Would You Trust Amazon To Set Your Prices?

Are you are a professional Amazon seller and also have a brand registered with Amazon’s Brand Registry? Then you might have received an invitation in August 2019 to join a new program from Amazon called “Sold By Amazon. In short, it lets you submit products to be priced by Amazon’s algorithm.

The new program, referred to as SBA (Sold By Amazon), serves the purpose of helping grow your business. It doesn’t cost anything additional to the FBA seller and storage fees remain the same. But there is also a second purpose of allowing Amazon to control the product’s sale price, by dynamically pricing your products to make sure they are lower on Amazon than anywhere else. Amazon has tried to exert some control of prices in the past, with language included in the seller’s agreement. But that presented legal issues and has since been removed.

Another plus for the seller is that SBA will guarantee that your brand won’t ever be priced out of the Buy Box should another seller hijack your listing. If you are selling hundreds of products on Amazon, this will definitely work in your favor.  Amazon ensures you have the best price, while making sure that Amazon has the best price across other marketplaces like Walmart and Jet. With Amazon controlling your prices, you will certainly be more competitive. Who knows better what the best price is for any given product than Amazon?

So How Does It Work?

Sellers who sign up to the program give Amazon permission to cut the price of their products at their discretion. The seller will get a guaranteed payout called Minimum Gross Proceed (MGP). You will control which products to enroll in Sold By Amazon. This way you will never get less than the MGP for your product. The MGP will be renegotiated every few months. If you get the MGP you want, then you never have to worry about losing money on your products.

When one of your products sell, in essence, Amazon buys the product from you for the agreed-upon price. But the really good news here is that if the item sells for more than the agreed-upon price, you get the extra. So if you have agreed to sell an item for $15 and Amazon sells it for $20, you get to keep the extra $5. That’s not such a bad deal. And even better, if Amazon sells your item for $12, you still get the agreed upon $15. And another little perk is that since Amazon is the seller, they incur the tax reporting obligations for the sale.

So Is This A Good Idea?

When I first heard of this program, I immediately thought it was a bad idea. But after looking into it, it might just work for some sellers. I guess the key here is agreeing to a price with Amazon where you actually make some money and know that you will always make at least that much.

One of the downsides I see is that if Amazon sells my $15 product for $12, does that damage my brand in any way? Amazon’s game is to sell and to sell quickly. We all know about the “way too low” prices that result from that. And as always, Amazon is always looking out for Amazon and how they do that seems to change with the weather.

If you are special enough to get an invite, I would just test it out on a few products. I think it would improve your performance scores with Amazon as another perk. And I think there are perks for early adopters, like no additional cost for returns.

Probably the most important plus is, if it doesn’t suit you, you aren’t locked in and can remove any product you choose and revert it back to normal FBA. I think that is the main selling point here and the reason I would sign up given the chance.

I am not sure how Amazon will decide which products will be accepted or how the Minimum Gross Proceed (your guaranteed price) will be decided. With a little luck and a big dose of fairness, this could really help some sellers.

Final Thoughts

Sometimes I complain that Amazon is codependent when it comes to pricing. They want to make their customers happy no matter what.  Sure I get that they want to be the lowest across all the markets, but I think they should put a little more value on what they deliver to the customer and realize that value can cost a bit more. With Amazon, customers get a better website experience, a better delivery experience, a better customer service experience and other important features such as reviews and a history of what you have bought. Those things are important and are worth an extra buck or two. Sure people are paying for Prime, but look at all you get with Prime…fast delivery, movies, music…so much stuff. If I had any advice for Amazon, it would be something I learned 30 years ago when I was a new salesperson. And that is, “something for nothing has no value”.

So what do you think, would you let Amazon control your pricing?