We know that Amazon works like a flywheel – once you get going, so long as everything keeps running smoothly, your sales truck along, growing steadily. But if something stops the flywheel, everything can grind to a halt, and this is every bit as true for your Amazon sales. These 5 things can disrupt your Amazon business in this way:
- Price suppression
- Discounted stock
- Know Your Customer (Sellers only)
- Excessive chargebacks or other deductions
- Significant out-of-stocks
Price Suppression
This type of suppression can happen to vendors whose products are being significantly discounted elsewhere in the trade. Amazon will often match the pricing that they have found elsewhere in the market. If you are unable to support their drop in profitability they may decide they can’t afford to match the price. In these instances, rather than offer your product at a higher price, they may suppress (ie hide) the buy box so that customers can’t see the offer. The buy box may become completely inaccessible, or just difficult for shoppers to find.
Price suppression can also happen to sellers whose Amazon price is out of line with their pricing elsewhere. In this instance, Amazon doesn’t usually have the ability to match the pricing, as the stock is your own. However, they can suppress your listing until the price aligns again.
If this is happening on your slower-selling lines you might be able to just ride it out, but it’s more common to find that several of your top sellers are on deal at different times with different retailers and it’s really tricky to get that flywheel turning again.
One way to avoid this is to try to align your promotions across the trade, so that everyone (including Amazon) has the discounted price at the same time. This means that you offer will continue to be visible (and discounted) whilst the other promotions are running. Practically this can be difficult to achieve, but it’s worth trying if price suppressions are having a significant impact.
Discounted Stock
It’s a fact of life that stock sometimes has to be moved on at lower cost. Sometimes it’s short-dated, sometimes part of a range that’s being discontinued, or maybe minor damage to the outer packaging.
Whatever the reason, the are numerous businesses providing a service moving on this stock either through discount retail outlets, across national boundaries or in other ways. Unfortunately one of the easiest ways to move discounted stock these days is via Amazon. If the price is keen enough, and listed in competition with your own listings, you can find that you don’t sell any of your standard range whilst J Bloggs Deals sells through your short-code stock. And J Bloggs Deals may not be completely transparent about the Best Before date when they are selling the products through, potentially disappointing your shoppers.
It’s worth going through the exercise of assuming that the sale of each discounted unit will replace a standard sale. Working through this assumption will help you to understand the opportunity cost of this type of disposal method. If it’s still the right business choice, you can then plan for the reduced demand via Amazon. However, you also need to take account of the impact that this substitution may have on your Amazon flywheel, especially if bestsellers are part of the discounted range.
Know Your Customer
This is an issue that is specific to Seller businesses. Vendors, skip on!
As part of the anti-fraud/money laundering regulations in the UK (and internationally with minor variations), Amazon is obliged to be sure that they know exactly who they are trading with. Amazon takes a fairly strong approach to this issue and requires specific documentation presented in a specific way. This must agree with other data sources eg Companies House.
Any beneficial owner owning 25%+ of your business needs to be prepared to show their ID documents to Amazon. The sanctions escalate – Amazon may not disburse any further revenue from sales unless this in place, and your whole account can be suspended pending a successful Know Your Customer process. You may need specialist help with this, which we provide as part of our full service.
It’s also worth noting that if a beneficial owner also owns other accounts which have been suspended (eg in the case of private equity), your own account may be at risk by association.
Excessive chargebacks or other deductions
When businesses begin to supply Amazon, they can be surprised by the costs involved.
The Seller fee structure is fairly clear, with charges for your selling plan, referral fees, product storage in Amazon Warehouses (if that’s what you choose) and fulfilment costs. However, it’s important to watch your Seller Chargebacks. These are transactions that have been disputed by your shoppers eg for non-delivery.
Other costs are in your control, such as investment in advertising and promotions.
But for Vendors, there are other costs, charges and fees that may apply, and for some businesses the scale of these comes as an unpleasant surprise. As the sales line grows, potentially the charges grow too. Eventually the vendor views the channel as unprofitable, stopping supply until the charges can be understood and controlled.
At MinsterFB we explain these costs. If you’re listing products for the first time we will advise you on the cost price, taking into account the Coop deductions (such as damage allowance, marketing allowance etc) that form part of your agreement with Amazon. For all clients, we review how these terms have been applied monthly, to ensure that they are correctly charged. We dispute any that are incorrect.
We also offer guidance and training to your supply chain team on operating inbound logistics for Amazon. This helps our clients to avoid chargebacks for eg failure to supply within the shipping window, failing to provide the required shipping information or prep charges. We quantify chargebacks in our monthly review meetings and supply further advice as required, to keep these low.
Finally, we will keep track of any shortage or audit claims and will support your team in disputing inappropriately charged fines.
With this support, our clients feel able to anticipate and manage their costs.
Significant Out of Stocks
It goes without saying that if a product isn’t there you can’t sell it. However, if the out-of-stocks occur across a number of your top selling products and for an extended period of time then the implications can extend beyond your out of stock period.
Amazon uses its A9 algorithm to determine what products will be shown in what order in response to a search. The A9 takes several inputs into account, including things like listing quality and account health. Importantly, it prioritises click through rate, conversion and sales history. A period with no stock will impact all three measures dramatically, which will damage your visibility when you’re back in stock.
To compound the issue, the advertising will also pause for out-of-stock products. A prolonged period without spend will also impact the algorithmic history of your advertising. This will make the ads less efficient when you re-start…at a time when you’re really depending on the ads to bring your sales level back to its previous levels.
Obviously no-one plans to be out of stock, but it’s worth bearing the above in mind when determining priorities for allocating the stock you do have.
Conclusion
At MinsterFB we view all these potential issues as foundational. This means that when we begin to work on a new account these are the first things we look at. Our focus on these issues ensures that all the actions that follow are founded on a secure footing. If something goes wrong in any of these areas, we drop everything to fix it.
It’s crucially important on Amazon to maintain momentum and keep the flywheel turning. We consistently watch for issues that may interrupt sales momentum and prioritise solving them.