Fulfilled by Amazon(FBA) vs. Merchant Fulfilled

Every now and then I run into someone who has tried making some extra money on Amazon. None of have been happy. It’s all about the fees. I always want to tell them it’s really all about the margins and the eyeballs. What do I mean? Well you have to understand the mindset of the FBA buyer. Rather than try to rewrite what is pretty much perfect I’ll just quote from an article I found in the 2012 Proven Amazon Course by Jim Cockrun.

“When selling on Amazon (whether you are using FBA or not), it is vitally important to understand the Amazon customer. This one piece of information alone will drastically increase your margins and profits. It is the key to learning how to price your items on Amazon, and especially when using FBA. Learning to understand the Amazon Customer and knowing what factors they consider when making purchases will change the way you see Amazon as a marketplace.

To start, remember this: Amazon is crazy about customer service! They have built their business on customer service. They have the best customer service, return policies, and consistently go above and beyond to keep customer happy and make them customers for life. They have shipping programs that ensure that their customers get their orders quickly and if there are ever any problems, Amazon is there to keep the customer happy.

Amazon has said that almost half of their entire customer base has never bought from a third party merchant who doesn’t use FBA. This should immediately show you that Amazon customers prefer to buy from Amazon and FBA sellers, and that price is not always the most important factor in making a buying decision. Think of this way; if you put all of Amazons’ customers in one group, that group would have different sub?groups.

These sub?groups have different characteristics as to what factors they consider most important when making a buying decision. For some, it’s price. For others it’s a good return policy. For many, it’s if the items are eligible for Free Super Saver Shipping and Amazon Prime (more on these later). These groups may not even make sense to you. Don’t worry; they don’t have to.

You don’t have to know why a buyer is willing to pay more for an identical item from Amazon or an FBA seller than from a third?party merchant at a lower price. You just have to understand that a large portion of Amazon customers put a high value on Amazons’ shipping speed and customer service, not price. Just don’t think that they don’t know what they are doing. They are likely the savviest buyers on Amazon. They know what they want, they know when they want it, and they are willing to pay for it.

They put a value on shipping speed and will actively seek out and patronize sellers whose products are eligible for the shipping speeds and customer service that they prefer. Amazon even lets buyers sort the offers pages by sellers who use FBA. The sub?group that you need to understand is the one that seeks out Amazon and FBA offers because they want their items fast and are willing to pay more for the Amazon?backed customer service. These are the buyers to which you are marketing yourself (and your items.)

One other way to look at it. Take 100 Amazon customers. Half, 50, have never bought from a third?party merchant who doesn’t use FBA. So for a specific item, you could have Amazon selling at $20 and a third?party merchant selling for $10 + $5 shipping, or $15. There are 50 people paying $5, or 33%, more for the same item. But are the items the same? Not at all; the physical product may be the same, but the other factors surrounding this product and sale are very different.

One order ships and arrives in two days for free. The other order takes 10 days to arrive. One can be returned no questions asked. The other gives the customer a runaround on returns. Let’s back up a bit. The Amazon marketplace has product pages and all sellers have to list on those pages. This means the customer gets to see all offers in one place. Some sellers see no other way to differentiate themselves other than price, so they lower price in a race to see who can make the least amount of money without going out of business (don’t do this).

Here are so of the many ways a seller can differentiate themselves in Amazon.

Price – Amazon sorts the seller offers by price – SOMETIMES – The lower your price, the more visible you are (in theory, not always in practice).

Feedback – Buyers check a sellers’ feedback prior to purchasing. If you have higher feedback than your competition, you can often command a high price.

Product Description – Many sellers use bland, generic product descriptions that do not inspire any buyer confidence. A buyer will often choose an identical item from a seller with an accurate, professional product description because they have more confidence that the seller.

Return Policy/Customer Service – Some sellers offer a more generous return policy that give the buyer more confidence in choosing them as a seller in the event that something goes wrong with the product or the order.

FBA – This is the game changer. When you are an FBA seller, you are now able to offer things that your competition simply cannot offer. Your items are now part of Amazons’ fulfillment network meaning that you items are now eligible for the same shipping options and promotions as Amazons’ own items. Amazon spent  many millions building the most advanced shipping and distribution systems in history?

Now your items can take advantage of this system! This is powerful. Using FBA to differentiate yourself means that you are able to cater to this sub?group of all Amazon customers who put a high value on Amazons’ fulfillment process. You may not get the next sale, or every sale, but you’ll still get sales. The good news is that your sale is at a price that protects your margins.

To understand this sub?group of Amazon customers, you need to fully understand Amazons’ shipping programs. Free Super Saver Shipping Free Super Saver Shipping (FSSS) is Amazon’s free shipping program where eligible items will ship free if the customer spends at least $25. This creates an interesting dynamic when customers are looking to maximize their purchase. Amazon customers are smart. They know it will actually cost less to add a $5 item to their $20 order and get free shipping than to pay $20 + $7 shipping and get fewer items.

So the Amazon customer with $20 in his cart is out looking for a $5 item that is eligible for FSSS, even if they don’t want or need the item! Your $5 item doesn’t have to be the lowest priced offer, it just need to be eligible for FSSS.

Amazon Prime Amazon Prime may be one of the biggest catalysts of Amazon’s success. For those who don’t know, Amazon Prime is a yearly membership paid to Amazon ($79) and that member gets free 2?Day Air shipping on all eligible purchases. I say eligible in a sense because I’m sure that there are items that are not available for free Prime shipping, but last time I looked, I couldn’t find any.

Amazon Prime Program Details; Amazon.com/prime Unlimited FREE 2?day shipping on all eligible orders – You don’t have to order that much from Amazon to get a lot of value out of this program. Even one package a month would cost you more to request 2?Day shipping than the $7/month for Amazon Prime. No minimum purchase required for free shipping – Even a $5 pair of scissors will be at your door in two days for free if you’re an Amazon Prime member.

Are you really going to drive to the store just for scissors? Send gifts across the continental US at no additional cost – You don’t just have to ship to your house. You can have Amazon ship birthday gifts, wedding gifts, or Christmas gifts gift wrapped right up to the last minute, all free. Add up to four accounts in your household to your account – Just about anyone in your house can use Amazon Prime and get things delivered free in two days. Get overnight shipping for only $3.99 per item Seriously? $3.99 to send just about anything overnight. Order today, at your house tomorrow for under $4. I’m not driving half way across town over $4 unless I absolutely have to have an item tonight (which is pretty rare). DVDs, toothpaste, cereal, diapers, all at your door the next day for under $4.

Can you see how a buyer could get used to this? Amazon actively promotes and markets their shipping capabilities (and items that qualify) Amazon will even tell you on the product page how much time you have left if you want the item delivered tomorrow or the next day using two day shipping. Depending on where the Amazon fulfillment center is located, two day shipments often arrive overnight. Here’s how this works in practice: say I want to order the Kindle. I can order it as late as 6:30 CST and for $3.99 it will be at my door tomorrow at about 10:30. If I can wait an extra day, it’s free.

This is powerful stuff. Forget your anniversary is tomorrow? Order in the afternoon and it’s delivered the next morning. (Shipping and delivery times will vary by individual, but we get our UPS shipments about 10:30 AM) When you use FBA, all of your items are eligible for these same shipping promotions and Amazon customers who value the shipping speed will buy from you, even if at a higher price.

Customers do want a good price and often Amazon does have the best price. Buying from Amazon is often a no?brainer because of the best price, no tax (for most), and free shipping. As long as you don’t absolutely need the item today, then it often makes sense to buy the item from Amazon. This applies to all Amazon orders that ship for free, but more so for Amazon Prime members who will get their items in just two days. But Amazon customers will frequently spend more on the same item to get it from Amazon than from another online retailer, even a local store.

Why? Many reasons. You could say, “What’s wrong with them? They could go buy it on eBay for less!” Maybe, but some Amazon buyers may absolutely hate eBay and refuse to even go look. They may be very busy and not have time to shop different sites and local stores just to save a few bucks. They may not live near a local store that carries what they need. They may not even have a car to go shopping!

The fact is, they know what they want, they know when they want it, and they are willing to pay for it. What these buyers want are items that use Amazons’ fulfillment center so that they get them fast. Examples where price is not the deciding factor Deadlines Birthdays, holidays, anniversaries. These are set on the calendar and if you want to order something online and get it in time, you have to plan ahead.

UPS Ground and Media Mail aren’t exactly the faster things around in terms of delivery times. When it’s two days before Christmas and you’re still shopping on Amazon, your options are limited as to which items can still be delivered on time. If you’re using FBA, yours items can get there in time while your competition simply cannot deliver (at any price).

Or think of it this way; you’re going on a cruise in two days and you want to take a specific book with you. That third?party merchant offer simply will not arrive in time but that FBA sellers’ item will. You are not upset that you had to pay more than the lowest price. You are thankful that the book was available to you at a price you were willing to pay and you’re able to take it with you on the cruise!

They just want the item fast and will pay a few bucks more to get it This happens all the time. It’s simply a matter of ‘time is money’. Most book and media sellers use USPS Media Mail for their shipments. This can take up to two weeks to arrive. Don’t you think that Prime member is just going to pay more to get the same item in two days? There is a value in getting the item sooner. Will everyone pay to get it faster? No; some will wait months to save $0.50, but those aren’t the customers you’re looking for. You’re selling to the smart customers. They know what they want, when they want it, and are willing to pay for it.”

What most wanna be sellers don’t understand is that if they decide to go the route of FBA it takes care of both the issues I opened with: margins and eyeballs. Your success online once your product or service is packaged in an acceptable manner is eyeballs or ‘traffic’. As an FBA seller you automatically have preeminence for instance the book ‘Mindset’ is carried by Amazon and sells for about $11. If someone does click on used you’d think that maybe the cheaper options would be displayed but the first items to be displayed are the FBA sellers.

As an FBA seller you automatically have preeminence for instance the book ‘Mindset’ is carried by Amazon and sells for about $11. If someone does click on used you’d think that maybe the cheaper options would be displayed but the first items to be displayed are the FBA sellers. Take a look : This is huge because you can price your item the same as Amazon or a few pennies less and you’ll get far more sales than a merchant fulfilled seller and make more money. “The more money” piece comes naturally because the FBA buyer expects to pay more since they are not paying for shipping and they are paying for the reputation that Amazon has developed for over a decade.

Let me finish with a story. I have a friend who didn’t want to pay the premium that the FBA ‘cost’. Many years ago when I sold software my manager told me one of the strongest closing tools was asking folks if they knew the difference between the ‘price’ and the ‘cost’ because the two are worlds apart. We are restoring a car and the manual we ordered from Amazon didn’t come and didn’t come. Finally today a week and a half later we got this email.

Tonight I am ordering from a FBA seller. It will be in my hands in two days. FBA rocks!

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