Amazon sounds like a great way to get your product out there — billions of shoppers, cross-promotions, and paid spots on the biggest online retailer in the world.
But beware of the terms you are signing when you establish that reseller account. There’s a lot in the fine print that can easily undermine your e-commerce efforts!
Selling on Amazon: What Could Go Wrong?
You’ve developed a great product. You’re getting traction in the market. But, if it’s a small-dollar item under $10 — like an energy bar, a beverage, or that new trendy small plastic gadget that you make in China for 5 cents — the key to your business’ success is selling a lot of units. One way to do so, especially for small companies, is to sell your product on Amazon.
After all, if you’re not on Amazon these days, you’re at a big disadvantage. Compared to the efforts needed to get your product to a nationwide audience on your own, Amazon seems like a win-win. If you wanted to get that energy bar or beverage into a place like Whole Foods or Safeway by yourself, you’ll deal with distribution companies, warehouses, resellers, etc., that all make the process much more complicated.
But with Amazon, it seems as simple as creating an account, uploading a few photos and you’re in business . . . right?
It’s true that setting up an Amazon reseller account is easy. Click through a few forms online, upload those photos, send some stuff to Amazon, and then the company fulfills the order. Where do things go wrong?
Are You Your Own Biggest Competitor?
One pitfall you might come across? You could actually end up competing with yourself. Let me explain.
If you’re not 100% in control of your product distribution and others have legitimate access to a supply of your product, then you might not have control over the final consumer cost when that product is sold on Amazon.
Consider these scenarios.
Scenario 1:
- You sell your product to your distributor for $5
- The distributor sells your product to the retailer for $8
- The retailer sells it to the customer for $10
- You also sell it for $10 on Amazon
If your product is priced consistently across selling platforms, this is fine! However, consider this . . .
Scenario 2:
- You sell your product to a distributor for $5
- The distributor sells your product to an online store for $8
- The online store sells it to the consumer for $9
- You list the product at your price point: $10
Suddenly, you’re competing against that other online retailer for your own product — and if they’re selling at a lower price point, they’re going to win.
You could even be competing against someone else directly on Amazon who maybe buys your product at the store and then posts it on Amazon for a low price. The bigger rub? That competitor can actually use your own Amazon advertising collateral to point toward their lower price offering. Wait, what?
As a part of the boilerplate Amazon reseller terms of service, any reseller can promote the sale of their instance of your product by pointing to the images and other advertising that you originally put up on your reseller page. Amazon refers to this broadly as the “buy box” where those “other sellers on Amazon” get to compete solely on price with your marketing collateral in the background. No bueno.
The only way to prevent this from happening is by strictly controlling your distribution network, making it very difficult, if not impossible, for a third party to obtain your product and undercut you on price.
In instances like the ones above, some businesses assume they can sue either Amazon or the other seller. Unfortunately, this just isn’t an option. No one is doing anything wrong in the situation. There’s no counterfeiting or misrepresentation. No one is pretending to be you. They purchased your product through legitimate channels and are now openly reselling it for a lower price.
Even further, the terms and conditions you agreed to when setting up your Amazon account make the entire situation 100% legal.
The Key to Amazon Success
Is becoming an Amazon reseller all bad? Of course not! You just need to be aware of what can happen and the problems that exist when you have no control over your product’s distribution.
The key is controlling the distribution system from the start and really putting effort into your initial agreements with third-party distributors. These are the agreements that you can control and negotiate (versus your reseller agreement with Amazon, which leaves zero room for negotiation).
When creating these agreements, think downstream about pricing pressures and legitimate market competition; and develop terms and conditions of sales, including terms for minimum pricing and quality standards.
Fighting Fires After the Fact
If you haven’t put these conditions in place, there are a few things you can still do.
Third-party Monitoring
Third-party services exist that will monitor on a weekly or monthly basis to see if retailers are competing against you with your own product online. Some of these services will even send quasi cease-and-desist letters on your behalf, but the legalities can be a bit hazy.
Buy It Back
In some cases, you might try to buy some of the products from these third parties and look at the condition in which they arrive. If your product comes in bland or defective packaging or the product has been handled in a way that dilutes its quality, you may be able to address the issue of brand damage and misrepresentation directly with Amazon since situations like this actually do violate the Amazon reseller terms and conditions.
Of course, if that third party product comes with any evidence of actual counterfeiting or trademark infringement, you have a separate cause of action, both on your own and directly through Amazon.
Often, a simple letter to the reseller is enough to cause them to either drop the product or work with you on agreeable terms, as they likely don’t want to deal with any potential legal issues.
Making Amazon Profitable for Your Brand
Selling your product on Amazon isn’t something you should shy away from. It can be quite profitable — as long as you have the right precautions in place.
Look at your distribution agreements right from the beginning, from all angles. Taking the future of your business into consideration is essential to protecting your brand and your profits, on Amazon and anywhere else.