To control pricing, police your channel
Updated: Dec 6, 2019
One of the major sources of revenue leakage for vendor reps is sales lost to other sellers. If you are the representative looking after the page content, the Amazon relationships and the advertising, you will probably be pretty sore not to see the demand you generate turn into your commission on the POs ordered on your vendor codes.
How big is this problem for Amazon Vendor Representatives? It obviously depends on their vendor mix, channel complexity and country mix. In a sample of 70 small to medium client companies across high tech and CPG products, we estimate that their official 1P sources lost ~25% of their business to 3P Marketplace Sellers and another ~10% to other 1P suppliers. There was a major spread to these numbers -- some vendors' distribution was tightly controlled with few 3P sellers and no other 1P sourcing, others very loose.
To understand losses to 3P sellers, look no further than Lost Buy Box (Price). To understand Amazon's 1P sourcing behavior, compare Manufacturing vs Sourcing views of ShippedCOGS and Sellable inventory. The difference is what they sold, or have in stock that they did not buy through your sourcing vendor codes. It may come as no surprise that in our experience Amazon Canada sources most aggressively from 'unofficial' sources.
For vendors, the incentive is slightly different. They are often most interested in market share and revenue, and care less about the exact channel. That said, channel conflict creates price wars, which may get volume, but can also get them on the Amazon CRaP list. To counter this, vendors often try to control price by setting a Minimum Advertised Price (MAP) that they expect their resellers to honor. Assuming such a MAP price expectation exists, sellers that sell below that price are obviously misbehaving. So starts the continual whack-a-mole game of finding, identifying and serving them cease and desist letters, or more. Such a game can absorb a lot of effort better spent elsewhere, so the persistent and largest offenders should be the focus of such efforts.
While not a perfect surrogate for lost sales because it measures the % of time that Amazon was not winning the buy box, if Amazon lost the buy box 50% of the time, then you can reasonably estimate that 3P sellers took 50% of the sales. Given that you know Amazon's ShippedCOGS for the period from your Vendor Central Sales Diagnostics, you can estimate the Lost Sales to 3P Sellers.
Having prioritized the products worth investigating, who is causing the grief? Investigating the 'Also Available from Other Sellers' link in the Buy Box is a possible, but very tedious way to investigate. Some commercial services track this data and will sell it back to you. Plotting such data shows who was the likely buy box winner, and how they priced relative to their competition for a given product.
To further your analysis, you might like to see who is offering most products, for how long, and how aggressively. This gives you an indication of their sourcing capability and hence distinguishes opportunistic sellers vs. those in for the long haul that you might want to address first.
An additional source of lost sales is stock outs. Amazon publishes a Manufacturer view Sales Diagnostic metric called Replenishable Out Of Stock (RepOOS). This is the fraction of Glance Views that were not order-able due to lack of inventory. For example, if you have some sales in the period and have a RepOOS of 50%, you might reasonably assume that sales would have been double if they had had sufficient inventory.
Merchant AI helps routinize this process, making such analyses available at any point in time through dashboards. We automatically generate the analytics to identify which products are most impacted and the persistently offending 3P sellers in each marketplace. In addition, for those with Manufacturer visibility, we can identify what Amazon is buying, and at what unit price from other sources for their 1P business. Armed with such insight, you can engage in some detective work, perhaps by buying some FBM product to get their return address, or review their mix of offered products and with the help of the vendor, narrow them down to likely sources before reminding them of their obligations.