Amazon is slashing prices on items sold by third-party vendors by up to nine percent ahead of the holidays. The move, the Wall Street Journal reports, could strain relationships with vendors and intensify a holiday price war between Amazon and other big retailers.
The discounts could also violate pricing policies that third-party vendors sign with brands and other e-commerce platforms, according to third-party sellers and companies that work in the vast Amazon economy.
Jason Boyce, chief executive of home recreation retailer Dazadi.com, tells WSJ that he sells products on Amazon, Wal-Mart, and other e-commerce platforms and signed agreements to sell his products at a certain price point.
"At first glance, we thought it was great," he said of the discount, which is being called Discount Provided by Amazon. But at a closer look, he realized it would mean "violating our seller agreement with every other marketplace that we sell on."
Amazon is trying to keep prices competitive with Wal-Mart and Dollar General, WSJ reports, especially as the holiday shopping season starts. Amazon is using the discounts on items sold by third-party vendors to match the prices offered by other retailers. Amazon covers the difference between its price discount and the normal price listed by independent vendors, which means vendors don't feel the discount. But, the price cut still could result in thousands of third-party vendors violating the minimum advertised price policies they signed with product manufacturers and brands, as well as pricing agreements they sign with other online marketplaces.
James Thomson, a partner with Buy Box Experts, which consults vendors on how to do business on Amazon, says the e-commerce giant's move to change the prices of third-party products is unprecedented.
"This is one of the most underhanded efforts by Amazon to destroy brands, whether they intend to or not," says Thomson. "The discount takes away the brand's control of its own products and puts resellers at risk."
But, according to an Amazon spokesperson, the company does not believe the discount program will raise issues with minimum advertised price policies because Amazon is matching prices found on other e-commerce stores.
"'Discount Provided by Amazon' is another way for Amazon to provide the low prices customers expect," the spokesperson says. "When Amazon provides a discount, customers get the products they want at a price they'll love, and small businesses receive increased sales at their listed asking price. Small businesses can opt-out at any time."
Thomson, who recruited third-party vendors as the former head of Amazon Services, and Alex Cranmer, who started selling on Amazon over a decade ago with International Military Antiques, say there are three things vendors need to know in light of this news.
1. You're not in control.
Third-party vendors cannot turn off the discount themselves. They need to see the discount in real-time on their product's page, take a screenshot, and ask Amazon to not offer the discount, Thomson says. Brands use software that tracks the advertised prices of their products online to look for violations. Thomson says vendors need to start communicating with the brands they work with now to explain the situation.
"Third-party vendors could lose rights to certain products if they are violating minimum advertised price policies," says Thomson. "If you're a vendor, the first thing you need to do is tell brands you have nothing to do with the price changes."
2. This could be long term.
Amazon is working hard to drive prices down on products long term and the company doesn't care if it loses money on individual transactions, Thomson says. Amazon's goal is to sell everything at the cheapest price, he adds. Companies need to pay attention to how Amazon is now starting to control the prices of third-party sellers. Thomson says vendors could try to find products that do not require them to sign minimum advertised price agreements or find companies that are lenient with advertised prices.
One potential area of recourse for vendors, Thomson says, is that Amazon's seller agreement does not state that it has the right to change the prices of a third-party seller's products without notice. But, Thomson warns that Amazon is likely to win in any contract dispute with its vendors.
3. Go niche.
"Amazon will certainly grow and become a direct competitor to more and more third-party sellers," says Cranmer. But he says vendors need to think about selling products that Amazon is unlikely to sell themselves and avoid mainstream products that are widely sold by other retailers. Cranmer says his business, which sells military antiques, is pretty safe from being disrupted by Amazon.
"The companies in niche verticals will always be O.K. as it's not worth Amazon investing the time and money to take you out," says Cranmer.