What are Advanced Ways to Incorporate Amazon into my Business? - Chapter 6

Amazon Selling - If You Can't Beat Them, Join Them is a book authored by Andrew Tjernlund which will be released as a series of blog posts on AMZHelp.com. If you have any questions about our services or wish to sign up, please reach out.

Chapter 6

What are Advanced Ways to Incorporate Amazon into my Business?

The best customer service is if the customer doesn't need to call you, doesn't need to talk to you. It just works. –Jeff Bezos

There are many interesting ways to incorporate Amazon into your business. These can not only increase your Amazon sales, but provide new channels and methods of selling product through your existing business. Keep in mind that these will not fit every situation and are primarily listed to demonstrate the power and flexibility Amazon can add to a company.

Level 1 - Dropshipping with FBM

Adding non-stock items to Amazon and then using your supplier to drop ship to customers can obviously add to your revenue, but it can also help reveal new trends or overlooked items that should be stocked as part of a standard offering. If the supplier has a agreeable dropship terms there is nothing to lose. All costs, including Amazon’s are variable and since items can be added to Amazon with little set up even the administrative hassle is minimal.

Price Discrimination

Not sure how to price your items, especially newly launched products? Play around by adjusting the price on Amazon to see what the effect has on volume. Because pricing is relatively instantaneous it is possible to offer a product at a variety of different price points so that in a few days or weeks a brand or retailer has a better idea of the optimal price. This can be helpful because price tags and price sheets have a perceived permanency in the minds of consumers, but online prices do not. Take advantage of this to test prices for better Amazon margins or velocities and to optimize those numbers for sales outside of Amazon like in a retail store or website.

Level 2 - FBA for Items Sold Outside of Amazon

FBA is simply just that. Items are fulfilled by Amazon. There is the implication that these items were likely also sold on Amazon, but that does not have to be the case. Many sellers use Amazon’s fulfillment services to pick, pack and ship items that were sold elsewhere like a retail or online store. This is done even when they may have stock in their warehouse. Amazon’s shipping rates with the major carriers are so low that even with the additional charges for picking and packing their total shipment cost is lower than negotiated carrier rates for mid-market firms. This can be true even for shipments within a company’s own state! Additionally, Amazon has extremely low 2 Day and Next Day rates, so during the end of the Christmas season many sellers are able to offer quick shipping for reasonable prices by leveraging Amazon’s buying power.

Offering Competitive Products

Many companies only stock or offer a part of line of products. Others choose one brand and stay true to that offering in order to leverage volume discounts or combined shipping rates. Those businesses may consider incorporating into their catalog or online offering competitive products that are marked up from Amazon products or affiliate links to those products on Amazon. Certainly, this is not a suggestion to forsake more profitable products currently offered, but there are advantages to this. The most obvious one is additional profit. It may not make sense to stock an XXXL shirt, but if a customer wants one and it takes a few mouse clicks why not get it to them via Amazon--with a markup, of course. Additionally, some sellers may learn about new lines or competitors that may make them reconsider their strategy of partnering with a particular brand. The numbers will not lie.

Level 3 - Amazon Private Label

What makes a product unique, technically? To Amazon, a unique UPC. To most customers, a specific model number. That’s it. Not a different patent number, manufacturer or even color. Consider offering a line of products on Amazon that is only available on Amazon. Whether it is a specific bundle or the same item as normally available, but in a different box many sellers see the best results by having free reign on Amazon. Often, dealers or brands are only concerned about their products and not a brand’s or reseller’s version of a similar product. This can be a way of having the cake and eating it too.

The FBM, FBA, VE Cocktail

As discussed, there are major benefits to each fulfillment method. When selling directly to Amazon, one is able to ride the coattails of their advertisement budget and ability to usurp otherwise superior offering by owning the platform. When selling by FBM, one can have limitless product availability--no waiting for your FBA shipment to reach the distribution center or for Amazon to decide to carry it. With FBA, one has excellent control of margins, relative ease in managing sales and the ability to better control price is still alive. But which to choose? How about all three?

Begin by creating an FBM listing for a product. That’s a start, but FBM means extra work offering customer service and fulfilling orders. Plus, there is no major SEO boost and it lacks the value Prime items provide to customers. So, next, create an FBA listing for the same product. It will show up within the same listing. Once product arrives to Amazon’s FCs you have two offers on the same listing. One, the FBM, offers constant source of inventory (just set to 9999) while the other, FBA, automates your sales, may provide better margins (FBA offers can charge more and still win the Buy Box compared to FBM offers) and makes your items Prime. But there is more.

Now offer the same product at a somewhat reasonable price directly to Amazon through VE or VC. The beauty of this is that once Amazon starts offering your product themselves the whole listing gets the SEO boost, including your offers. This will be maintained even if Amazon is not always getting the Buy Box due to a high price or being out of stock.

“But wait,” one may say, “won’t I have to sell to Amazon at a low price to make this work?” Not necessarily. For one, although there are Co-Op fees, when selling to Amazon directly a seller avoids the commission they would incur for sales as part of FBA and FBM, shipping costs to the customer, returns, and inbound freight to the fulfillment centers (in the case of FBA). So, with those costs avoided one may be able to offer products for sale directly to Amazon more profitably than at first glance.

Secondly, Amazon does not know what a normal profit margin is for every category of products. For example, Halloween costumes are expected to fetch a huge margin due to the inconsistent demand and excessive inventory risks. Whereas sheetmetal, a commodity that has constant and universal demand generally fetches very low margins. Does the Amazon algorithm know if a pair of sandals is suppose to fetch 5% or 300%? No. So, sell to Amazon at a high price and then make that method your preferred channel, but use a FBM or FBA listing to reign in on Amazon’s margin.

By carrying it in stock Amazon has a real incentive to turn the inventory. Although without competition from other listings Amazon may default to reaching for 40% margins on that pair of sandals, with competition it will settle at 10% margins, perhaps. Essentially, using this cocktail has allowed the seller to extract the maximum amount of profit from the sale of the sandals without causing the consumer’s price to be inflated and therefore hurt volume.

In short, FBM keeps the pricing somewhat low all the time because there is a competitive offering. FBA keeps it very low as long as items are in stock because it has a lot of clout in the Buy Box algorithm Yet, the real goal is to sell items through VE/VC which carries the least administrative burden. Do not sell at to Amazon at $70 so the end price is $100. Sell at $92 and force the end price to $100. Those extra $22 are yours to keep and Amazon accepts it as simply the normal market markup for that type of product.

Amazon Selling - If You Can't Beat Them, Join Them is a book authored by Andrew Tjernlund which will be released as a series of blog posts on AMZHelp.com. If you have any questions about our services or wish to sign up, please reach out.