What is Amazon Seller Flex?

Amazon has transformed online selling with its marketplace approach and has also redefined how startups and corporations scale computing assets – like servers and services – via its Amazon Web services business. However, they are still dependent on third parties for delivery and logistics services provided by USPS, FedEx, and UPS. These services represent some of Amazon’s largest expenses, as promptly delivering packages to customers around the world is core to Amazon’s vision of eCommerce.

Amazon has been testing a service which may be encroaching on the turf of FedEx and UPS. The service began two years ago in India and Amazon have been slowly marketing it to U.S. merchants in preparation for national expansion. Amazon is calling the project Seller Flex. The idea is quite simple – Amazon is willing to collect products from third party merchant warehouses and then deliver to customers.

Why Seller Flex?

Seller Flex provides Amazon with additional capacity to ensure that products can be shipped to customers inside their 2-day window. Amazon has a problem that they are not keen on discussing externally: their warehouses are full, which has historically presented a problem during the busy holiday season. Amazon has tried to negate this by scaling storage costs during the busy season and by limiting replenishment of products that go unsold by third party merchants, in an effort to optimize warehouse spacing.

What else does Seller Flex offer Amazon?

·      It provides Amazon the opportunity to embed themselves into the operations of third-party sellers that are not keen on using Fulfillment by Amazon (FBA). By learning why these marketplaces sellers are not using FBA, they are able to further optimize their FBA offering. Essentially Seller Flex is FBA coming to merchants that are not using the program.

·      Seller Flex provides Amazon the opportunity to create a wider assortment of products that are able to be shipped to customers in the ‘Prime’ window. Amazon leverages the wider assortment as a competitive advantage against their U.S. competition.

·      Seller Flex provides Amazon with the ability to further their world-class logistics in the U.S. and slowly become less dependent on their 3rd Party logistics partners. When logistics partnerships a product that is seen as part of the Flex program, they get paid less by Amazon. Amazon likes to compete with its customers and Flex provides a negotiating tool for better rates with FedEx and UPS, leveraging increased volume and scale.

·      Amazon can use Seller Flex as another data point to gain insights into sellers who are not using FBA. By being able to generate data on delivery times and whether a business is meeting the required standards of performance, they are able to learn about the impact this group of third party merchant would have if they choose to open the Flex program to other groups of third party merchants.

·      Amazon is using this as a tool to learn about locations to counteract the fact that Walmart / Jet uses the location of the third-party sellers as an algorithm data point in determining costs for a transaction.  By adding Seller Flex customers into their logistics ecosystem Amazon is able to source products that are closer to a customer who purchases the products.

Amazon is able to save costs that are spent on logistics and Seller Flex provides them an opportunity to lower overhead costs that end up as operating expenses.

Who are the big losers if Seller Flex succeeds?

FedEx and UPS are the most obvious losers if Seller Flex succeeds. Amazon is arguably the largest customer that drives a large part of their revenues. It provides Amazon with negotiation power to ensure that they get lower rates from these third-party logistics businesses. FedEx and UPS will experience tension with Amazon as they begin to experience fewer products that are shipped via their services.

Third-party logistics services and warehouse operators are also losers as customers are going to experience Amazon doing the same operations for less money. Competing on price with Amazon is, in general, a bad idea as they are able to take losses where other businesses in general want to be profitable. As Amazon becomes more entrenched in these businesses that do not use FBA it is a matter of time before customers leave Third-party logistics services and warehouse operators.

Amazon competitors are suddenly looking at another data point that they are unable to track as products shipped that are not in Amazon Fulfillment Centers are for all intensive purpose another grey area which Amazon will have the only access. This might seem like a small matter but the fewer partners and sellers know about Amazon operation the better they are able to price products to third parties.  

Amazon is able to offer hazardous products such as batteries, spray paint and other things that provide additional costs to ship cross country. By leveraging a seller closer to the customer via the Seller Flex program – Amazon is able to ship these items in a faster manner.  Amazon has over the years been fined by the FAA and other government.

Brands and Seller Flex

If brands are not using FBA to ship products to customers it is vitally important that if they are invited to use the Seller Flex concept from their third party warehouse – to take the opportunity and start using Seller Flex. Use Seller Flex as a way to test whether your logistics operation is run in an efficient manner and then consider using Seller Flex for a period of time. It is of vital importance that you understand that Amazon will have expected standards of operation and failure to act appropriately will lead to lower sales and possible account suspension. After using Seller Flex for a period of time – please consider joining the FBA program to ensure that your products can be shipped in a fast manner.

Source – www.buyboxexperts.com

Book Review: The Hard Thing about Hard Things

A lot of people talk about how great it is to start a business, but only Ben Horowitz is brutally honest about How Hard it is to run one. For a down-to-earth of start-up life, The Hard Thing About Hard Things makes the perfect antidote. The author gives a wart and all view of what it’s really like to be in charge of business weeks away from running out of cash, threatened by the loss of its biggest customer or outflanked by a competitor with a better product.

In the book, the author draws on his own story of founding, running, selling, buying, managing and investing in technology companies to offer essential advice and practical wisdom for navigating the toughest problems business schools don’t cover. A lifelong rap fan, he amplifies business lessons with lyrics from his favorite songs, telling it straight about everything from firing friends to poaching competitors, cultivating and sustaining a CEO mentality to knowing the right time to cash in.

Horowitz spends the first few chapters establishing his own story, from growing up in Berkeley, to meeting his wife Felicia in LA, and then the unfolding of his career. He gives the reader an inside view into his humble start as an engineer at NetLabs, and his beginnings working for his future venture and business partner Marc Andreessen.

Horowitz really delves into the story behind Loudcloud, and then Opsware, which was born of Loudcloud. It’s in this moment in time Horowitz appears to have had the bulk of his education as a CEO, manager, and founder. Loudcloud, and Opsware, and this by no means was an easy road. In fact, the way Horowitz describes the journey, it was an epic disaster at some points. He recalls in the book that Loudcloud was running out of money and the company decided to IPO because private investors wouldn’t invest any more cash.

On the roadshow, Horowitz says he was sure the company would go bankrupt. And in the midst of all this and his travel, his wife Felicia had a serious health scare, as outlined above. These sorts of hardships are the reason why he spends so much time on the actual journey versus the outcome, which was that HP acquired Opsware for over $1 billion in 2007.

Horowitz also delves into the next chapter of his professional life as a venture capitalist. Here he covers the history of founding A16Z with Andreessen, the reason behind the firm’s focus on hiring former founders as VCs and its replication of the CAA agency model in the VC world. He goes into detail around how he and Andreessen have segmented the firm into networks, which include large companies, executives, engineers, press and analysts, and investors and acquirers.

The book follows his story as it happened and leaves you with a real sense of how to approach problems. They say your success is defined by how many hard conversations you're willing to have, and this book gives you the mindfulness to recognize the situations you need to step up and some of the tools to do it. The Hard Thing About Hard Things is invaluable for veteran entrepreneurs as well as those aspiring to their own new ventures, drawing from Horowitz’s personal and often humbling experiences.

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How to move from Vendor to Seller on Amazon?

Amazon always takes the long view. Though it’s hard to imagine Amazon’s domination of e-commerce changing any time soon, the retailer has set its sights on also challenging the giants of brick and mortar including Walmart, Costco, and Target. To that end, Amazon is poised to implement a long-rumored change to force smaller vendors (less than $10M per year) to move from Vendor Central to Seller Central. If you’re among the tens of thousands being forced to make the change, you need to understand the implications of this change in order to properly adapt and prepare yourself a smooth transition.

What is Seller Central - Amazon is really two different marketplaces stacked on top of each other. The first party (1P) marketplace is where Amazons sells inventory directly, buying stock in bulk from 1P vendors and then pricing and selling those products to consumers. 1P suppliers use Vendor Central (VC) to control their product detail pages and manage purchase orders. In the third party (3P) marketplace, instead of selling wholesale to Amazon the merchant uses Amazon as a platform to sell directly to consumers and pays a commission. These sellers manage their product offerings using Seller Central (SC). The 3P marketplace has grown more rapidly than 1P and now accounts for roughly two-thirds of sales, leaving plenty of opportunity for those making the switch. Though this transition may prove to be a challenge, many vendors have willingly made the move, preferring the advantages of SC over VC.

Impact on Advertising - Perhaps the biggest downside of Seller Central is the advertising limitations. 1P vendors have access to three main types of ads: Sponsored Product, Sponsored Brand, and Product Display. Seller Central only gives access to sponsored product ads. 3P sellers can only access sponsored brand placements if they are registered with Amazon’s Brand Registry, which requires holding a trademark for the product. Product display placements are not available in SC at all.

Product display ads, which appear on the right side of a product detail page (PDP) below the buy box, serve several strategic functions. They can be used by vendors to advertise on their own PDPs in order to prevent competitors from gaining visibility there, to generate brand awareness by targeting shoppers by category or interest, and to upsell or cross-sell (for instance, by placing a product display ad for a brand’s bestselling product on all other PDPs). Losing access to these ads while moving from vendor to seller is a major downside.

Many sellers will also see a decrease in ad performance. Amazon’s advertising algorithms leverage historical campaign performance data for relevancy and moving from vendor to seller often means starting over from scratch. Without historical data, a new Seller Central campaign, even if it’s otherwise identical to a previous Vendor Central campaign, will take time to regain the lost momentum.

The transition will be rocky, but it’s not all doom and gloom. In recent years Amazon has been improving SC to have much of the same functionality as VC, so it’s likely that at some point Amazon will introduce product display ads for sellers. In the meantime, the ability for sellers to directly manage product pricing gives them more strategic control, allowing them to execute marketing campaigns without the risk of lost profit margins or inter-channel conflicts.

How to make a smooth transition - 

1.     If possible, register with Amazon’s Brand Registry. This is available to trademark holders and will provide you with two important capabilities.

1.     Sponsored Brand Ads – These appear as banner ads at the top of a search results page. These ads are often more effective than product ads for attracting new customers in the discovery phase of their path to purchase.

2.     Brand protection – PDPs that are not controlled by vendors or sellers within Amazon’s Brand Registry can be edited by any third party selling the product. If you’re registered, you can protect your brand by preventing 3Ps from editing your content.

2.     After registering your seller central account, recreate your product listing using the same ASINs. This will allow you to inherit the PDPs from your vendor account keeping all the valuable ratings, reviews and search relevancy you’ve built up over the years.

3.     Transfer your ad campaigns by bulk downloading them from Vendor Central and reuploading to Seller central when launching new campaigns. This will save you all the time and labor required to rebuild your campaign structure, keywords and bids. Note that you may be required to update the format to match the SC bulk operations template.

4.     When creating new ASINs, it’s important to boost traffic early on to establish placement and visibility. Kickstart initial sales with coupons and other promotions and leverage the early reviewer program to incentive authentic reviews from Amazon shoppers so that you can quickly populate your PDPs with ratings and reviews.

Transitioning from a wholesale supplier to a marketplace seller can take several months. With the mounting evidence that Amazon is indeed planning to reduce smaller vendors in favor of taking their hands of the wheel and reducing direct human intervention in their retail business, it’s a good idea for vendors to have a backup plan in place.