YES.
My answer is to all detractors, critics of businesses and supporters of this “pro-consumer Amazon” who use following arguments to support this Anti-Competitive conduct of Amazon platform:
- Amazon can use its scale and efficiencies for getting products at lower price.
- Amazon can give genuine products at better quality than third party sellers.
- Amazon saves money due to efficiency and passes the benefit to consumers.
- It benefits the consumers.
All businesses run for profit (even Amazon) and not for charity.
The ideal formula is Profit = Selling Price - Cost of Product - Cost of Sales.
Amazons “reduced” cost of product
My experience as a seller on Amazon, Vendor to Amazon and interaction with hundreds of Amazon sellers and suppliers have shown that they are no different than other large format retailer when it comes to buying goods.
At many times they end up paying more than the products actual price just to get the required quantity to undercut other sellers / websites who do not toe their line.
They do not care 2 hoots about the quality, the buying team consists of exactly ZERO product knowledge persons and mainly consists of deep in debt expensive B Schools MBA grad who knows some excel formulas and is in deep Amazon hypnosis.
So the hypothesis that Amazon can use its scale and money power to reduce its purchase price is humbug and only theoretical.
Amazon eventually manages to reduce its purchase prices due to undercutting competition, reducing number of players in the market which leads to shrinking of the market and leaved the supply side to be dependent on limited number of players. This is is very dangerous for the macro economy.
I have seen that while sourcing products, Amazon has no set guidelines, professional testing, quality checking mechanisms and basic sourcing quality SOPs which are followed by any retailer. Everything is left to user experience/complaints , and liability of manufacturer/supplier if problem arises. I have seen Amazon and other such .com just blindly buying products where the material is usually different from what is required / mentioned on the pack (example Polyester fiber used in a cotton product, Micron / gsm lighter than declared etc)
If not less, Amazon is no more efficient than any of its competitors in operations. I have seen hundreds of operational flaws which can be easily avoided, but the costs of the same are most of the time passed on as penalties to vendors and suppliers who than either add it to their supply price or reduce the quality.
Apart from having traditional logistic efficiencies, Amazon needs to maintain Ecommerce efficiencies, the cost for which is naturally has to be added on to the price. Not to forget the non product overheads that it incurs to mantain its tech, marketing etc which costs higher than a normal shop. And dont bring in the argument of shop rentals as Amazon leases more sq.ft. in forms of offices and warehouses alongwith a higher last mile fulfillment cost and extra packaging costs.
The theory given by me above suggests that Amazons Cost of Product if not more is not less than any producer of sourcing company regardless of scale.
So how does Amazon manage to sell goods at a lower price?
Amazons “high” cost of sales
Cost of sales are of two types, Variable and Fixed.
For Amazon, variable costs include : Shipping Charges, Packaging Charges, Discount etc
Fixed Cost include : Inhouse expenses which can be converted to variable by making it a profit/cost centre like Salaries, Website and tech expenses, warehouse expenses, and out house expenses like marketing expenses, advertisements etc
Most retail front organisations have high cost of sales which lead to them shutting down.
Any retail organisation which can control or innovate in reducing its selling costs wins in the long run.
Decision making pricing theories suggest that Fixed costs which have been incurred should not be considered while making a decision on pricing the product as such costs have already been incurred and any contribution whether in part or whole is most welcome to help recover these costs if not leading to profit.
Most retail front organisations use the above theory in retail pricing and end up going down in the burden of their fixed costs.
So a new theme of reducing these fixed costs emerged, most of it through loss financing by VCs or IPOs.
However, Amazon found the most unique and unethical way of reducing / subsidizing their fixed costs of selling.
The entire Amazon Marketplace program has been formed in order to absorb the fixed costs of running Amazon by charging variable fees from sellers.
In the initial stages, the fees were less and Amazon manages to reduce its interest burden and maintained liquidity due to the additional cashflow generated from the marketplace vendors sales.
Slowly and gradually, the fees were revised, new fees, rules and regulations, penalties emerged.
In current scenario, Amazons entire cost of sales on a product is almost NIL and can even be negative, meaning, Amazons cost of product is also being absorbed due to the marketplace revenue.
So for Amazon Profit =(Selling Price - Cost of Product) + (Marketplace Revenue - Cost of Sales)
Because Amazon is least interested in profit until all competitors are wiped out this profit is being given out as Discounts / Undercutting other sellers.
So profit = Undercutting / Discounts.
SO Amazons Selling price is derived as :
Selling Price = Cost of Product - (Marketplace Revenue - Cost of Sales)
While for any normal seller, the Selling price remains same :
Selling Price = Cost of Product + Cost of Sales + Profit
Amazon controls the sellers Cost of Sales through the marketplace fees structure and the selling price of a product.
If selling price is reduced by Amazon, it leads to undercutting any competitor as they wont be having room to reduce the price.
How can third party sellers counteract Amazon's generic brands?
It is clear from above that sellers are subsidizing Amazon. Amazon is able to give discounts not because of lower product price but due to NIL cost of sales.
Sellers can counteract Amazon only if :
- They stop selling / be compelled to sell on Amazon
- Amazon stops selling goods and enjoy only marketplace revenue.
The latter is unlikely to happen. Who would want to stop maximizing revenue?
However, a new discourse has emerged where people are questioning this conduct of Amazon.
Amazon is now a monopoly in macro retail market. It is itself a dominant player within its own marketplace. This dominant position in its own marketplace and its exploitation is what is led to its dominant position the macro retail market.
A question has emerged regarding this dual role played by Amazon.
EU has already started investigations and also forming business rules for this market.
They have recently released a policy specific towards this pain point.
So all hope is on the regulators to take a look at this. Until then, sellers have no option but to give in to Amazon and its policies for maximizing marketplace revenue to subsidize their own merchandise.
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发表于 15-1-2021 12:45 PM
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