The True Cost of Too Many Amazon Sellers

In this article we're going to explore the downsides of having too many sellers on any one product listing on Amazon. Before we do, it is important to note that this article, while informative, will not be as beneficial to you if you are currently dealing with unauthorized sellers or counterfeiters. Those issues are related to supply chain control and Amazon's current selling policies, respectively. We will not be addressing those topics in any meaningful way here. Okay. Let's start with an introduction to selling.

Third Party Selling on Amazon

All the way back in the year 2000, Amazon began allowing "third party" selling and in doing so, opened up a whole new world of opportunity for retailers big and small. This was part of Amazon's long term strategy to increase its product catalog through third party product offers and increase its profits by collecting fees from sellers in exchange for allowing them to sell on the platform. The strategy worked incredibly well. Today, Amazon's seller community is an integral part of the platform. It's estimated that there are around 2 million third party sellers on Amazon and they increase Amazon's product catalog from roughly 12 million to 353 million total products being sold (not including books, media, wine, or services). Third party sellers also account for approximately half of all sales on Amazon.

As a third party seller, just about anyone can leverage the Amazon marketplace to sell products. Potential sellers select from either individual selling plans that allow them to list a handful of products on a fee per item basis or they may choose a professional selling plan in which they pay a flat monthly fee and are then allowed to sell as many products as they like. Individual plans come with significant restrictions, essentially only allowing sellers to list their products and nothing more. Professional accounts, by comparison have far more control. Professionals have access to advance tools and reporting, they are allowed to sell in restricted product categories (with Amazon's permission of course), and they can make contributions to product listings.

Many companies use Amazon third party professional sellers to help them get their physical products out to consumers. There is good reason for this. Selling on Amazon is not something you learn to do over a weekend. It takes dedicated sellers to stay competitive and keep up with the ever changing market. That's exactly what the best third party sellers are doing. Some companies may decide to have internal staff doing their selling. There's nothing wrong with that as long as the process is taken seriously. Whether they know it or not, companies that address Amazon halfheartedly will be losing out.

For this article, we're going to assume that a brand has decided to utilize professional third party sellers to move their products on Amazon. We're going to go through some of the pitfalls of that undertaking. The first thing to know is that not all professional sellers are actually all that professional.

The Good, The Bad, and The Parasites

The barrier to entry for new Amazon sellers if fairly low. As a result, not every seller is created equal. Some are better. Some are worse. It's important to know who's who before allowing them to sell on your listings.

The Good

Amazon is a complicated marketplace. It becomes more complicated each and every day as Amazon relentlessly introduces new programs and procedures. The best sellers work to keep up with those changes. These sellers are informed, truly professional, and most importantly they are constantly working to add value and increase sales. Good sellers do this through a combination of superior customer service, better listing optimization, PPC ad campaigns, and more. No matter what form their efforts take the best sellers are finding ways to help you and your brand succeed.

The Bad

They may be novices that are causing issues because they don't know any better. They may be bad actors doing things that violate Amazon's terms of service just to make a quick buck. Either way. Your product and brand takes the hit when they screw up or get caught. Amazon does have a few built in protections for listings and in most instances these sellers will only end up hurting themselves. That doesn't mean you can ignore them. Left to their own devices they will eventually do something that hurts your brand, listing, or sales directly.

The Parasites

Parasites are very similar to the more malevolent type of bad seller. These sellers bring no value. Their only purpose is to leach and steal profits from your listings while they ride on the good will of your brand's reputation and someone else's work. Parasites and their cousins, the bad sellers, will drive away good sellers in short order. This leaves brand owners with idle sellers that passively take profits and do nothing else. Over time, this lack of action will cause your listings to become less competitive in the market. Eventually, that inaction will lead to lower search rankings and significantly diminished sales. Once on your listing, it's just a matter of getting all they can and then moving on once the listing is no longer profitable.

All The Ways to Help and Hinder

How do good sellers help and bad sellers hinder. Let's look at some of the more common issues surrounding third party sellers so that we have a better idea of how each can affect your brand and listings. Then we'll go over how we can mitigate them.

Pricing, Re-Pricers, and Map Violations

Price tends to be one of the most volatile components of any listing. New sellers coming onto a listing are able to set the price at which they want to sell. The brand owner has no direct control over this on Amazon and that's really the way Amazon wants it. Amazon is looking to get their customers the absolute best price and they've rigged the system to favor that. All things being equal, the buy box (learn more about the buy box here) will be awarded to the seller that has the lowest price with the most preferred delivery method. So, ignoring delivery method, sellers have a strong incentive to drop their prices. The seller that does will receive a disproportionate amount of sales compared to others selling at a higher price. This downward pressure is usually how the dreaded "race to the bottom" occurs.

Repricers are software systems that automatically adjust the pricing of a seller's products based on the rules they set for it. Repricers are great in the hands of those that know how to use them but they can cause more than a few hiccups for those that don't. Enter our novice sellers. 2-3 of them have just set up their repricers too aggressively. Now, every time one of the repricers drops its price, the others follow suit. Before long the battling repricers have all hit their bottom out pricing. Which for one of them is far below MAP. That's when the angry calls from your brick and mortar stores start to come in and you have to start the leg work of figuring out what happened and whose responsible. This is just one possible scenario. It's not even the most likely.

Since we mentioned MAP. Brands should look into implementing MAP policies if they have not already done so. This will give you more control on the Amazon platform and it will ensure that the relationships you maintain with your brick and mortar partners stay positive. Nothing will upset physical stores more than being undercut on price by online markets. You should also expect that each of your sellers will be monitoring and reporting on any unauthorized sellers or MAP violations on your listings.

Listing Optimization

Unless you have an amazing, niche product, that also has incredibly high demand and no competition you'll need one of your sellers to optimize your listings. Listing optimization (also known as SEO or Search Engine Optimization) is done to increase the likelihood of a kind of Amazon domino effect. The better your listing's optimization, the higher it will appear in search results. The higher your listing is in search results, the more people will see your product. The more people see your product, the better the chances are for you to make sales.

Amazon's algorithm will grant a higher rank in search results by factoring in your listing's relevance (how well it matches a customers search terms) and its performance (its sales). A combination of various components affect both of these. To begin our conversation on listing optimization let's take a look at the main components of relevance first.

Relevance, or how closely your product's listing matches what customers are searching for, is mostly influenced by keywords. Keywords are the words used by customers to find products on Amazon. They are also the primary way in which Amazon's algorithm decides which products to show customers. Amazon sellers will conduct research to determine which keywords are most frequently used for finding a given product. They will then insert those keywords through out the copy in a listing, which will in effect, optimize the listing for relevance.

Performance, or how many times your listing is converting to a sale, is the other major factor in listing optimization. It is influenced by a number of factors but ultimately its all about sales. Anything and everything that drives sales can be said to influence performance. Which means that a lot of things influence performance. We're going to focus on the ones we consider to be the most important. Those are copy, images, and reviews.

Copy consists of your listings main title, bullet points, and description. The task with these is 2 fold. First, your copy must include keywords so that it performs well in search. Second, it must tell the customers as much as possible about the product and help to position it against its prospective market.

Images are not as important to the actual search function of Amazon but they can be far more important than copy when it comes to conversion rates. Customers want to see every angle of a product. They want to understand how the product works by looking at it. They want to zoom in and out and look over every bit of it they can prior to making a purchase. Your images have to answer a customer's questions at a glance. Main images affect increases in click-through-rates from search pages and the other images found on the listing help to make conversions. Images need to be compliant and professional to convert.

Reviews are the social proof necessary for customers to make purchases on Amazon. Many customers will not buy a product if it does not have enough reviews to satisfy the level of social proof they require. What we mean by that is that for one customer, 20 total reviews with an overall 4.2 star rating may be enough. For another, it may require at least 100 total reviews that average out to a 4.5 star rating. In every case however, the more positive reviews you have, the better off you'll be in terms of both search rank and conversions.

The hardest part of listing optimization is usually getting one of your sellers to do it. It can be a very time consuming process but done correctly, listing optimization is all you need to win on Amazon.

PPC Advertising and Promotions

PPC (pay per click) advertising goes hand in hand with listing optimization. PPC is a great way to increase brand awareness because even if people aren't clicking on your ads, your products will still be presented to your customers at the top of search results. When they do click on ads for your product you gain an opportunity to convert and increase sales velocity. The costs of PPC advertising are also usually pretty reasonable unless you sell in a market that is saturated and/or very competitive. Your sellers should be running PPC ads but as mentioned, it's not always economical.

Brands should also look into running promotions. There are several fantastic opportunities to boost sales through out the year by using promotions. This can be done through Amazon lightning deals or coupons. Those promotions can be run at any time during the year but brands should be specifically targeting Cyber Monday, Amazon Prime Day, and just about all of quarter 4 leading up to Christmas. Coordination becomes the name of the game with promotions. Brand owners will have to communicate heavily with their sellers if they want to have a cohesive effort on the promotions they run. The alternative will be every seller acting on their own.

Customer Service

Here's all you need to know. Each seller handles their own customer service on Amazon. It's a good thing if you find that fact a little unsettling. That's because when one of your customers interacts with a seller of your products, the customer's impression will likely be that they are interacting with the brand directly. Meaning when one of your customer's has a bad experience with one of your sellers, they've also had a bad experience with the brand. You may not like it but that's the way it is.

Limiting Sellers and Increasing Incentive

More sellers more problems. We're pretty sure that's how the saying goes. Every seller you have on a listing is a variable and with each variable comes additional risk. The easiest and by far best way to eliminate a majority of your risk and potential issues is to limit the number of sellers you have on any given product listing. Reducing sellers, up to a certain point, will lower risk and will actually help to increase sales as well. Here's how that works.

In the chart above we have 10 sellers. Each of them is selling 10 products every month. Everyone is selling. Everyone is making a profit. What's the problem? Well, it may be true that each of them are making profit but is it enough of a profit? Consider the following. The more authorized sellers you have on a listing, the more times you have to divide the profits. The more you divide those profits the less there is to go around.

Time is money. Tasks like listing optimization, MAP monitoring, setting up PPC ads, and handling customer service all take time. Which means they all cost the seller profits. In the case of PPC, the cost is both the set up time and the cost of the ads. At a certain point, the remaining profit divided by every seller becomes too small for anyone to economically reinvest. This is exactly how good sellers are driven off of listings and how you end up with parasite sellers. Good sellers want to help you. They know that the better you do the better they will do. However, their resources are being reduced with each new seller. Before long, they can't help you without going into the red themselves. They will move on if nothing changes.

If that happens, then parasite sellers will be all that are left. You can rest assured that none of them will be optimizing, or monitoring, or running ads. They may be handling customer service but that's only because they have to or they will face Amazon's wrath by way of reduced buy box time. The listing will start to fall in the search rankings meaning there will be even less profits to go around. The parasites don't mind that much. They are still making money and they haven't had to do anything for it. What can a brand do? Don't fret. Brands can get their listings out of trouble by doing the opposite of what put them there in the first place.

The chart here assumes that the brand has taken back some of their control. Slowly but surely they have reduced their number of sellers down to 3. Each seller has now been vetted and the brand believes they've acquired some good partners. The remaining sellers have also seen an increase in sales of at least 200% compared to before the reduction. With that increase in profits, the sellers have the resources necessary to do everything they can to help better the brands position and make more sales. They are running ads, monitoring MAP, and watching for unauthorized sellers on the listing. One of them is even making proposals for running cross platform promotions over quarter 4.

Now the brand has their attention. The sellers on this listing have far more to gain by working to improve the listing. They also have far more to lose by sitting idly and passively selling. The brand has also drastically reduced its risk.

Reducing sellers doesn't guarantee that the remaining sellers will work for the brand but at least the incentive is there and by leveraging that incentive the brand can maintain better control over who is doing what and how things are being handled. If the sellers are not meeting expectations then the brand can let them go. No need to worry about finding new sellers either. Sellers seek out opportunity.

The Ideal Amount of Sellers

The ideal amount of sellers will always depend on the individual brand's needs but it is safe to say that you should never have more than 3-4. We've seen what having too many sellers can mean for your products, brand image, and customers already. It's a bad idea to have a lot of them. Limiting your listings to 1 to 3 capable sellers that you know are working for you and your products is one of the best things you can do for your brand. Now, you may be thinking that if fewer sellers can have such a positive effect on the bottom line then why not have only one really great seller and call it a day? Let's look at that.

Having one seller gives you the absolute best of everything as long as they are vetted and working well for you. However, there is one big thing to consider when looking into a fully exclusive partnership. That is that Amazon can suspend a sellers account at will, for no reason, anytime they choose to do so. Sometimes these suspensions are intentional due to some bad acting on the part of the seller. Other times Amazon's software seemingly just decides it doesn't like something about a particular seller. Either way, if your primary and only seller has their account suspended, you and your products are dead in the water. Sales velocity will drop and someone else's product will have to fill the void while the account is down. It may be down for an hour or it may be down for days or even weeks depending on the issue. The good news here is that as long as your product has a decent history of sales (and it hasn't been too long) your listing should bounce right back once your seller's account is back up and running.

When considering sellers for your listings just keep in mind that there are a lot of companies operating on a partnership business model and not all of them do what they say they'll do once they've been given an account. There's a lot to consider but no matter what you decide to do you should now know that by limiting the amount of sellers you have you are actually limiting your issues and most likely raising your bottom line.

---

Thanks for taking the time to read out article. For more helpful information you can find additional articles by clicking here for our EDUCATION page or if you're thinking of getting some help with Amazon you can reach out to us here: OUTSOURCE AMAZON TODAY