Amazon Launched A New Program Called Sold By Amazon

So, there's a new kid on the block which is a new "Sold by Amazon program." The idea is to remove repricing tools and gives Amazon full control of what price it sells your product for.

To be clear, this a scheme that will be introduced to third-party sellers on the Amazon platform, but it won't remove complete control. You still have the ability to set a minimum price and if Amazon price your product below that threshold, they have agreed to pay you the minimum price you have set.

Initially, this new scheme isn't for everyone and will only be available to a few hand-picked US sellers who agree to signup for it. It is being described by Amazon as a complete "hands-off experience" as Amazon gets to choose the price your item is sold for using a complex algorithm.

You might be thinking at this stage, "this is cool, but why would Amazon decide to take a loss on these products be selling below your set minimum threshold?" This is a great question to ask and you're probably aware that there is always a good reason for Amazon to introduce a program like this.

Killing The Competition

This will be a six-month renewable contract and gives you the flexibility to opt-out after this period.

So, what's the game here? Why would Amazon do this?

It's all about controlling prices in the marketplace, basically. Their algorithm will go out into the marketplace and see what price other sellers from different websites are selling the products for and adjust accordingly. Also, if they are a bit low on inventory, they will have the ability to jack the prices up if demand is higher than supply. Of course, this is basic economics that has been around for a long time.

You know that!

However, never before has this been done at such scales using third party seller products.

For example, Uber (the ride-hailing platform) adjusts its prices on the fly based on demand. If their system is busy in a certain area and they have a limited number of cars available, their algorithm automatically changes the prices normally upwards) to take advantage of the supply-demand problem.

This system will really be seen at times of high activity such as "Black Friday" when demand is always going to strip supply. Amazon will effectively change prices based on the overall demand for a category and products.

Nice For Amazon

So the deal is, you need to send your products to Amazon to fulfil. This means using the Amazon FBA system instead of keeping them in stock in your own warehouse. This will give Amazon control to adjust stock levels depending on how they are selling and realtime price changes by other merchants on other platforms.

During this process, Amazon gets to charge you storage fees and in effect sell your goods at no risk.

Think about it, they didn't purchase the stock, so capital wasn't spent by Amazon, their revenue will come from storage and transactional fees to the merchant (you).

Our Take

If the tone of this article is a little sceptical, you could forgive me for raising my eyebrows when I came across this story.

This is certainly a win, win for Amazon and kind of a win for you, the merchant. I can totally see why they are doing this and it makes complete sense in conjunction with their business model.

Don't forget, the Amazon brand is one of the strongest out there. By attaching your name and products to their brand isn't a bad thing (in the short run).

I can't help but think that this is going to be some kind of precursor to how things will operate for merchants going forward.

These things are often tested and if they work are generally rolled out nation and worldwide.

We'll wait and see, shall we?

Image credit: Sikai Gu@gentle_kay