In the wake of the holiday season, Amazon has begun lowering prices up to 9% recently to aggressively compete with lower-priced retailers like Walmart, including products from 3rd party sellers. Are these Amazon price cuts good or bad for private label FBA sellers in the long run?
In a race to compete for the consumer’s dollar, Amazon has decided to start discounting products all over the website to start the holiday season off, some as much as 9%. These Amazon price cuts are designed to compete with other major retailers but may have some adverse effects on 3rd party and private label FBA sellers. Good for the customer, but how is it for sellers themselves?
According to a recent article published by the Wall Street Journal, many private label and third-party FBA sellers are having their products discounted by Amazon with a specific tag that states how much the discount is and that Amazon is providing the new discount. It is not known how the company determines which products to discount, as these Amazon price cuts typically last a few days only.
The advantage of this discounting is that is will ramp up sales on Amazon through the holiday season. Additionally, Amazon is covering the cost difference between the original prices listed by FBA sellers and the new discounted price so 3rd party Amazon sellers won’t lose any money over this move.
However, there is a growing concern among the seller community about how this will affect pricing control for sellers. Some of these concerns include the following:
Minimum Advertised Pricing (MAP) Contracts with Other Retailers
Many FBA sellers sell their private label products on other platforms besides Amazon, including other retailers. Sellers will often agree to a MAP agreement with these other retailers to guarantee to sell on their platform at a certain price point that is usually lower than Amazon’s offering.
The trouble with these agreements now is whether a seller can be technically in breach of contract if Amazon lowers the seller’s price without prior consent to do so. Who would be liable in this situation? Also, would this kind of action sour a seller’s relationships with other retailers?
Long-Term Pricing Strategy For Maximizing Profits
Part of running your own private label business is the ability to set prices depending on the marketplace to maximize your profits. For example, sellers will often raise their prices as the big holidays in Q4 like Christmas approach to take advantage of the scarcity and timing of the season. However, if Amazon can lower your prices without warning or permission, what does that mean for pricing strategies? Are sellers still in control, or is pricing now at the behest of Amazon?
Unplanned Running Out of Stock
Tying in with long-term pricing strategy, another problem with this seemingly random price-cutting by Amazon is the reality of selling products too fast and running out of stock before you expected to. While sellers are happy to sell most of their inventory, they typically prefer to do so on their own terms. Inventory is ordered ahead of time with a specific rate of sales in mind, and if Amazon disrupts that schedule, many sellers may be stuck without stock for the remainder for the holidays through January.
Are you an Amazon seller that is concerned about Amazon messing with your pricing, or do you think increased sales no matter what is a good thing? Be sure to let us know in the comments below.
For now, check out Manny’s take on Amazon cutting prices in this episode of the AM/PM Podcast:
