How to protect your brand against Amazon’s Manufacturers Policy

Jun 2, 2020    |     Amazon, eCommerce

Your brand is the most valuable asset you own as a business. So how do you protect your brand when selling to the world’s largest retailer means sacrificing control of your product, promotions and even pricing authority? 

First Party vs Third Party selling.

To understand how to reduce brand risk on Amazon you must first understand the very clear distinction between ‘First Party’ and ‘Third Party’ selling:

1P – First Party. To sell first-party through Amazon is to essentially hold a traditional retail/wholesale relationship with Amazon. You sell your product to Amazon and they use their online store to sell it Amazon buyers.

3P – Third Party. To sell third-party on Amazon means to list your product on their marketplace. You’re responsible for the listing, order management, communicating with buyers, shipping/fulfilment and returns.

The ability to move a substantial amount of inventory and the revenue that comes with it is clearly appealing. However, the unfortunate reality of selling directly to Amazon as a manufacturer (1P) comes with significant risk. 

This risk sits with Amazon’s pricing policies, whereby Amazon has complete control over pricing and markdown.  There are multiple examples of large brands like Nike and Ikea choosing to no longer partner with Amazon, with statements from both brands naming ‘control’ as a divisive factor. In some cases, this resulted in their product being sold under RRP and with conflicting product markdown. 

Amazon’s Manufacturers Policy

As a manufacturer wanting to access the largest retail store in the world whilst remaining in control of your product – and ultimately your brand – you have the option of selling 3P. However, unfortunately, it’s not that simple.

Before Amazon approve a brand access to their 3P offering, they hold the right to enact their Manufacturers Policy. The policy ultimately states that they (Amazon) “…expect you to offer Amazon Retail the option to source those products at competitive terms for sale.” – View a version of the policy here.

This means that to sell through their marketplace offering (3P) you must first offer your product to Amazon Retail. Yet again this comes with the risk of sacrificing control of your product and brand. Only once Amazon has chosen not to purchase your product are you permitted to list and sell your product 3P.

eCommerce as a Service

The execution and delivery of eCommerce is complex; a complexity that only grows with scale across a diverse range of skillsets and expertise (not to mention relationships). Direct to Consumer (D2C) eCommerce represents significant value to brands:

  • New revenue stream/s
  • Building direct relationships with your customers and
  • Direct customer data & insight

However, it also represents significant risk associate with its complexity. Managing even a single channel – for example, an eCommerce website or Amazon’s 3P marketplace – requires capability and process in 3 key pillars:

  • Warehouse & Logistics,
  • Website or Marketplace management and
  • Marketing & Customers Services.

Each channel requires nuanced skillsets and specific relationships that only come with years of experience.

So how do brands enter the D2C eCommerce market without a human capital investment that can easily exceed $1M in the first year of operation?

The answer lies in being able to leverage eCommerce as a Service in a way that enables brands to enter the D2C eCommerce market faster and with less risk, assuming the service provider represents the right experience in the desired channels/markets.

By operating your eCommerce function through an eCommerce as a Service provider, especially when trading on Amazon allows you to retain control of your product, its pricing and promotion and ultimately retain control of your brand.

Tyler Jarratt
Head of Partnerships
Enrich Trading Group

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