The Problem with Amazon’s Marketplace

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When you ask a Sales leader in Consumer Tech hardware what her top business opportunities are, guaranteed, she says “Amazon.”  When you ask that same Sales leader what her top business challenges are, guaranteed, she says “Amazon.”

Consumer Hardware is hard.  Always has been. And Amazon doesn’t make it any easier.  At the same time, most companies I have worked for and consulted with see 25%+ of their revenue flow through its shopping cart.  And for startups without a massive, billion dollar brand presence, Amazon opens the door to a sizeable business opportunity.

With more than 50% of Amazon’s business coming from Marketplace these days, Amazon’s Marketplace platform enables the creation of jobs and wealth where there was none before, allowing mom & pop shops to tier 1 brands access to its 300+ million active customers.

Amazon Marketplace has become the modern Wild Wild West.  In a continuing data-driven effort to offer customers the lowest possible prices, the best available selection, and the utmost convenience, Amazon has also made its platform the source of an unending challenge and drain on resources for the brand and manufacturer community. Amazon’s Marketplace has enabled an epidemic of counterfeit and shady operations through Marketplace sellers, who until recently, have gone relatively unchecked. These shady 3P sellers make it hard for the legitimate 3Ps and brands to develop a consistent business on and outside of Amazon.

To Amazon’s credit, they have taken steps recently to protect brands from one of the worst Marketplace offenses – counterfeit products. Its late-2016 lawsuits against counterfeiters, including one jointly with TRX, show evidence of a crackdown. Over past months, Amazon offered a beta Brand Registry program to the top 10,000 brands as a tool to monitor and defend ASINs linked to trademarked brands against counterfeit products. The newly announced Brand Registry 2.0 coming in April to all brands has given hope to manufacturers battling counterfeit products on Amazon.

However, the Brand Registry purportedly does nothing to help every manufacturer battling unauthorized 3Ps that have gotten their hands on low-cost inventory through a flash sale, Black Friday offer, or through fraudulent or gray market means, then turning around to trash the price and steal the Buy Box from a legitimate seller or the manufacturer itself.

These unchecked 3Ps and Amazon’s price matching algorithms have increased manufacturers’ cost of doing business in unexpected ways:

  • Hiring staff or firms to chase down unauthorized 3Ps and go through the painstaking process of filing claims with Amazon to get them removed.
  • Purchasing unauthorized 3P products just to get them out of the Buy Box.
  • Paying margin guarantee claims to retailers and even to Amazon when Amazon’s price matching engine kicks in.
  • Loss of topline brand revenue through a chronically lost Buy Box.

What’s a manufacturer to do?

Smart businesses adapt to tough business conditions. Here are a few options:

Launch on or move to Seller Central. Some manufacturers have gotten fed up and moved away from Amazon’s “Vendor Central” platform and onto Marketplace as a seller just to have greater control over their own brand, inventory and price.

Launch and tightly manage an Authorized Reseller Program.  Ensure that only sellers approved by you to resell your product can purchase your products wholesale, either directly or through an authorized distribution partner. This limits product availability to a closed group of trusted resellers who have a vested interest in helping to maintain the integrity of your brand. Publishing an up-to-date Authorized Reseller list on your company website makes for a more clear-cut case to file claims with Amazon when unauthorized 3Ps get a hold of your product. It also helps your consumers with clear guidance to legitimate sellers.

Publish a Minimum Advertised Price (MAP) Policy.  While laws firmly protect seller’s rights to set pricing, providing guidance to your Authorized Resellers on your company’s pricing and promotion guidelines can help to maintain your brand/value proposition.  Minimized price competition among resellers minimizes Amazon’s price matching and the indirect cost that ultimately comes back to you.

Serialize and track your inventory. Keeping a database of your inventory and its whereabouts in the channel will help you track down the origin and path of products that land in unauthorized 3Ps’ hands.

Limit quantity purchases on promotional offers.  The more product you sell on promotion in any reseller channel, the greater the risk of 3Ps later selling your product on Amazon below MAP.  Smart manufacturers limit promo purchase quantities to 1 or 2 units. Black Friday is a catch 22!

I’m not recommending an Amazon boycott.  For small businesses, that’s just revenue limiting.  I am recommending you go into business with Amazon with your eyes open, looking at every option, and fully prepared to set your business up properly to protect your brand and your other partners.  If you don’t have the experience in-house, hire an experienced Sales leader or consultant to set your Amazon strategy right from the start.

About the author:

Suzanne Oehler is an energetic, driven business leader with 15 years in consumer and enterprise tech Sales. Widely regarded for opening and expanding business in brick-and-mortar Retail and digital E-Commerce for consumer technology hardware start-ups, she designs and implements winning Sales strategies that navigate the complexities of Consumer markets.

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