Marketplaces Mark Vandegrift By Mark Vandegrift

Amazon’s FBA “Surge Pricing”: What Sellers Need to Know

We all know that Amazon is excellent at using price to engage and retain consumers — and in some cases, trying to influence their behavior (think about the digital download credit for choosing the no-rush shipping option). But Amazon also uses the same approach to influence the behavior of sellers.

Case in point: Amazon’s announcement this week that it will reduce Fulfillment by Amazon (FBA) inventory storage fees for sellers in October and then drastically increase those fees in November and December.

The announcement shows how Amazon is using fee-based techniques to encourage sellers to get smarter about what they send into FBA warehouses and when they send it, specifically around the crucial holiday season. Monthly FBA storage fees will double or even triple in November and December, depending on the product tier.

Why Is Amazon Doing This?

It mostly comes down to storage space and busier holiday shopping seasons. Despite Amazon’s significant footprint of fulfillment centers, square footage in those buildings is still a limited resource, and an especially precious one when millions of consumers get into holiday spending mode. The last thing Amazon wants is to see that limited space filled with slow-moving items that gift buyers don’t want or that aren’t seasonal.

FBA is a lot like “sharing economy” services such as Uber, so why not borrow Uber’s surge pricing model? Granted, this situation isn’t exactly like Uber. The increased pricing won’t lead to more warehouses opening for the holidays in the way that Uber’s surge pricing attracts more drivers to a high-demand area. What the surge pricing will do, however, is make sellers think harder about their holiday planning.

Any Other New Policy Changes?

Amazon has also offered a counterbalance to the increased storage fees by lowering handling fees, meaning sellers pay less for the actual shipment of each sold item from FBA. So that’s good news for sellers.

The announcement also introduced a $0.10 penalty for not including box content information in every shipment. This may look like just another fee where Amazon can make an incremental margin, but as with these other fees, our experience tells us that Amazon doesn’t think that way.

Amazon would strongly prefer not to charge that fee. It would rather get more efficient in moving items through the receiving process and into bins, so those products can become sellable faster.

How Should You Respond?

The reduced monthly storage rate in October gives sellers an incentive to get items into FBA well before the Cyber Five weekend, so those items can be processed and ready to ship when the real shopping starts. It also encourages sellers to think carefully about the sell-through potential of products with the November/December fee “surge.”

We suggest that all FBA sellers:

  1. Adjust your processes: $0.10 doesn’t sound like much, but it can add up. And not including box content information will definitely slow down the receiving process and possibly even cause other shipments to be processed before yours.
  2. Start planning early: Know what you want to send to FBA for the holidays by October 1 (at the latest).
  3. Monitor product velocity and fees closely: If you’re a ChannelAdvisor customer, monitor your FBA activities via our recently released FBA Dashboard, which gives you a holistic view of all your FBA inventory. You can also use our  revamped Amazon Insights to get data-driven suggestions for actions that can optimize your profit.

Though it may be easy to view the fee increase as a bitter-tasting sin tax, the spirit driving this change is the same as what motivates almost all of Amazon’s decisions: It’s good for Amazon customers. Customers will always be Amazon’ primary focus. The new storage policy will result in having more in-demand products at the right time, ready to be shipped.

What will be most interesting is whether any sellers manage to optimize their FBA throughput to actually lower their year-over-year monthly storage fees this holiday season. With up to 3X increases in November and December, that’s going to be pretty tough. But not impossible. As with other “taxes,” this change may also have unintended side effects. Will there be fewer Prime products in Amazon fulfillment centers this holiday due to sellers’ fears that this increase will erode margins? We’ll have to wait and see.

For now, sellers need to plan ahead.

 

Blog post by Mark Vandegrift, VP of Product Management, Marketplaces, ChannelAdvisor

 


 

 

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