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For third-party sellers, Amazon Prime Day can be a double-edged sword

·4 min read
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Amazon's (AMZN) Prime Day 2021 kicks off Monday June 21 and runs through Tuesday, June 22 — promising 2 million deals from big-name brands like Levi's (LEVI), iRobot (IRBT), Samsung, and Redken, not to mention Amazon’s own products.

It’s not just household names that get in on the sales event, though. Small and medium businesses look to Prime Day as a means to not only boost their sales numbers, but also get to themselves in front of consumers’ eyes, building up all-important brand equity.

But the ability of smaller businesses to take advantage of Prime Day depends on how well prepared they are for the crush of orders the event can generate, and if they can handle lower margins due to the discounts.

“The healthier a third-party seller’s Amazon business is, the more valuable or the more positive Prime Day is going to be for them,” explained University of Chicago Booth School of Business Professor Christopher Krohn. “If you fail to optimize your Amazon business, then Prime Day is either not going to do very much for you, or could actually cause...lost margin.”

Succeeding on Prime Day is hard work

At the start of the pandemic, customers flooded Amazon with orders. And though vaccines are now available and states and cities are lifting pandemic restrictions, many consumers are sticking with their online shopping habits, according to Adobe’s 2021 Digital Economy Index.

And that has bolstered sales by third-party sellers. According to Amazon, Prime Day 2020 was the biggest sales event for third-party sellers, driving $3.5 billion in sales. Amazon didn’t release total sales for Prime Day 2020, but estimates by Digital Commerce 360 put it at $10.4 billion.

“It’s a win-win situation for Amazon and for the third party sellers,” said Bob Leone, professor of marketing at the Neeley School of Business at Texas Christian University.

Photo by: STRF/STAR MAX/IPx 2021 5/11/21 Amazon destroyed more than 2 million counterfeit products sent by third party sellers to its fulfillment centers as part of a crackdown on counterfit merchandise. Here, Amazon packages out for delivery in Manhattan.
Prime Day can be a positive or negative for third-party sellers depending on how well prepared they are. (Image: Getty)

But being successful during Prime Day, and on Amazon in general, requires more work than simply listing your product on the online retailer’s platform. “It's a combination of having the right strategy and appropriate product offer and tactical management internally for your own business,” Krohn explained.

It’s also imperative that sellers offer a unique product. Competing with hundreds of other sellers with the same kind of product is too difficult for most third-party firms. Either they can’t get their prices low enough, or, if they can, they’re killing their margins.

“The key is you have some kind of unique product, either, if you're focusing on an underserved niche, where you have a truly unique product, or a hard to find product,” said Krohn.

Working with Amazon isn’t for everyone

While Amazon offers a massive audience of potential customers, sellers have to contend with downsides including knock-offs and counterfeits stealing sales, and the loss of control over merchandising. Larger-scale businesses that can ditch Amazon include Nike (NKE), which stopped selling on the e-commerce site in 2019.

“They want to start owning their consumers and selling off of their platform,” said Leone. “Owning your consumer is going to be something that's going to help manufacturers succeed and stay in business.”

Still, there are ways to make Amazon’s business model work for third party sellers. Understanding that their product offerings are what attract buyers, partners could strategize their product offerings on Amazon in order to maintain their bargaining power.

And for smaller sellers, working with Amazon is almost a necessity.

“If you're not in the game when Prime Day attracts quite a number of consumers, and if you're not there when all those consumers are making decisions, you're obviously not going to be the products that are being purchased,” explained University of Pennsylvania Wharton School Professor Barbara Kahn.

“The third party sellers can't afford to not be up on Prime Day, and they can't afford to not compete on price, but that doesn't mean it's a long term profitable strategy for them,” Kahn added. “In fact, it's probably something they would prefer to avoid. They don't want to be in a march to the bottom of price, because they do make money on margins.”

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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter: @daniromerotv

Got a tip? Email Daniel Howley at dhowley@yahoofinance.com over via encrypted mail at danielphowley@protonmail.com, and follow him on Twitter at @DanielHowley.

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