Amazon is fighting a battle now on two collective fronts. Recent coverage has been widespread of the Amazon lawsuit taking place by the Washington, D.C., Attorney General Karl Racine and the Amazon antitrust battle. Although the antitrust battle has gotten more media coverage, it might be less interesting that the smaller, more specific battle on their hands. The antitrust battle is fighting Amazon as a whole, whereas the DC fight is for a specific policy. One that as a seller, we’ve found to be pretty frustrating.
First, let’s go back and review some history of Amazon receiving scrutiny from monopoly and antitrust sentiment.
Even before Trump, Amazon was getting calls from individuals that they were a Monopoly needing to be broken up. Trump, potentially for personal reasons, intensified this claim during his run for President and beyond.
In 2019, Amazon lost a lawsuit in Germany in regards to banning sellers “without notice”. Due to that suit, Amazon updated worldwide terms to, “change account termination and blocking to remove its unlimited right to do so without justification.”
In 2020, a Wall Street Journal piece accused Amazon of “Steamrolling Rivals and Partners.” This article detailed how Amazon “knocks off” Third Party Sellers and then subsequently bans them. Personally, we didn’t find this article to be a good aggregation of the way Amazon actually works, but it was a fun click bait headline for the author.
And just weeks ago, Elizabeth Warren and other Progressives just announced a push to break up perceived monopolies. This seems to be moving forward with an unknown future. This week Amazon emailed numerous sellers to make them aware, and likely rally them around the fight, legislation might be coming.
With all of this swirling around, I cannot think of a single reason Amazon thought it would be wise to institute one of their more eyebrow raising polices to date. I would have been screaming if I was their lawyers, but hey, who am I?
The basic premise may be a little hard for people outside of the Amazon ecosystem to understand, so I break down what it actually means for everyone. This may give everyone a better idea of some of the policies Amazon places on sellers.
A few things to understand:
1). Amazon has Third Party sellers who can sign up and sell their goods on the platform. As a Third Party Seller, you do not sell to Amazon, you simply use Amazon as a sales channel (like the eBay model). You own the inventory until it is bought by the customer. You have the freedom to price the product at whatever price you choose (Yes, I’m foreshadowing the chaos).
2). When you are selling on Amazon, you get something called the “Buy Box”.
Customers will know this as the little yellow box when you go to purchase. As a seller, you need to show up in the Buy Box, or else you will not get the sales. It looks like this little box here that I am sure consumers will recognize.
3). About a year ago, Amazon rolled out a new policy where they will crawl the internet and look for a “lower price somewhere on the internet.” This was likely in an attempt to fight Google Shopping.
If this was only Amazon’s own products, this likely would have gone unnoticed. This is not what Amazon did. Amazon instead started giving sellers “Pricing Health” issues. As stated by Amazon, “On the Pricing Health page, lower your offer's total price (Price + shipping) to match or beat the Competitive Price.”
This price would be the price at another major retailer or website. If Amazon found this, they would remove the Buy Box from the listing until the price was matched. Instead of the Buy Box, what a customer might see is something like this, where the option to purchase the product isn’t readily available. You can still
buy the product, but you would need to click into the “See All Buying Options” area and then purchase. This image looks eerily similar to pages where products are out of stock, and anecdotally our sales drop by an average of 80-90% in such occurrences.
One of the real frustrating factors to this program is many times the product that Amazon finds will be prior to calculating the cost of shipping. For instance, a product that is priced at $29.99 on Amazon might have a $4.75 cost in shipping internally for the seller. Then when adding in Amazon’s referral fee of 15% at $4.50, a seller might net $20.74.
Amazon may go find the same product on Target.com that is listed at $24.99 with “free in store pickup” and count this as the “same price” and thus $5.00 cheaper. If a customer were to place it in their cart and checkout, they may see a $5.00 shipping charge, rendering it the exact same price. Amazon does not factor this. They simply count it as $5.00 cheaper and request the seller to lower their price to “match”. If the seller was to attempt to match the price, they may end up losing money. So sellers are stuck between a rock and hard place either losing 80-90% of sales or losing money on each transaction.
Additionally, Amazon does not factor bulk discounts in their pricing methods. When we are selling a 9 count protein bar, Amazon will compare it to an 18 pack on another website, overlooking that customers will always receive a discount when buying in bulk. Amazon will divide the cost per unit and take the lowest price they can find, then ask a seller to match this price instead.
We have attempted to file cases to make Amazon aware of their misunderstanding of certain websites pricing structures, but the cases usually result in the same automated messages stating that, “We are not eligible to be featured in the Buy Box because our offer is not priced competitively compared to other retailers outside of Amazon.” The response is the same when we point out that the price they are referencing, which they do not tell us where they found, is before shipping costs.
This was quite noticeable last year when other retailers ran deals on Prime Day to compete with Amazon. The result was after planning campaigns with our brands and posting on social media, we lost the Buy Box when competing retailers additionally dropped their prices.
Amazon scans Google shopping which can often include smaller websites, but the program most seriously hits those found in Walmart, Sam’s Club, and Target. Brands that do not sell to additional retailers will not be affected, as they likely can control their pricing across all channels.
The program seems wildly shortsighted, as it was always going to encourage additional scrutiny from regulators. For a company that was attempting to stay out of the crosshairs of antitrust and monopoly concerns, they did everything wrong with this policy.
Additionally, Amazon invited unneeded frustration from Third Party Sellers. Amazon, as stated in Jeff Bezos’ Letter to Shareholders, claims that “60% of their business was done by Third Party Sellers.” Why would Amazon institute a policy that affects the one thing sellers can control, their own margins? If Amazon wants to be the ultimate free market capitalist, this is quite the opposite. Many
Sellers have been sure to voice their concerns; we are certainly in that camp. Although we love Amazon and what they have allowed our business to accomplish, it feels like their pulse on the sellers is abjectly disconnected.
Lastly, the policy can’t possibly result in additional revenue for Amazon. Most sellers are pricing their products at a fair price to make a margin as it is. It’s
impossible to compete on Amazon and make 70-80% margins -- someone will simply take the business for a lower margin. Thus, most sellers are making somewhere between 10-30% margin. Lowering the price to match an entity that doesn’t factor shipping almost certainly eliminates the whole margin. In turn, most sellers will simply not lower their prices to match the “competitive” price. Sales then drop 80-90%, which means Amazon makes no referral fee and no FBA shipping fee. Instead of diving deeper into Amazon, brands may simply just leave and find channels they can control. It’s a non-starter from a revenue perspective.
This was unneeded from Amazon. Seriously, who doesn’t think that Amazon has great prices? You never hear anyone say, “I don’t shop on Amazon, it’s just too expensive!” Amazon has a quick and easy way to alleviate this lawsuit;
drop the policy NOW. It just can’t seem to be beneficial from a business or optics perspective.
Oh, and if Amazon needs me to step in as legal counsel, let me know. I’m totally unqualified, but could have saved you the hundred million or so this lawsuit will cost to defend.
Alexander V. Johnson, Mixt Solutions.
Mixt Solutions is an online sales company specializing in Amazon based consulting. They are a top 500 Amazon Seller worldwide doing over 1,000,000 transactions on Amazon per year. They partner with some of the biggest companies in the industry.