Eliminating Channel Conflict on Amazon
How to seize control, drive revenue, and put the world’s #1 marketplace to work for you - without channel conflict!
Amazon continues its relentless pace towards becoming one of the largest B2B distributors on the plant Earth. With a #1 position among marketplaces for B2B product research and buying (see chart from Digital Commerce 360 below) and 50% of U.S. business buyers already making at least 10% of their work purchases on Amazon Business, customer preferences are rapidly shifting to this channel. Amazon’s B2B unit is now the fastest growing part of the company, and the behemoth is expected to generate north of $52 BN in B2B sales by 2023 (RBC Capital Markets). Many more buyers start their product search journey now on Amazon than on Google. Times have changed.
Why would B2B firms not sell their products on this enormous marketplace?
In my travels throughout B2B circles, one of the central reasons I hear B2B firms provide for not selling their products on Amazon is the potential for channel conflict. This issue is almost always centered on price. That is, manufacturers and distributors are concerned about creating conflict with other selling partners, such as dealers, distributors, and retailers, by offering products on Amazon for prices lower than their resellers can realistically compete with.
There is a disparity between management’s perception vs. the reality of how channel conflict and pricing on Amazon work. In fact, conflict can be mitigated if manufacturers and other sellers use the right approach.
B2B companies should control their Amazon presence, not the other way around
The reality is if you don’t control your Amazon presence, it will control you. Enceiba recently partnered with a B2B Ecommerce technology firm called Corevist to conduct a survey of several hundred B2B manufacturers. We asked these companies a couple of simple questions, staring with:
Q: “Are your products available for sale on Amazon?”
A: 70% said “YES”.
Then, we asked the same companies this question:
Q: “Do you know who all of the resellers are that are offering your products on Amazon?”
A: 70% said “NO”. Wow!!
If you don’t know who is selling your products, you are ceding control of not only your ‘retail’ price on Amazon, but also the quality and completeness of your product and brand content. This means you have no way to tell your brand differentiation story and are not providing searchers with any reason to buy your product, other than a low price. With an uncontrolled reseller landscape on Amazon, sellers use price as the central means to compete and “get the sale” (called “winning the Buy Box” in Amazon parlance). Unfettered competition results in prices on your products being driven down. This, in turn, creates conflict with other resellers of your products outside of Amazon, particularly those that are stocking items and working hard to provide solutions and service built around delivering your product to market. When opportunistic resellers are in control, the only way they can win sales on your product on Amazon is through lower pricing.
And, when manufacturers sell to Amazon directly through what is called a 1P Vendor Central relationship, the problem can be exacerbated. This method of selling is essentially a wholesale relationship. Amazon buys products from you in bulk, and takes control from there, including setting the retail prices of your products on the marketplace. It is important to understand what drives Amazon: the customer. Ultimately, Amazon will always be the lowest price on your product if they own the item, as they do in the 1P selling model. Lowest price - among other things - brings great value to the Amazon customer. So Amazon fulfills its core mission, but this does nothing but deepen your channel conflict issues. And when Amazon is sold to by B2B companies via Vendor Central AND numerous resellers are selling the product line, a perfect storm exists for a race to the bottom on price.
In the end, by ignoring this situation on Amazon, B2B companies are engaging in a de-facto subsidization of their own channel conflict problem. Authorized resellers who add value with product expertise, industry knowledge, invested stock positions, and marketing investments get frustrated with manufacturers and brands for NOT controlling prices and their content on Amazon.
This is a self-inflicted wound and should be an urgent call to all manufacturers to control their Amazon presence. So, how do manufacturers take advantage of Amazon without succumbing to channel conflict? There are a few approaches a manufacturer can take that will actually maximize the channel while also eliminating conflict.
Gaining Control of the Chaos
There are three steps that B2B companies can take to gain control of Amazon, while putting the marketplace to work for you (versus the other way around!)
Review Your Selling Approach – consider a shift to 3P
If you already have a presence on Amazon, it is important to start looking at how your firm approaches the marketplace. As I mentioned above, it is common for B2B vendors to have a wholesaler relationship with Amazon (1P Vendor Central). This selling method is akin to the traditional approach many B2B companies have taken for years, e.g. selling on a Purchase Order in bulk. However, this gives away pricing control, and creates conflict rather than alleviates it. An approach many manufacturers and brands are now using is to leverage Amazon’s Seller Central model (also known as 3P selling). This approach puts control of the retail price into the hands of the seller (vs. Amazon). In addition to eliminating the price-driven conflict, 3P selling also typically drives higher revenues and profits. Shifts from 1P to 3P selling are possible in most cases, and I’m seeing an acceleration of this trend, including the creation of hybrid 1P / 3P programs.
Enceiba has shifted many of our clients to a 3P approach, and many are enjoying higher top line revenue AND bottom line profit as a result of the shift.)
Understand Your Reseller Mix – and determine who you want to allow to sell Amazon
It is critical to assess and inventory the companies that are selling your product on Amazon. As of mid 2020, Amazon requires all sellers on the platform to report their identity, including their physical address and other contact information. This allows you to create a list of resellers that can be investigated, as a starting point to evaluate what types of companies you want representing your product and brand on the marketplace.
Don't be a part of the 70% who don't know who their resellers are on Amazon!
Many manufacturers are moving to only allow companies that meet certain criteria to sell on Amazon, if any resellers are authorized at all. In establishing these standards, it is important to look at the value each reseller brings to the overall sales process and to the ultimate customer, the user of your products. Are they bringing value in other ways, beyond Amazon – e.g. selling and promoting your brand on their website, stocking and selling products in their physical locations, providing expert application and/or installation services, offering post-sale product service and support, investing in marketing and advertising your brand, etc. Do they offer additional services that enhance how your products are bought and used?
Ultimately, you want to set a series of criteria that qualify companies to offer your products on Amazon and grant this high volume channel as a “bonus” for the resellers who are capable of selling on Amazon. Some common criteria you might consider including:
A minimum level of product the reseller keeps in stock (set to whatever is meaningful to your business);
Whether they are selling on other channels in addition to Amazon (e.g. physical branch locations, stores, call centers, via a sales force, or on their own websites);
Willingness to commit to honoring a Minimum Advertised Price (MAP) policy, as well as other policies related to internet resale of your products;
The level of support they give to the end customers, including post-sale service; and
A commitment to advertising (which could be on Amazon, or more broadly).
Your criteria should indicate that the reseller is running a heathy business and is making a commitment to your brand and product. Don’t be afraid to ask for evidence of how the reseller has done this for other manufacturers and offer co-op dollars for Amazon advertising to the best performing resellers.
Establish a Foundation of Channel Control
The key to taking control of Amazon is to establish a foundation of channel management, and this happens off of Amazon first. Channel control starts with a Distribution Agreement, which authorizes specific resellers to offer products on Internet resale channels, including Amazon. The Distribution Agreement can be paired with a MAP policy to maintain retail pricing levels in the marketplace. Together, these documents provide a legal basis for you to designate specific, high value resellers as eligible to sell on Amazon, and pursue bad actors that are not following your policies.
One other tactic – a “trick of the trade” - that can be considered is leveraging product warranties. If your product comes with a warranty or guarantee of some sort, this can be used to create what the legal eagles call a “material difference” in your product when it is purchased through an unauthorized reseller. The product that is bought in this manner does not qualify for the warranty or guarantee, which makes it a different product, and provides you, the manufacturer, some additional legal basis to pursue unauthorized resellers.
Once you have your off-Amazon foundation in place, it is time to use the tools within Amazon. One of these tools is called Brand Registry. This provides trademark holders to claim full rights to their brand on Amazon and allows you (as the rights holder) to control content on your products and brand pages. Brand Registry also allows companies an avenue to pursue fraudulent and counterfeit product sellers attempting to usurp a brand’s name. However, contrary to the hopes and desires of manufacturers, Brand Registry does not provide a means to remove unwanted resellers. This has to be done leveraging the approaches described earlier.
Even with these tools in place, manufacturers and brands must continually monitor and enforce their agreements and watch for unwanted resellers. Without this effort, manufacturers risk recreating the channel conflict they eliminated earlier.
The Full Control Approach
An increasing number of B2B manufacturers and brands are deciding to eliminate all resellers (including Amazon 1P itself) and take full control of the channel for themselves using a 3P selling approach. This method takes all questions out of the mix and offers the greatest control, and, in a somewhat counterintuitive way, provides the least channel conflict. The manufacturer is the single source of product on Amazon, maintains full pricing control (the brand is the only ‘throat to choke’ when resellers have a gripe on pricing levels), and provides full control of the product and brand content. 3P is also usually the most profitable approach for product manufacturers. These factors are driving many B2B companies to implement the full control path.
Ultimately, Amazon has become a search engine and de facto marketplace for finding products, including for B2B buyers. As a product manufacturer, you have a right and a need to carefully manage your presence on the most influential product search engine in the market. By controlling your presence Amazon, you are controlling your destiny as a brand.