Retailers often ask us to tell them the secret to winning Amazon’s lucrative Buy Box. To help you understand how the Buy Box is awarded, we’re covering how customers use the Buy Box, how Amazon’s team creates the secret algorithm and how you as a retailer can boost your chances of winning it! If you missed out on Part 1, you can catch up here.
Competing with Amazon
At ChannelAdvisor, we don’t recommend competing with Amazon’s first-party sales, especially if you don’t do Fulfilment by Amazon (FBA). First-party vendor managers at Amazon will lower prices aggressively on best sellers, especially versus non-FBA offers. While first-party is mainly interested in best sellers, other sellers can focus on selection: Third-party units represented 43% of paid units in the fourth quarter of 2014, growing steadily month over month. You can use tools to identify product opportunities, such as Seller Central’s Amazon Coach.
There will be ASINs that Amazon’s first-party operation will invariably sell out of. In this instance, Amazon depends on the efficiency of its direct suppliers to deliver goods in time so that product availability remains uninterrupted. This is an opportunity for a retailer to seamlessly plug that temporary availability gap and tap into the existing demand for a product, sustaining the great experience customers have on Amazon.
FBA Buy Box Play
As a rule of thumb (and although there are some exceptions), fighting for the Buy Box with Amazon first-party using a lower price as a tactic is a losing strategy in the long term. However, all is not lost. Driven by its customer focus, Amazon will need to be satisfied that the offer winning the Buy Box will provide the best possible customer experience.
Because the experience is essentially the same for units sold by Amazon and units sold by a retailer through FBA, Amazon takes this into account when determining Buy Box eligibility, which is based on a set of pricing rules. In that scenario, one of the considerations is also the profit that Amazon retains from a transaction. So with the customer experience assured, it’s possible for a retailer using FBA to match Amazon’s price, win the Buy Box and not see Amazon move its price further down to win back the Buy Box.
It’s worth noting that Amazon’s vendor and product managers don’t have access to the Buy Box algorithm either. As we discussed in last week’s post, this is a secret formula that is dependent on many factors, such as price, availability, fulfilment, customer experience along with the length of time a retailer is selling on Amazon.
How to Win the Buy Box
As a retailer, you’ll compete with Amazon and with other retailers for the Buy Box. The key is to sell a lot, more than anyone else, without defects. In our opinion, this has become very challenging without Fulfilment by Amazon (FBA).
The landscape is different with Fulfilment by Amazon. You’re more likely to win versus Amazon’s first-party sales in FBA, as buyer experience is the same (excluding out-of-stock issues). From Amazon’s point of view, it’s all about first-party margins versus FBA margins.
FBA is also important when competing with non-FBA sellers, favourably affecting the following metrics: fast deliveries, stock (no pre-fulfilment cancellations, no quantity errors), sales history (inventory turns, Prime buyers) and defects (less negative feedback and fewer A-to-z claims).
Third-party competition on Amazon is tough. If your competitors use FBA and you don’t, or if you don’t optimise FBA stock and sales, you may lose ground. Even if your Order Defect Rate is in great shape, you unfortunately can’t compete with FBA sales velocity (sales history trailing 12 months).
At ChannelAdvisor, we’ve seen retailers selling the same board game: a non-FBA third-party seller selling just a dozen units a week, and an FBA seller selling hundreds every week with FBA. Most sellers don’t realise how much of an impact FBA has on best-selling products, especially when their metrics are decent and when their Amazon GMV grows. But the percentage growth can be much less than that of their FBA counterparts.
Another advantage of FBA is that is the access to Prime customers, with Prime customers buying more items than non-Prime customers. In the end, if you don’t use FBA on your best-selling, you’re going to be forced to lower prices dramatically to win the Buy Box. Sales velocity also affects traffic, not just conversion (ASINs with poor sales history will be ranked lower in Amazon’s search engine, even if your titles, keywords and browse nodes are great, and even if you have positive product reviews).
FBA increases turnover on best sellers, a lot, which in turn increases sales history without defects — a key metric for winning the Buy Box. Finally, it’s worth noting that there’s only one single view of third-party sales history, including FBA and non-FBA units sold trailing 12 months, so it becomes easier to win the Buy Box on non-FBA offers, too.
Don’t let the prospect of competing for the Buy Box scare you. Amazon is one of the most popular marketplaces in the world and one you should continue to sell on. Adapt Amazon’s customer-centric attitude and focus on the factors you know Amazon considers when awarding the Buy Box. From pricing to availability, fulfilment to customer experience, all of these are important to Amazon — so make them a focus for your Amazon sales in 2015 and beyond.
Blog post by: David Le Roux, Account Manager and Michal Kaluzynski, Head of European Services at ChannelAdvisor
Looking for more pointers? Check out our Amazon Year in Review eBook for a breakdown of the latest and greatest updates. Download this free eBook, Year in Review: What’s New with Amazon.