Amazon has undoubtedly created a platform that allows millions of small businesses to reach an enormous audience of consumers. That's great if you want to sell your products to people you'd never be able to reach on your own, but it's worth asking the question: at what cost?

Starting September 3, Amazon will begin charging a fee to sellers that don't comply with the company's guidelines on how products are packaged. The goal, according to Amazon, is to reduce cost and waste associated with what the company considers oversized and unnecessary packaging that makes it more expensive to move items through its warehouse and delivery systems

In an announcement last fall, Amazon noted that these requirements include moving small items from boxes to flexible mailers, optimizing boxes to better address product size and weight, and using fully recyclable mailers. They also noted that they are working with vendor partners to develop ready-to-ship packaging.

To that end, Amazon will start charging sellers a fee of $1.99 for any products that don't comply with the new packaging requirements.

The Packaging Problem

You've probably gone to the store and purchased something as simple as a USB thumb drive, or SD card, and wondered who on earth thought it made sense to stick a 2-inch piece of plastic and metal inside a 9-inch by 5-inch package made out of what can only be described as some sort of indestructible composite material.

There is a pretty simple reason. In a brick-and-mortar store, packaging often serves not only as branding and to catch your eye, but also as a theft deterrent. Small items are placed in packages that might seem ridiculously large for what's inside when in reality, the goal is to make it harder for a thief to shove in their pocket.

But selling online is different. First, there's really no need for branding or marketing on the shelves of huge warehouses with rows of product shelves.

Sure, there are still theft risks associated with workers selecting and packaging products for delivery, but the primary cost faced by sellers like Amazon is in the actual shipping. Larger packaging means greater shipping costs, and Amazon wants suppliers to help it reduce those costs.

Giving Up Control

That might seem reasonable-- until you start to consider how much control you really have to give up in order to build your business on someone else's platform. There's a trade-off, and that trade-off comes at a cost to the freedom of how you do business. 

The moves are similar to strict requirements other large retailers impose on vendors. For example, Walmart's Sam's Club stores have long required brands to provide sizes and quantities exclusive to the discount membership club, making pricing comparisons more difficult.

That's one thing if you're Proctor & Gamble, or Kellogg's, but it's an entirely different story for smaller brands that arguably wouldn't exist if not for Amazon. 

For those brands, creating new packaging affects the overall branding that a consumer experiences when it first opens a box. That might seem inconsequential, but it isn't. In fact, the association of a product and packaging with a brand is often more powerful than you might think. Just ask anyone who has ever unboxed a MacBook Pro or a new iPhone.

It also can involve significant expenses to create packaging that fits Amazon's requirements, while still providing the appropriate amount of padding and protection, especially for electronics or other breakable items. 

And this isn't the first time the company has acted in its own interests, at the expense of the vendors who sell on the site. The company is currently under investigation in the European Union for using sales information of small business sellers to compete against them with its own brands and faces increased scrutiny and investigations on this side of the pond as well.

The Lesson for Entrepreneurs

The real lesson is this: if you build your business on someone else's platform, you'll always be at their mercy and their rules. That doesn't mean you shouldn't sell on Amazon, or advertise on Facebook, or develop iOS apps, but it absolutely means you should consider the actual cost.

It's tempting to dive head-on into a marketplace that provides easy access to so many potential customers, but it's worth first asking yourself whether it's really worth it. At some point, the cost adds up, especially if the rules change. 

In the case for Amazon sellers, there's a cost either way-- either lose the packaging or pay the price.

Correction: An earlier version of this post stated the charging fee would take effect August 1. Amazon has announced that it is extending the deadline to September 3.

Published on: Aug 1, 2019
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