This article is by Lesley Hensell of Riverbend Consulting.
Under Amazon’s new price competitiveness policies, many third-party sellers are no longer allowed to set their own prices.
To any long-time marketplace seller, this news should come as a shock. After all, Amazon has never dictated that independent third-party (3P) sellers price a particular way… until now.
To be clear, Amazon is not directly changing sellers’ prices for their products. As with many nuances of the Amazon Marketplace, the reality is more complicated. In its simplest terms, the new policy penalizes some sellers whose products are not priced equal to or cheaper than other websites, 95% of the time or more. Amazon calls this “price competitiveness”.
Some large sellers who run afoul of the new “95% price competitive” metric are blocked from offering major national brands – which in some cases they have been selling for many years on Amazon. If sellers adjust their pricing to Amazon’s satisfaction, they are once again allowed to sell these key brands. Those who don’t change their pricing may find themselves unable to sell anything at all on Amazon.
What’s worse is that this new policy is not publicly available for sellers to read and understand. The policy’s application also seems unfairly targeted toward a particular class of sellers. It puts 3P sellers at Amazon’s mercy. So, what is really going on here?
A brief history of pricing on Amazon
Products sold on Amazon fall into one of three categories:
- Amazon’s own private-label goods, which are estimated to make up about 1% of units sold on Amazon.com. Amazon obviously sets the prices on its own goods.
- Products shipped and sold by Amazon.com, which Amazon purchases from its network of first-party (1P) Vendors. These make up approximately 43% of units sold on Amazon.com. Amazon places orders with Vendors for goods, pays for the goods, and sets prices for the goods on its site. For many years, Amazon has had a reputation for squeezing its Vendors to be priced competitively against other major web retailers 95% of the time or more. Essentially, Amazon doesn’t want Target, Walmart or another online store to get a better deal from a Vendor.
- Products sold by 3P sellers, which account for the remaining 56% of units sold on Amazon, according to Amazon’s own Q2 reporting. Whether this inventory is housed in an Amazon warehouse for the Fulfillment by Amazon (FBA) program or shipped by the 3P seller, it historically has been purchased, owned, managed and priced by the seller – not Amazon. 3P sellers are independent businesses, and Amazon has no ownership or control over them.
The Amazon Marketplace Fair Pricing Policy clearly states that “Sellers are responsible for setting their own prices on Amazon marketplaces”. Until 2020, Amazon acted against a 3P seller’s pricing in only very limited circumstances:
- Price gouging. Amazon does not allow sellers to significantly increase their prices on critical goods during times of emergency. This has included bottled water during hurricanes and fever reducing medicines during Covid.
- Collusion between sellers. When 3P sellers communicate using Amazon’s messaging system and collude to fix prices, Amazon suspends them.
Throughout 2020, Amazon ramped up its pricing demands. Its algorithms began making 3P sellers’ offers inactive for “high pricing errors”, when it detected that an offer’s price was higher than Amazon’s historic sales data.
Frequently, this data is inaccurate and causes stress for sellers who are being told to drop their prices by an unforgiving automated system. While annoying and difficult, this situation typically can be worked around with time and patience, and it doesn’t put sellers out of business.
But then came January 2021 and the re-launch of the Amazon Standards for Brands (ASB) policy.
What is Amazon’s “Standards for Brands” policy?
Many well-known brands began their tenure on Amazon as part of the 1P Vendor program. Like any other wholesale customer, Amazon has full control over its purchasing decisions including the selection of products it buys, the quantity it orders, and the prices it sets.
Some brands have decided they don’t enjoy being Amazon Vendors. They may not have liked the squeezed margins, the pressure to drop prices, or the selection of products Amazon ordered from them.
When Vendors decided to flee the program and instead become 3P sellers – or offer their products to other 3P resellers – Amazon put up roadblocks with its Standards for Brands (ASB) policy.
Formerly known as “Manufacturers on Amazon” (MOA), the ASB Policy currently states:
Since the inception of our store, one way we have ensured a great customer experience is by sourcing products directly from Brands and selling them to customers in our store ourselves. In order to preserve that customer experience, we may choose to source products from some Brands for sale by Amazon only. Other Brands can operate as sellers in the Amazon store if they can consistently maintain our standards for customer experience. However, to prevent customer confusion, if any of the Brand’s products are sold by Amazon, the Brand may not also sell those products as a seller in the Amazon store.
Amazon says this policy applies to “Brands and manufacturers, as well as their agents, licensees, and other representatives selling on their behalf in the Amazon store.”
Early in 2021, this policy was aggressively re-launched and stretched to apply to resellers, who purchase products, receive deliveries, and take the risk of owning their inventory. In other words, they are not brands or brand agents.
Thus far, the Amazon ASB Team appears to specifically target larger 3P sellers (including pure resellers), as well as brands that are well-known, luxurious or carry cachet.
In practice, the application of the ASB Policy makes one thing clear: if a brand was ever offered to Amazon via the 1P Vendor program, Amazon reserves the right to control its selection and pricing on the platform – permanently.
Actions being taken by the ASB team
In early 2021, some 3P sellers began seeing a new error pop up when they tried to add inventory or ship goods to Amazon.
Called ASB 001, the error stated that the product in question was owned by a brand that already had a relationship with the Amazon Vendor program and therefore could not be offered by the seller. This was particularly distressing for 3P sellers who had sold the brands in question for many years on Amazon.com and had never been part of the Vendor program.
When sellers contact Amazon about this error message, they get put through a painful song-and-dance routine. Sellers fail to get clarification from Seller Support, or other Amazon teams, no matter how many times they beg for information. Eventually, the seller’s case is referred to the ASB Team, and they send a form letter which says:
- ASB policy is being applied to protect the customer experience.
- The seller is not meeting the 95% price competitiveness metric.
- As a result, they are being blocked from selling major national brands.
Here’s an example:
We measure customer experience in a number of ways, including in-stock rates, delivery experience, price competitiveness, and selection. [SELLER] has failed to consistently maintain our standards for customer experience across the well-known national brands in represents. For instance, 69.3% of the prices offered by [SELLER] over the last 90 days were competitive compared to what could be found in other retailers, worse than our target of 95%, and XX% of the prices offered by [SELLER] over the last 30 days were competitive. Uncompetitive prices mean that customers considering your products could have easily found your products cheaper at another major retailer, and may have chosen to shop elsewhere. This creates a negative experience for our customers, which in turn results in less return business for you and the millions of other sellers in our store. To improve your price competitiveness, you may want to explore enrolling your products in an automated pricing solution, such as Automate Pricing…
Following this, Amazon offers the seller potential solutions:
- Amazon sends the seller a spreadsheet showing their price competitiveness by brand. In addition, sellers are directed to the Pricing Health dashboard in Seller Central. There, sellers can find a list of ASINs that are “Ineligible – Not Competitively Priced” and change the offending prices.
- Amazon suggests that the seller use its Automate Pricing solution, which will allow Amazon to automatically set prices for the seller’s stock.
- As promised, if 3P sellers change their pricing to match Amazon’s demands, they are allowed to offer additional national brands.
The effect of ASB on sellers
Is it a coincidence that the “95% price competitive” metric that has been applied to Vendors for many years is now being rolled out across 3P sellers? Does Amazon now expect the same level of control over independent Marketplace sellers as it does from its wholesale suppliers?
The ASB policy could spell the beginning of the end for many Amazon sellers:
- The “competitive prices” Amazon wants are sometimes below the sellers’ cost of goods.
- Lower prices on other websites do not always include shipping costs. Many sellers believe Amazon is inaccurately comparing these low prices to their landed price – which includes the cost of shipping.
- 3P sellers who buy large quantities of inventory are scaling back their purchases, and therefore can no longer demand quantity discounts from their suppliers.
- Sellers fear that Amazon may decide their pricing is unacceptable, and they will be blocked from offering these items. All it takes is another website running a sale on the same product, and the Amazon seller could be stuck with unsold inventory.
Ironically, smaller Amazon 3P sellers are still allowed to offer products from major brands. They may have higher prices than a large seller did before being blocked by ASB Policy. In these cases, Amazon’s actions have resulted in higher prices for consumers by removing the low-price leader.
Amazon has no knowledge of its 3P sellers’ vendor relationships, purchasing agreements, shipping costs, overhead or any other intimate details of their businesses. Yet Amazon is telling these independent businesses to lower their prices, or let Amazon set their sales prices, else they suffer the devastating consequences of being blocked from selling large portions of their inventory.
Amazon is quietly dictating marketplace pricing
Nowhere in the Amazon Business Solutions Agreement or Seller Help is it stated that Amazon controls 3P seller pricing, nor is it stated that Amazon can punish 3P sellers by limiting their listing ability based on “non-competitive pricing”. 3P sellers are not required to price match, either.
Has Amazon changed its policies? Does Amazon now decide what is “competitive” and dictate pricing to independent businesses on the Marketplace? If so, why have the vast majority of sellers not been informed?
Why should Amazon be able to control pricing of brands and manufacturers, after they decide to leave the 1P Vendor program? If a company was not happy as a Vendor, should Amazon be able to block their participation in its open Marketplace forever? Once a brand’s products are sold directly to Amazon, does that give Amazon permanent control of its online pricing?
From an outside view, it appears Amazon is effectively attempting to convert its largest and most-successful third-party sellers into Vendors, over whom Amazon exerts control regarding pricing. Sellers deserve answers to all of these questions. To date, they are receiving nothing but repeated demands to comply… or else.
This article was by Lesley Hensell, a co-founder and partner with Riverbend Consulting, whose 50+ employees solve critical problems and offer effective growth strategies for sellers on Amazon and other ecommerce platforms. She can be contacted at [email protected].