The Importance of Product Differentiation

Attention: Amazon Vendors — Embrace Product Differentiation Before You Consider Abandoning the Vendor Central 1P Ship.

If you work, support, or frequently talk with Amazon vendors (those whose products are purchased directly by Amazon) you’ll note that the biggest challenges (in no certain order) are profit margins, annual cost increases during AVN, and the creeping sense of doom. Semi-kidding about the doom.  To be more precise, vendors tend to share the pervasive feeling that – compared to Amazon 1P – there must be more advantageous sales channels and/or a better business model than Amazon 1P. 

While it might seem easy to offer or suggest a range of solutions based on the challenges noted above, the reality is that every brand, product category, and scenario includes nuance and complications. 

“Should a brand sell on every marketplace, and leverage marketplace diversification to prevent or mitigate Amazon dependence?”

While it might sound compelling to sell every item in your catalog everywhere.  Please proceed with caution! Experienced vendors, who’ve been there and done that, will no doubt perk up with the understanding that complete marketplace diversification has the potential to create a problem capable of quickly growing to the size of the Incredible Hulk.

Amazon is no longer the only game in town. Over the last five years or so, numerous other retailers have created dozens of online marketplaces that enable product-buying customers to not only just buy in-store but to buy online and pick up same-day in a preferred parking “fast lane” or just like Amazon, purchase online for home delivery. 

Be careful what you wish for. Since Amazon is no longer the only (or primary) marketplace for vendors to sell via a “platform” – there are hazards many have not fully considered. Products being spread across multiple markets almost always negatively impacts 1P vendors. 

Here’s why: Unless vendors have truly differentiated their products by sales channel, any level of product similarity will immediately trigger Amazon’s price-matching web spiders and algorithms. From a product-purchasing customer’s perspective, you can almost always guarantee that Amazon’s price will be the same if not lower than other online marketplaces.  Here’s how Amazon speaks to that: “We constantly compare Amazon’s prices to our competitors’ prices to make sure that our prices are as low or lower than all relevant competitors. As a result, we don’t offer price matching.”

What they fail to mention is that they are constantly scouring the web to ensure that prices for every ASIN are not being undercut by other retailers for the exact same SKU.

What’s a Vendor To Do?

While we are pragmatists and realists, we know this next suggestion will take time.  But with that said,  we firmly believe that Amazon 1P vendors must ensure that every product sold on every discrete sales channel should include unique and different packaging while at the same time eliminating all duplicated data points.  This means by channel, a product should not share similar descriptors such as barcodes, GTINs, or SKUs

It’s a really big ask.  We get it.

But we’ve seen this pay major dividends, here are the tactical elements to keep in mind:

  • Be sure you understand your best-selling items based on each unique sales channel and do all you can to differentiate those items to ensure there are not comparable and/or used against you, as the vendor, by any platform.
  • If your products are found to be similar, Amazon will match the lowest price which means your margins decrease. 
  • Differentiate your product’s packaging, the item’s name, and even the colors of the products for each sales channel. Not only does this help to make price matching more difficult, but it also provides vendors a quick visual tool for identifying “leaky” sales channels (for example, now you can see when/if a Walmart-only SKU appears on Amazon). 
  • Create bundles to develop an additional layer of differentiation for each channel and then relaunch the most successful products as Amazon exclusives.  

Differentiation of product selection is a powerful tool and the first step to creating (and sustaining) better margins on Amazon. This process takes time, capital, and long-term planning.  But getting it right will help to ensure that your business is running efficiently as possible.

Please reach out to our team today!  We’d love to hear your questions about this latest post.