The Rising Operational Costs

Operating on Amazon entails increasingly steep costs, with brands facing a continual upward trend in business expenses. As a Vendor, ensuring Amazon a net profit approaching 40%, or even surpassing 45% in some cases, has become the norm. This obligation extends to underwriting any shortfalls in margin targets (Cost Sales Agreement, CSA), coupled with contractual mandates to allocate additional funds for vendor-funded sales events (Sell-Out Allowance, SOA) and contend with operational chargebacks and deductions for price and shortage variances. Meanwhile, Sellers grapple with a combination of 15% referral fees, FBA charges penalizing bulky items, and storage fees that, when combined, cut 30% of the margin out altogether, all amidst Amazon’s consistent fee hikes over the past three years. These mounting expenses pose a significant threat to profit margins, intensifying the challenge for brands to maintain their foothold on the platform.

Our Marketplace team of experts at Incubeta can assist brands in selecting the best product selection and the way to market it by analyzing the competitor landscape, aligning with your marketing strategy and budget, as well as providing sales forecasts for a comprehensive annual planning.

Limited Control Over Pricing

One of the persistent challenges for brands on Amazon is the presence of unauthorized resellers who undercut prices, diluting brand equity and eroding profit margins. Despite efforts to curb this issue, Amazon’s reluctance to impose strict limitations on unauthorized resellers leaves brands vulnerable to price wars and commoditization.

In addition to enrolling in Amazon Brand Registry to combat parallel imports and trademark or copyright infringements, it’s essential to strengthen distribution agreements with wholesalers and build strong relationships with authorized sellers. This collaboration will help you protect your brand equity, but you also may want to establish selective distribution agreements, with clearly defined guidelines, to further ensure that your products are sold in a controlled manner. On the other hand, unauthorized resellers often lack a complete product range, so creating unique bundles can make your listings difficult to replicate, while also promoting brand awareness, cross-selling, and up-selling opportunities. Incubeta can assist you in building these compelling bundles as well as in monitoring the market place and identifying unauthorized resellers.

Fierce Competition in an Overcrowded Marketplace

The sheer volume of sellers and products on Amazon all competing for the same virtual shelves contributes to a highly competitive environment where brands must constantly vie for attention and sales. Even when consumers specifically search for a brand, the search results often feature competitor products, intensifying the pressure to compete on price rather than differentiation.

The best way to get your brand to stand out is by generating your own traffic with DSP solutions or directing the right organic traffic to your product detail pages or brand store through SEO and PPC advertising. Fine-tuning your messaging to resonate with your target customers.

Complexity of Amazon environment

Navigating the Amazon ecosystem is a perpetual challenge. It’s an ongoing struggle to ensure product compliance, evade delisting or search suppression, and strategize stock replenishment to outmaneuver Amazon’s endemic dock congestions and logistical delays, particularly during peak periods such as Prime Day, Black Friday, and Christmas.

Brands need to stay ahead of the curve and meet Amazon’s operational requirements. This not only reduces operational chargebacks but also positions Vendors strongly for Annual Vendor Negotiations (AVN).

Advertisement Investment Pressures

Brands face considerable pressure to invest in advertising on Amazon to enhance visibility and drive sales. With advertising costs often hovering around the 30% Advertising Cost of Sales (ACoS) mark or higher, brands must allocate substantial resources to maintain competitive positioning within Amazon’s crowded marketplace.

Incubeta can build precise forecasts and set up tailored goals for your brand. We provide comprehensive strategies that ensure your advertising spend is optimized for maximum return on investment. Our expertise ensures that your brand remains competitive while effectively managing advertising costs, ultimately leading to sustained growth and profitability on Amazon.

Exploring Alternatives: The Rise of TikTok Shop

Amidst these challenges, brands are beginning to explore alternative platforms to diversify their digital presence and reduce reliance on Amazon. One such platform gaining traction is TikTok, where users have demonstrated a higher purchase intention compared to Amazon. The introduction of TikTok Shop presents a promising opportunity for brands to leverage the platform’s vast user base and innovative marketing features to reach new audiences and take control over their digital presence again.

While Amazon undeniably offers unparalleled reach and convenience for brands seeking to establish an online presence, the escalating costs, pricing pressures, and intense competition underscore the need for diversification and exploration of alternative platforms. By embracing emerging platforms like TikTok Shop, brands can unlock new marketing opportunities, reduce dependency on Amazon, and chart a path toward sustainable growth and profitability in the dynamic digital marketplace. 

Incubeta will connect your brands to our experts and build the best mix of marketing strategies across the digital realm.