Merchants employ different pricing strategies for products stored in Amazon's warehouses through Fulfillment by Amazon (FBA). It can be confusing unless you're an experienced seller, but a new guide from repricing vendor Teikametrics explains how merchants can build shipping costs into the total price of an item:
"If a baseball cap is selling for $14 plus $4 in shipping, you can price your total price at $18 with free 2-day Prime Shipping." Additionally, it says, "you can price up to 2 - 10% higher than competitors and still win the Buy Box if you are using FBA and competitors aren't."
Teikametrics' guide, Mastering Fulfillment by Amazon, is available for free, and while there is a pitch to use its services, it offers some interesting tips garnered from analyzing strategies used by its existing merchant customer base.
For example, sometimes it's important to know when not to use Amazon's fulfillment service: the guide warns readers not to use Amazon FBA for low margin/low volume businesses or for products priced under $10. As for heavy, large, and inexpensive items, Teikametrics advises, "FBA fees can eat up your profit if you're not careful with storage fees."
We sat down with Teikametrics' Alasdair McLean-Foreman to learn more about selling effectively through FBA - from identifying poorly performing brands and suppliers, to dealing with high return rates on Amazon.
EcommerceBytes: You said FBA sellers need to be constantly scouting profitable new products to add to their portfolio of products - can you explain why?
Alasdair McLean-Foreman: In a highly competitive market like Amazon, being nimble is a huge advantage and is central to a successful strategy. The retail market is constantly changing due to new products, seasons, trends, fashions, etc., which means there are always new opportunities.
A successful retail business needs to focus on reacting to the market fast, before the competition. Over time, successful product lines can become saturated with competitors. More competition generally means prices will decline, resulting in reduced profits / cash-flow.
EcommerceBytes: Your guide says, "You need to actively manage inventory so that your bestsellers stay in stock and stale products get liquidated" - how do you recoup the costs of selling stale products at break even or at a loss?
Alasdair McLean-Foreman: Liquidating poor performing inventory needs to be an integral part of every retailers' strategy. Similar to a successful stock trader or poker player, "cutting your loses" is something you need to prepare for because it's part of balancing a portfolio.
In general, if you are investing in the correct, high demand inventory, exiting out of an investment by liquidating it is typically just a reduction of price. If there is demand for the product, lowering the price will result in moving it. Although this can result in break-even or worse, the goal to focus on should be keeping the overall average investment return and resulting cash-flow profitable.
EcommerceBytes: You talk about how your software automates the evaluation process to identify stale inventory or poorly performing brands and suppliers, for example. Can you talk more about that?
Alasdair McLean-Foreman: Teikametrics provides detailed analytics on FBA investments that allow our clients to "drill-down" their investments based on inventory age, supplier, SKU, etc. Retailers using our solution are able to review their overall portfolio and conduct a very disciplined process of tight inventory control.
EcommerceBytes: I spoke with a merchant recently who said he had a 10% return rate for his Amazon FBA inventory. Have you seen return rates rising on Amazon FBA orders, and what if any advice do you have for merchants on how to deal with that challenge?
Alasdair McLean-Foreman: Return ratios depend very much on the types of products that are being sold. Understanding the rate of return on all of your products is very important so that high return rate products that result in negative cash-flow can be cut out of the inventory mix.
This is similar to the approach to understanding profitable investments and moving quickly to adjust. Teikametrics provides a solution that allows clients to clearly understand which products are seeing high return rates and calculates all net return fees so products that are not profitable (net returns) can be eliminated and avoided.