If your products are listed on Amazon, then someone is representing your brand.
Have you made a conscious decision regarding how your brand will be represented on Amazon? Have you wondered who is selling your products on Amazon? Have you seen sellers listing your products and have no idea how they got them?
I’ve talked with many companies that claim they don’t sell on Amazon and don’t sell to companies that sell on Amazon, and yet their products are all over the site! How does this happen?
Simply put, there are a lot of shady characters who sell on Amazon. I'm going to tell you:
1. how they get your products, and
2. why you DON'T want them to be representing your brand.
Retail Arbitrage (RA) & Online Arbitrage (OA):
How it Works . . . For Them
There are tens—if not hundreds—of thousands of people and some very big businesses whose model is: go into retail stores, buy products, and ship them into Amazon fulfillment centers, thereby making them available to Amazon Prime customers via FBA (Fulfilled By Amazon). The model is called Retail Arbitrage, and it's incredibly lucrative.
I know what you’re thinking: why would someone buy shoes for $90 on Amazon when they can buy the same shoes for $30 at Marshalls?
Because people love the convenience of Amazon, and they especially love Prime’s two-day shipping.
Effective RA buyers and companies make purchases using gift cards that can be bought at any number of gift-card marketplaces. For example, it's possible to buy a $100 Target gift card for $86, which—for an RA buyer—means a 14% reduction in their cost of goods. Layer that with a 5% cash-back Target credit card and whatever seasonal sale Target is running, and it becomes ridiculously easy to find profitable products for arbitrage.
RA buyers scan barcodes using apps that check the price of the same product on Amazon—even down to the size and style of a particular type of shoe. These apps also tell the buyer the number of sellers, the Amazon sales rank, the number of reviews, and the potential ROI if they buy the product and sell it on Amazon.
Similarly, some buyers use Online Arbitrage (OA) as a method of sourcing products online. Like RA, OA buyers have their own set of tools to make their product sourcing as efficient and profitable as possible. These days, buyers use websites that scour the internet, checking thousands of products against Amazon prices. OA buyers also stack discounts of gift cards, sales, cash-back credit cards, as well as cash-back sites.
As a brand owner, you do not want RA or OA buyers representing your brand on Amazon.
Not because what they’re doing is wrong or illegal, but because they have absolutely no incentive to protect your brand or increase sales. They have no long-term vision for the products and brands they carry. On the contrary, selling through products as fast as possible is the name of the game, and since tomorrow they’ll very likely be buying totally different products, it doesn't matter to them if they cause intense downward pressure on prices in the interest of selling through and recovering their capital for their next round.
Where is Value Created?
Arbitrage (both RA and OA) creates value in the marketplace. The concept of buying goods and then selling them on Amazon isn't much different than sailing from England to China, buying spices there, and then bringing those spices back to England to sell. There is value for the consumers who don’t have to go to China to get their spices. The merchants are paid for what they provide. The scale and initial investment is obviously smaller for RA and OA Amazon sellers, but these arbitrageurs provide a way for consumers to buy goods without going to the trouble of driving to the store. Enough consumers want to buy their Nikes on Amazon instead of heading out to the Nike Outlet that the marketplace is willing to pay arbitrageurs to set up the necessary systems to move goods from one marketplace to another. It's just the way it works these days.
For RA and OA, the value is provided to the end consumers at the expense of the brands. RA and OA provide very little—if any—value to the brands, and in most cases, they detract from a brand's presence on Amazon. RA and OA buyers generally don’t adhere to minimum advertised pricing (MAP) policies, and typically set repricing rules to price $0.01 below the lowest current price, thereby causing steady price depreciation. Furthermore, if there’s an issue with a listing on Amazon, an OA or RA buyer can simply stop selling that product and move on to others. There’s no incentive for them to fix listings by improving images, writing better copy, or reuniting parent/child listings that have become separated.
Bottom Line: You Cannot Decide
that Your Products Won’t be Sold on Amazon
The Amazon marketplace is a jungle! I know many brands that say they don’t sell on Amazon and don’t sell to companies that do, and yet their products are all over Amazon—with sub-par listings and lackluster sales—all thanks to the retail and online arbitrageurs. Make no mistake: the idea that you can just decide not to have your products on Amazon is a false one. There is no way to prevent it. Avoiding Amazon is the same as deciding to leave your brand's reputation up to a bunch of people and companies that don't care about it. The first decision that you need to make regarding to Amazon is that YOU will represent your brand.
Want to talk about it? I'm Matt Bussey, CEO of Grand Portage Trading Co. I find the whole world of business fascinating, and I love to talk to people about it. Send me an email, and we can set up a free consultation.