In a new program called “Discount Provided by Amazon,” the online marketplace giant is slashing prices on sellers’ products and covering the difference between the discount and listing price.
There are drawbacks in the short and long term that are giving pause to retailers and brands who sell on Amazon.com Inc.’s marketplace.
Amazon, No. 1 in the Internet Retailer 2017 Top 500, declined to provide details of the program, such as when it launched, on which products these discounts are applied and the size of the discounts. But the company did confirm it is applying discounts on its marketplace sellers’ products, and that it is doing so to offer lower prices to customers. “When Amazon provides a discount, customers get the products they want at a price they’ll love, and small businesses receive increased sales at their listed asking price,” an Amazon spokeswoman says.
For now, Amazon sellers have noticed that most, if not all, of the “Discount provided by Amazon” items have been applied to products sold by merchants using Fulfillment by Amazon. FBA is Amazon’s fulfillment program in which sellers pay a fee for Amazon to warehouse and ship orders. When merchants use this program, their products are flagged as Prime-eligible. Amazon declined to confirm that all discounts provided by Amazon have been on FBA items.
Amazon informs customers when a product has an Amazon discount. For instance, on product pages, under the promotional price, it states “Discount provided by Amazon.” When clicking on “Details,” Amazon reiterates that the discount is Amazon’s, applied to an item sold by a marketplace seller. Here’s what else the Details pop-up box says:
- This item is sold by a third-party seller. The discount is provided by Amazon.
- This is a limited time discount.
- Discount does not apply to digital content.
- Discount good while supplies last or until withdrawn by Amazon.
- Shipping charges and taxes may apply to pre-discounted prices.
- Amazon reserves the right to modify or cancel the discount at any time.
- If any of the products or content related to this discount are returned, your refund will equal the amount you paid for the product or content, subject to applicable refund policies.
For at least some marketplace merchants whose products have been discounted, Amazon did not notify them of the discount, according to Amazon’s seller forums. Sellers can opt out of the program, but they must contact seller support to do so. Here’s the message some sellers received:
While Amazon says it will cover the price difference for the time being, there are drawbacks, particularly for retailers and brands that sell through other channels—online and offline.
Some merchants, particularly brand manufacturers, choose to sell on Amazon’s marketplace (called third-party) versus selling directly to Amazon as a wholesaler (first-party), because as a third-party marketplace seller they can set and control prices on their products. So for sellers that adhere to minimum authorized price, or MAP policy, for instance, the Discount Provided by Amazon may generate conflicts. (Manufacturers establish MAP policies designed to prevent online sellers from offering a product below a a minimum price on a product page and in the shopping cart. Similar to MAP policies are minimum resale or retail price policies (MRP) and unilateral pricing policies (UPP), which also set limitations on the amount retailers can advertise and sell a manufacturer’s product for.)
The Amazon discount may cause other issues as well, such as competing with Amazon sellers’ own websites or with other marketplaces, like those operated by eBay Inc. or Wal-Mart Stores Inc. (No. 3 in the Top 500), on which the company sells.
“This is bad news for third-party sellers with their own e-commerce website because they are now competing on price against Amazon and other marketplaces,” says Bardia Dejban, chief technology officer at e-commerce technology company Volusion, an e-commerce technology provider. “If you sold a widget for $29.99, and Amazon reduced the price to $24.99, consumers will likely buy from that channel and reduce effectiveness of others.”
Other marketplaces may even require sellers to lower their prices, says Andrew Jacobs, director of e-commerce at office supplies e-retailer Jam Paper & Envelope, No. 737 in the Internet Retailer 2017 Top 1000.
“Another cost of a product selling lower on Amazon is other marketplaces wanting to sell it for the same price. And if they cannot afford to lower their margins [by funding the cost of the discount], then they are going to pressure us to lower our margins,” Jacobs says. “So in the end, Amazon providing this discount could be a slippery slope to lower prices and margins everywhere.”
There are more than 350 million SKUs from marketplace merchants listed on Amazon.com, compared with just 13 million SKUs of Amazon’s own inventory, according to data from 360pi, now a MarketTrack company. The estimate of Amazon products does not include books, media, wine and other services. In its most recent earnings release, Amazon said 50% of units sold in Q3 were marketplace products.
Whether the discounts will have an overall impact on Amazon’s sales remains to be seen. Technically, about 95% of marketplace sellers sell products at a price that is “discounted,” or less than their listed prices, says Jeff Cohen, director of marketing at Seller Labs, a technology provider that sells software to help merchants sell on Amazon.
“[Customers] have complained about this being ‘fake discounting’ for years,” Cohen says of the many merchants that continually mark down the listed price on products.
Some sellers voiced their opinions of the program on Amazon’s seller forum. One seller said discounts could devalue their products:
“If I offer a product for $100 on Amazon, $105 on my personal website and Amazon cuts that price to $75, Amazon has effectively devalued my product, by offering it for less than the price I set. It is completely irrelevant that I will still receive the full value of the product, after all fees, etc. … because Amazon has given buyers the PERCEPTION, that my product is no longer worth $100.”
Other sellers pointed out that an Amazon discount on one seller’s products may impact competitors:
“Amazon might provide discounted prices to customers for a select group of sellers. Results: Some sellers see sales skyrocketing, others see sales dropping.”
“Any seller who finds themselves on the wrong side of this will have a problem with it. For instance, we had a product priced lower than a competitor, but for some reason Amazon decided to give the discount to them thus making their Amazon discounted price lower and win the Buy Box.”
But some sellers see the Amazon discounts as a positive, picking up sales that were dropping.
“We actually have a couple of products where Amazon is doing just that and it’s great!” a seller wrote. “One example is we have a product priced at $78.50. At some point, the buy box was removed from the page and the sales dropped. Then I noticed that the sales picked up, went to check the product page, the buy box has returned, and the price is showing as $74.90 with the disclaimer: You Save: $3.60 (5%). Discount provided by Amazon. Details. We still get the full proceeds from $78.50 sale less the fees. This is an FBA listing though, so what Amazon gives out as a discount, it more than makes up via the fees.”