In a recent post, we shared best practices of what you can do as a vendor when Amazon loses the Buy Box for your products. It’s a tricky topic – there is not much you can do ex-ante. The best strategies are preventative, the most important one being effective inventory and supply chain management.
When preparing that article, we spoke to some of the top experts from our vendor network. The discussion with Markus Wiese was especially fruitful and uncovered some interesting Buy Box scenarios.
That’s when the most fundamental question came up: “Do you ALWAYS want to win the Buy Box?”
In the seller realm is has been said that 90% of the sales go to the Buy Box winner. That means not winning the Buy Box can be detrimental to your business.
In the case of vendors, the Buy Box winner is Amazon. You are selling your products to the E-commerce giant, and they are reselling that inventory at a profit. That means, in general, you Do want Amazon to win the Buy Box. However, we identified two scenarios where you DON’T.
But let’s take a step back and first look at what happens when Amazon DOES win the Buy Box.
Do you always make the sale when Amazon wins the Buy Box?
Based on the experience of Markus Wiese, you don’t: “The Buy Box really is a Black Box.” What you do know is that when Amazon is winning, a product from your brand is sold. What you don’t know is who sold that product to Amazon.
Here’s the deal. Amazon doesn’t believe in exclusivity — for them, it is most important to serve the customer well: loads of products being available at affordable prices. If you are out of stock, refuse a PO, or if Amazon can find a distributor or wholesaler that can offer them a better price than you, they will also retract product from them.
So just because Amazon wins the Buy Box doesn’t mean you make the sale.
Are you competing with yourself?
Most vendors have distribution points all over Europe, and all over the world. And as we have already pointed out, Amazon doesn’t believe in exclusivity. That means that Amazon negotiates different conditions with each unit separately – except if you are a major market player with enough leverage to negotiate a PAN EU contract. So what happens if the UK unit of your brand has different conditions than your German unit?
It means that your German Amazon manager might see his AMS spend increase with a successful PPC campaign while the inventory is remaining the same. How is that possible? The campaign IS successful, and sales ARE increasing. However, Amazon is retracting the inventory from the UK distribution center because that is where they are making more profit.
As a result, your brand is competing with itself, and your online sales managers with each other.
So let’s go back to the initial question:
When do you want Amazon to NOT win the Buy Box?
1. You think that Amazon is selling the inventory of someone else
This ties back into our initial discussion of the ‘Black Box’. You cannot directly influence whose inventory Amazon is shipping out after a successful sale — it could be yours, it could be your colleagues from another market, or it could be from one of your distributors/wholesalers. If you can see in your data that Amazon is predominantly choosing someone else’s stock at your expense, the Buy Box win is not beneficial to you – yet.
So what can you do?
Minimize competition between your regional brand outlets
The conditions between Amazon and vendors often change on a different timeline within different countries. That means that your regional brand outlets often face different charges.
The ideal solution would be to negotiate a PAN EU contract with Amazon. However, since only large vendors with significant brand power and market share have the leverage to do so, this might not be an option available to everyone.
The next best alternative is to try and balance the difference in conditions via price adjustments. However, this is incredibly time-intensive and not feasible to implement for all products in all markets. Here Markus Wiese advises applying the 80/20 rule: monitor the changes for the 20% of your products that generate 80% of your revenue.
Ensure that Amazon picks your products off the shelves
In order to avoid Amazon choosing inventory from your distributors over yours, you can consider increasing your wholesale price in order to make the direct sale to Amazon less lucrative. But this might turn relationships with your distribution network sour.
An alternative option would be the introduction of online-only products. These are products that you are only selling on Amazon/online, and that your distributors can’t get their hands on. It can be the same products as in your portfolio – you simply need to differentiate the packaging, labeling and the EAN code. This way you might be able to add a little bit of exclusivity to your Amazon business.
Use the Retail Analytics Feature of the Sellics Vendor Edition to monitor how often Amazon picks your inventory, and how often they source products from other wholesalers to fulfill the Buy Box sale.
2. You want to limit the product price Amazon charges customers
You want to reduce the price Amazon is charging for your product? Sounds counter-intuitive at first, but bear with me. As a vendor, you do not have any power about the price if your product once you’ve sold it to Amazon. There is a certain minimum where Amazon can’t go lower without eating into their own profits. But is there an upper limit?
Not really. Ultimately, Amazon’s pricing decisions are based on supply and demand. Now imagine a situation where there is not only great demand but very little supply.
This is exactly what happened last summer in Germany. As the temperature consistently hit 30°, the demand for fans skyrocketed – and so did the price:
That last blue spike in 2018 was last summer. You can see how the price of a fan shot up from an average of just above EUR 25 to a whopping EUR 200.
To better understand the extortionate nature of this offer, have a look at the fan I am talking about:
This is a very extreme example, but it explains the case well. While low prices are bad for your margins, very high prices can be equally damaging for your brand. So what can you do?
Wish for Amazon to lose the Buy Box, or at least induce some sort of competition to stabilize the price at an acceptable level. Some vendors hire a broker and use a commission model to sell their products and thereby control price. Others set up their own hybrid model of a seller and a vendor account to try and influence the price in-house.
These are the two examples where you might wish for Amazon NOT to win the Buy Box.