|Amazon FBA Selling - Price Wars|
I've been getting into selling on Amazon using FBA, but I've noticed some items being repriced so low I'm not sure how any of these sellers are even making a profit.
I've seen some items so far under the price that even Amazon sells at, and this frustrates me because Amazon really doesn't care because they still make their referral fee but in the end with all these sellers using repricing software it makes the profit margins so thin it doesn't even make sense to sell on Amazon.
Everyone just wants to be the lowest price, and hopefully win the "buy box". Which is great, and I've seen an increase in orders by winning the "buy box" but at what cost is this a good idea when profit margins are non-existent.
There are so many sellers on Amazon, and I've noticed that if I'm not the lowest price then I never get the sale because of the so many other sellers that they can buy the same item cheaper.
How can you compete with Amazon sellers that just lower the price where it doesn't even make sense to sell anymore?
I am completely aware of this problem. I see other sellers with the best price that is below our cost on some items. We get good discounts with our venders so I have no idea how they are staying in business.
My only explaination is that possibly they picked up inventory from a bankruptcy sale and they are trying to turn a fast buck and exit from the product when they are out of inventory. Other than that it is a total mystery to me.
don't underestimate the stupidity of your competitors either!
They may very well not be making a profit. But I have noticed that whenever I purchase parts or materials for my business at a too good to be true price... they are usually out of that product the next time I come back, and then say they don't plan on having more. Like mentioned already, that tells me that it was probably bought in a liquidation sale or something. And there are many businesses out there, that that's all they do. Witnessed by the slew of ebay and Amazon shops that have a bizarre collection of items that have no common theme.
They also have auto pricing software and if their rules are not set right they screw themselves. You see this at the other end also when a book is priced at $63k because there is only one copy and they ahve it.
I guess it also depends on other factors, such as if delivery is extra. I've seen many products at a lower price only to find the seller adds on a hefty shipping fee.
Additionally, where are they shipping from? I had a recent purchase described as in stock. It was in stock, but in China. Incredibly, it was free delivery, and shipped via UPS, but took about two weeks to arrive.
Taxes are a lot lower in some countries, and import duty may not be included in the cost.
One other option sellers might hope for is an upsell, or sale of another product from their range, thereby making up the loss leader.
I posted a while ago about a would-be competitor who was making and selling a widget that I sell, only he was charging literally 1/2 of what I charge, and his packaging is more expensive and heavier to ship--and the shipping Amazon allows on it is 1/2 what my shipping is (mine is about 1 dollar above actual postage). After looking at Amazon the other day to sell some used books, I figured out that his gross profit on that item would be four dollars, and the packaging is over a dollar. So he is making three dollars on the widget, which I know would not even cover the ingredients, much less the labor. I don't know what he was thinking, but from reading some threads on Facebook, some folks get the idea that if they start selling at a loss, then they will be able to attract customers and gradually raise their prices. Thing is they will attract customers who want cheap. I noticed the other day that he had decided not to continue to sell on Amazon. The whole thing taught me a lesson; don't worry about people who are pricing themselves out of business. Make more stuff instead.
I have been in eCommerce for 15 years, and when I first started, I sold based on low price. I generated lots of sales but my margins was thin, and I quickly reached a plateau in sales, because I could not afford to advertise. That lasted for about two years and I got wise. Now I discount only 10% to 20% below retail, and I have plenty of money to grow the business, and provide a good ROI.
Also I have a better class of customer. I generally found that with customers that shop for the lowest price, there is an increase in emotional or mental health issues.
I'll take the impulse or needs based shopper over the discount shopper any day. Let the discount shopper ruin your competitors day.
|The whole thing taught me a lesson; don't worry about people who are pricing themselves out of business. Make more stuff instead. |
True... You can't waste time fretting over stuff that's out of your control. The food chain tends to take care of itself.
I personally believe that the way to go for a smallish biz in the US right now, is the so-called 'Gucci' business model. Shoot for the higher echelon customers, with higher prices, justified with things like... above average quality, excellent service, 'made in the US', organic products, custom products, and an overall lean towards high grade marketing. Lowball pricing in that mindset, I believe can actually be a hinderance. "limited edition' type marketing can also be helpful.
Resellers sourcing from the grey market are always a problem. I remember a company that I used to work for took over a grey market competitor. Merging inventory purchased under different contract terms was rather challenging, of course management gave us minimal notice.
above average quality, excellent service
and don't place any reliance on that for B2B, cost will always win.
You might find this thread useful, or at least interesting Is Amazon eating your lunch? [webmasterworld.com] as well as this article from the WSJ Competing With Amazon on Amazon [online.wsj.com]
I also read an article in an e-trade monthly, Internet Retailer I believe, that Amazon nets $5.95 per $1,000.00 in sales undercutting even Walmart. Rather difficult to compete with that.
I think the issue is FBA is becoming more popular, and you need to do a better job of finding a niche or items that have fewer sellers. Obviously that is hard to do. I have tried a few services, fbafinds and fbamylife for ideas online. They work ok, but I think this problem is going to be hard to avoid.
The issue is that its a whack a mole situation for each one the goes under an other too pop up
|don't underestimate the stupidity of your competitors either! |
That's very close to the biggest problem IMO. A lot of sellers only look at:
- Amazon Fees
- Product Costs
- base shipping costs
They either blindly ignore everything else or convince themselves if they can manage to make a small profit using that formula then they will somehow develop such economies of scale they'll be profitable.
I would actually take it one step further and say that there are probably a lot of businesses, that are simply happy to see stuff go out the door, and pay no attention to numbers whatsoever. In my niche, I have found there's a slew of old dudes that simply sell stuff for a hobby. Making money is not a concern for them. Yes, most people (myself included) would say... Why on earth would somebody work every day to sell stuff and make no money, on purpose? But it's true... They are out there. There's one of these guys in my niche that for years has sold stuff at cost. I know what his materials cost, and there is no way he's making anything at all. Yet, he has been doing this at the same prices for well over ten years. In fact, I also did the math on his shipping once, and found that he is most likely also shipping the stuff at a loss.
And of course, customers love using his prices as the standard that all others should be set to.
I have encountered the same thing you describe, dpd1. In fact, I have found that people who are in my niche for a hobby are a substantial number of sellers. In the past several years, they have seriously distorted the market and the expectations of the customers. I have seen it make a significant dent in my income. But I could not make a living by lowering my prices. I am instead working much harder at other incomes, like from content and from unique pieces.
I've found there's a couple ways to potentially combat the 'sell at a loss' types... One is to try and utilize people's natural apprehension about buying something that is perceived as being TOO cheap. And there are people out there that think that. Another is to simply explain what the deal is, so people understand the prices.
I happen to stumble on a post at a forum the other day, where someone mentioned my products, then some old grumpy guy said they were "over priced", and then he recommended the retired guy's stuff who sells at a loss, who I mentioned before. I didn't address him specifically, but I jumped into the thread and politely explained that, I do this for a living, and nobody can compete with somebody who doesn't care if they ever make any money. I also threw in the 'made in the US' thing, and some other examples of why things need to be at the price they're at. I left after that and did not bother looking at the responses, so as not to be goaded into an argument with them.
In the next couple days after that, I received a few emails from people who gave me positive support, and some also asked questions about products they were interested in.
In the last month, I have seen a spike in the products that were being talked about on that forum, and I believe it was due to the post I made. I've also had similar things happen in the past. So some people do listen and respond positively.
That's neat. I have not seen people discussing my prices, although sometimes they have emailed me about them and I explain what goes into the products I make. Often, though, these folks are comparing something I make from the best quality ingredients to something made in a sweatshop by undocumented workers from synthetic materials (the opposite of the hobbyists in my niche are the couple of quasi-industrialists who supply a ton of franchises or affiliates).
I had a situation recently where a competitor kept dropping his price on a product and amazon kept matching him down to where both were clearly losing money- they were selling it for just above wholesale with free shipping. So I bought one from him - he immediately raised his price $15, and amazon matched that as well. He did ship it to me, so I then turned around and sold it.
I would agree with a lot of sentiment on this thread—many sellers are making mistakes with their auto-repricing software and others are simply trying to get rid of stock at whatever price they can. The thing is, you have to keep focused on what you sell and at what margins you're comfortable with. Those that are selling at a loss or rid themselves of old inventory, won't be selling those items forever (or won't be in business for long), and that's when you'll get your opportunity to sell at a profit.
With Amazon's newly announced Subscriptions API we're going to be able to:
Ignore or include certain sellers from competition
Set a different ‘beat by’ when competing with the competition
Use the extra data to create extra pricing rules, for example, ignore sellers from countries / states / sellers feed back / offers expedited shipping etc.
Find out who is selling at what price (pricing analysis)
This will give sellers better control of focusing on and competing in areas where they can make a profit.