What is Retail Arbitrage?
From small-scale businesses to household names, retail arbitrage is a major issue for most retailers at some point in their growth.
Retail arbitrage happens when a reseller purchases the product (or items in large quantities) and sells them online at an income.
Some retailers earn their whole income from this strategy through leveraging the price differences among two markets.
Historically, resellers bought items from local stores and sold them on Amazon. Nowadays, many resellers are able to purchase and sell products directly from Amazon.
Some resellers never physically have contact with these items – they purchase products from Amazon and then sell them to resellers through FBA (Fulfillment by Amazon)
Amazon is the most common cause of issue when brands don’t have a tight control over their distribution lines and supply lines”
However, for brands, retailer arbitrage could be catastrophic and can damage the credibility of a brand , not to mention the slashing of pricing that can cause revenue loss.
However, Amazon keeps a percentage of third-party sales within their marketplace .
They are unwilling to enforce price agreements and may lose revenue. In certain circumstances.
Amazon will step in to assist companies in the event that they meet certain requirements (example that they sell at an extremely high volume) however, for most sellers it isn’t the norm.
Retail Arbitrage Can Negatively Impact:
Brand Credibility –
Without control, a reseller may deliver a product that is late damaged, damaged, in poor condition, or even expired. This can lead to negative reviews about the product, which ultimately diminish an image and disrupt the experience of customers.
Pricing products against the brand’s price can increase the Buy Box competition. Since more retailers compete with brands, the chances to be the winner in the Buy Box becomes more difficult.
At the end of the day, the only way to stop retail arbitrage isn’t the use of policing efforts rather through a more comprehensive strategy and the way they price items at wholesale levels.
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4 Ways Brands Can Prevent Retail Arbitration:
Best practices brands can leverage against retail arbitrage:
1) More Control over pricing, Wholesalers & Distributors
Based on Allan the company offers their product at a price higher than 30 percent lower than the Manufacturer’s Recommended Retail Price (MSRP) they’re vulnerable to the effects of retail arbitrage.
One way to stop shopping arbitrage is to look backwards and examine relationships between suppliers and brands. If these partnerships are not in place, companies will aren’t in business, which is why it’s crucial to focus on communicating.
A lot of sellers turn at Amazon for assistance, but they should really look to the top of the chain. Brands shouldn’t depend on Amazon to help them, but prevention begins before the Marketplace.
2.) Implement preventative sales clauses–
Having the right documentation regarding pricing is an essential element when a brand wants to shut down resellers who are not authorized. In the absence of this kind of documentation, brands will have a difficult time to remove resellers from the market.
3.) Promotional Code Limitations –
Brands must include restrictions on promo codes to avoid the purchase of large quantities when they offer discounts. Resellers can use these discounts to get bulk orders for reselling.
For instance, for example, an Amazon Lightning Deals is one of the promotions that offer a limited amount of discounts for an item during only a brief period.
These deals can be located throughout Amazon.com which includes those on the Gold Box page. They are accessible to customers one at a time, until the promotional period (typically four hours) to avail the deal ends or the discount coupons are taken advantage of.
The products featured within the Amazon Lightning Deal spaces typically enjoy an increase in sales for the period of the offer.
According to CPC Strategies’ Amazon Team, although the seller is forced to sacrifice profit through the discount, it’s an excellent marketing tool for creating awareness for a particular brand or product.
Brands aren’t going to wish for the Buy Box share to suffer due to an ineffective promotion, so make sure to limit the number of deals per customer.
4.) Frustration Free Packaging (FFP) –
While there isn’t a perfect solution to brand protection, marketing professionals have discovered an opportunity using Amazon’s Frustration Free Packaging.
Amazon cooperates with companies to package items in Frustration-Free Certified packaging (FFP) This decreases the total quantity of packaging materials used.
In addition, FFP can also improve the brand’s Buy Box percentage, and also help to protect them from unauthorized resellers.
When you’re an approved seller for the FFP products, you may ask for permission to market this FFP item on Amazon.
If you’re not the manufacturer/brand and you do not have permission through the manufacturer or brand to list your product on FFP ASIN. FFP ASIN.
In essence, if a company’s packaging is already approved for FFP then Amazon won’t allow other sellers who are not authorized to make bids against the listing (without their permission in accordance with FFP).
This means that FFP will give brands an edge over Buy Box and protect the brand from unscrupulous sellers.
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