads me to believe that the buyer doesn't know how to do a refund lol?

bitL 7y ago

I think this addresses two problems: 1. Allowing brand owners to completely remove 3rd party sellers and sell directly on Amazon without much effort 2. Helping new sellers to sell at least something; these days one has to immediately subscribe to some realtime algorithmic repricer if they want to get buybox for/sell a single item; this makes algorithmic repricer a part of SBA

binarysolo 7y ago

SBA is an interesting offering meant to address long tail brandowners who can't qualify for vendorcentral now that they raised the requirement for it to be ~$10M/year. That's all, nothing insidious here, Amazon is just trying to recapture some of the long tail it cut off earlier this year when they stopped buying direct from small vendors. This is not a good thing for boutique shops selling premium goods because Amazon will not respect your MAP. This is a reasonable deal if you're selling commodity CPG items and less sensitive to MAP but are not a big player. Source: low eight-figure seller on Amazon, had a few manufacturer/wholesaler friends get booted off vendorcentral during the VC purge earlier this year.

canada_dry 7y ago

> Amazon exerts control over the product’s sale price, by dynamically pricing products to make sure Amazon’s prices are lowest. I believe their automatic pricing checking engine only bothers to go to work when it notices a sudden drop in sales of a product. Otherwise, their 'dynamic' pricing seems to try to increase the price as often as possible!

telaelit 7y ago

All hail our Amazon overlords

deleted 7y ago

[deleted]

Judson 7y ago

Am I missing something, or does this render “Ships and Sold by Amazon” useless as a heuristic for receiving an authentic product since sellers who opt into the program also receive the label?

happycube 7y ago

More accurately, Amazon wants third parties to pay for carrying their inventory... (which isn't always a bad idea, mind... especially at the beginning, before Amazon whittles away at the margin)

8bitsrule 7y ago

"To participate in the program, called Sold by Amazon, sellers have to already be enrolled in Fulfilled by Amazon..." Not to be confused with Fulfilled by Amazon Donations, which will donate unsold merch to non-profits instead of trashing it. https://www.theverge.com/2019/8/14/20806167/amazon-marketplace-donate-products-fba-sellers-vendors-unwanted-inventory https://www.theverge.com/2019/8/14/20806167/amazon-marketpla...

NicoJuicy 7y ago

Illegal in Europe