At the beginning of November, Amazon quietly and unilaterally began slashing prices on select products sold through third-party resellers, absorbing cost differences itself to ensure competitive pricing. With its new Discount Provided by Amazon program, the retailer reinforced that online retail is their playground, and they make the rules. The move seems like a win-win for consumers and sellers alike: consumers get the lowest possible prices on hard-to-find goods that Amazon itself doesn’t stock, and sellers get access to additional customers and sales they might otherwise lose to lower-cost retailers. Long-term, Amazon gets valuable data about products it doesn’t currently stock to inform decisions about its own selection. While it seems like everyone wins when Amazon lowers prices, brands could come out on the losing side.
Amazon generates about 50% of its sales through third-party sellers. Offering to absorb discounts on items sold by third parties is an especially aggressive push by Amazon and demonstrates the lengths to which the company will go to gain market share and customer loyalty at the expense of its own short-term profits. The Amazon program hasn’t been clear to either resellers or the public about how they select products to discount. Most third-party sellers are likely to see only upside associated with Amazon’s subsidized discounts. In an article last week in WSJ, an Amazon spokesperson said resellers with price-matching agreements can opt out of these discounts. Many sellers might feel they can’t turn their backs on volume Amazon’s subsidized discounts can bring them.
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Brands themselves often feel a similar pull. Most people think of Amazon as a retailer, but it’s also the largest online product search engine, making it a necessary evil for many brands. In 2016, 55% of all product searches originated on Amazon. Given those stats, brands must think twice before turning their backs on the retailer. Many brands sell wholesale to Amazon and let the retailer control the entire customer experience on the platform from A to Z without compromising their brands’ integrity. Other brands aren’t comfortable giving Amazon complete control over their brand experiences, so they opt to sell directly through the retailer’s Fulfilled by Amazon program (FBA) or authorized third party sellers. Finally, some brands have exclusive arrangements with third party resellers to represent their brands on Amazon’s platform without concern for the potential for long-term negative impact facing their brands from the counterfeiting and pricing free-for-alls. Some let the marketplace and third party resellers manage everything pertaining to customer experience.
Famously, brands like Asics, Birkenstock, Patagonia and Ralph Lauren don’t sell to Amazon at all, nor do they let third parties sell their products via the Amazon program, stating concerns about their brands’ integrity. For many brands, putting their items next to dishwasher soap, TVs and cat litter could cloud their brand image and devalue their equity. But some brands in categories like consumer packaged goods and appliances don’t have the luxury of turning their backs on Amazon no matter what tactics the retailer uses to bolster market share.
There’s no denying that any brand looking to sell online must think about whether or not it will sell to, through or on Amazon. But as Amazon continues to un-level the playing field for competitive retailers and increasingly exerts control over pricing, brands need to be thoughtful about how their brands’ experiences align with Amazon's brand.
The Discount Provided by Amazon program is further evidence that pricing should also be a major concern for any brand selling on Amazon. Amazon is loath to concede pricing wars to competitors like Walmart. That’s why they are aggressively searching for programs that give them the upper hand in the race to discount products in exchange for market share. As Amazon increases its market share while dropping prices on products (and subsidizes the discounts itself,) they have the power to change consumers’ perceptions of how much brands are worth.
Brands are magnets that draw customers to them who share similar values and beliefs. That’s why where brands sell their products is almost as important as the products themselves. When thinking about a brand/seller arrangement on Amazon, brands should consider which selling arrangements allow them to maintain an appropriate amount of control over their brand’s message, visuals and customer experience. For instance, brands that want to benefit from Amazon’s customer reach yet ensure their customers are deeply ensconced in their brands’ experience at every touch point may not want to pursue a selling program that gives them control of more than just how the products show up on Amazon, but also how they are fulfilled tracked and even returned. A brand doesn’t just exist in the product itself. A brand exists in 360 degrees and is a relationship, an experience, that’s strengthened or weakened with every touch point. When brands lose control of those touchpoints, they can put their brand experience at risk.
Article By Deb Gabor
Deb Gabor is the author of Branding is Sex: Get Your Customers Laid and Sell the Hell Out of Anything. She is the founder of Sol Marketing which has led brand strategy engagements for organizations ranging from international household names like Dell, Microsoft, and NBC Universal, to digital winners like Allrecipes, Cheezburger, HomeAway and RetailMeNot, and dozens of early-stage tech and digital media titans. For more information, please visit www.solmarketing.com and connect with Deb on Twitter, @deb_sol.