The Number One Mistake Brands Make When Reselling on Amazon
This situation is going to be best explained by a story. So, let’s tell one. A hammock company has been selling its product directly to retailers for the past two years. They have recently decided that they are going to sell to resellers at a wholesale price, as this allows for distribution to expand. They begin selling to REI as well as five other online retailers that don’t know about the other.
The brand knows their sell-through on Amazon is about 100 units a month. The five online retailers use tools like Keepa or Jungle Scout to price track, and each determine that they want 200 units each which is about two months of inventory. But, oh no! That will cause a major problem. The brand fails to see that all of the resellers plan to sell on the same marketplace, Amazon.
Meanwhile, REI has just received their first stock and are excited to sell at the premium established at $49.99. The brand has set a map policy (minimum advertised product) at $29.99. The online retailers are also excited to sell at $49.99.
The first reseller's inventory goes up and they are happy about what they are seeing, but before they can get too excited, another reseller shows up to Amazon’s FBA network and now there are two resellers splitting the buy box. Over the next few days, the remaining three retailers show up in the listing and all five resellers are left confused, wondering how the others got there.
The same price tracking tools that we talked about earlier allow brands to see other sellers' inventory. Now, what each reseller thought was going to be two months of sell-through, has turned into ten months. Cash strapped, the resellers begin a penny war from $49.99 to the bottom at $29.99. Everyone follows suit and by the end of the week, the hammocks are all being sold for $29.99.
Pissed off, one reseller breaks from the pack and drops the price to $14.99 to liquidate their inventory. Right here, you have the makings of a diluted MSRP where the brand's perceived value is well below where they intended just a couple weeks prior.
Why does this matter? Brands step into wholesale distribution in order to allow multiple retailers to sell their products. In essence, it's the expansion of their brand. Now, REI is seeing that they just stocked up on a product that is selling for $14.99 on Amazon. Do you think they will ever buy this product again?
This brand has now broken their brick and mortar supply chain because they didn’t consider the effects of overselling and overcrowding a particular market place. This one instance is typically exacerbated by years of bad practice. Brands tend to be repeat offenders in this space and start to lose control of their overall supply chain.
In our experience, we have seen instances of sell-through inventory being on the market for almost two years. This is because a brand isn’t paying attention, or just doesn’t get marketplace sell-through. A lot of brands get over-excited by the additional purchase orders and don't do their due diligence to understand the long term effects flooding a marketplace with inventory can have.
So, what can you do to avoid this problem? Here are a few things that we recommend.
1. Pick up a cheap tool like the ones we mentioned before (Keepa, Jungle Scout, Helium 10, or camelcamelcamel) and start to study your data. You don’t know what you don’t know. A brand NEEDS to understand their sell-through velocity by marketplace and who is selling their product.
2. Don’t flood the marketplace with too much inventory. This all but ensures the destruction of MSRP and the perceived value of your brand. Think about top retailers on the market today. Brands like Apple and Patagonia have a no BS rule. If you break their policy, you’ll never be able to sell their stuff again. Those brands are everywhere, but they have really tight control over their pricing. Take the time to understand what all of your retail outlets are intending to sell for the year. We recommend putting 10% more on the market then your regular sell-through goals.
3. More retailers do not equal more sales. Whether you have one retailer or six on a listing, the number of retailers on a listing does not change the number of customers you will have. Additionally, those six vendors will be less incentivized to run marketing to increase the profitability of Amazon. In most cases, less is more. Selling to fewer retailers will produce more growth for your brand. Think of it this way. If you have too many flowers in a flower bed, the plants are going to start to have to compete for light and root space and eventually just get overcrowded and die. But, if you only have a few well-kept plants, they will flourish. We suggest investing in two to three solid resellers. Having more than one allows you to see what is working and what is not between sellers and having no more than three is just easier to keep track of.
If you have questions about this process or just need some more details, give us a call! We are here to help. (509)-765-2229.