Amazon announced a new policy for dealing with complaints over defective third-party products and it's the smartest move I've seen in a very long time. Under the new policy, when customers file valid claims of $1,000 or less for property damage or personal injury because of defective products from Amazon Marketplace sellers, the company will pay those claims directly.
Even better for the small businesses that do business on Amazon, the company will not seek reimbursement for those under-$1,000 claims from sellers who abide by its policies and have insurance. And while $1,000 might not sound like a lot to settle a claim, Amazon says that 80 percent of the claims it receives are for less than that amount.
Why do I think this is such a genius move? Just look at all the ways the company benefits.
1. It helps customers trust the Amazon Marketplace.
The issue of defective and counterfeit products being sold on the Amazon Marketplace is well-known. When a friend complained to me about the lack of home canning supplies available for purchase in local stores, I suggested shopping on Amazon. She said she would never do that because any jars or lids sold there were likely to be counterfeit and toxic.
Amazon definitely has some trust issues with its customers when it comes to third-party sellers. Unfortunately, the company has mostly responded by insisting it has no liability for the products sold by third parties on its platform. While that might be a smart legal strategy, it is in essence telling customers to distrust the Amazon Marketplace.
2. It could keep Amazon out of legal trouble.
Speaking of liability, Amazon's claim that it's not liable for products sold on its site by third-party sellers is increasingly under fire in the courts, and some recent rulings have rejected Amazon's position that it's not to blame when third-party products go disastrously wrong. The company now faces a new lawsuit by the U.S. Consumer Product Safety Commission to force it to recall defective products sold on its site.
The company has always been good at staying ahead of the trends that threaten its business, and the growing call to hold Amazon accountable for faulty third-party products is definitely one of those trends. The new policy may help Amazon build goodwill with consumers and the courts.
3. It's good for the bottom line.
If you've ever had an Amazon package go missing, you know how easy it is to get the company to issue a replacement. When something I'd ordered failed to arrive recently, I was surprised to find that I didn't even need to tell a human being about it -- instead a chatbot sent out a replacement for me. The item in question was worth $21.95, so you can see how this was a smart financial move on Amazon's part. The company would certainly have spent more than that to have an employee discuss the problem with me. Instead, it turned me into a happy customer and saved some money at the same time.
I don't expect that Amazon will be resolving property damage or personal injury claims by chatbot. The company will still have to investigate claims enough to know they're legit before it pays up. But at the same time, it's easy to see how gathering information on a claim, discussing it with the customer and seller, and negotiating a settlement that's acceptable to both could quickly eat up more than $1,000 worth of employee time. By taking the seller out of the equation, the company can save a lot of that time while providing better service to both seller and consumer. It's win-win-win.
And the new policy also helps Amazon in another important way. The company has rules sellers must follow and it expects them to obtain insurance. But with about 2 million sellers on its platform, enforcing these rules is an impossibly big job. Now, Amazon says it will take on liability for damages up to $1,000 -- but only for sellers who obey its policies and buy their own insurance. That's a powerful incentive for sellers to follow the rules and pony up for insurance that could protect Amazon if a more substantial claim comes along. Like I said, this is very, very smart.
4. It's a competitive advantage.
There are a lot of online marketplaces out there and more popping up all the time, which means sellers have a lot of options for selling their goods online and customers have a lot of options for buying those goods. Because Amazon handles fulfillment on many of its third-party sales, legal experts say it's in a weaker position than its competitors if it wants to disavow responsibility for faulty or dangerous products.
This new policy turns that weakness into a strength. With mistrust on both sides, sellers and buyers may well value the added protection of having Amazon cover small claims. That gives both a big reason to choose Amazon for their transactions instead of its competitors. Although those competitors don't face the same liability risk that Amazon does, they may be forced to adopt similar policies as they struggle to attract sellers to their online marketplaces.
That's yet one more reason why this is the cleverest idea I've seen in a very long time. Walmart.com, Etsy, eBay -- your move.