Amazon is often held up as the best example of a successful pack and ship partner. And why not? Since its founding in 1994, it has survived the dot-com bubble, disproven Wall Street skeptics who said its business model could never turn a profit, and grown to become the largest online retailer in the world.
What was Amazon's magic recipe?
Like most pack and ship companies, Amazon offers retailers the ability to store inventory in its network of distribution centers, manage that inventory remotely and even use that inventory to fulfill orders in sales channels that are not directly related to Amazon, such as retail storefronts or wholesale.
So what made it so successful relative to competitors? One word: visibility.
Jeff Bezos was a very smart man. When he founded the company, he deliberately chose a name that began with the letter "A" so the business would pop up near the top of search results (in the days before clicks became king). He also began by choosing a primary product with high demand and low price point that would yield volume traffic and increase his brand's visibility for his envisioned push beyond books.
Fulfillment by Amazon as a selling point.
Amazon has extended Bezos' "focus on visibility" mentality to its Fulfillment by Amazon (FBA) service. Among its claims, the company promises potential partners the ability to increase unit sales 20% or more just by signing on and allowing Amazon to become their third party fulfillment (3PF) provider.
Truth be told, those partners do see increased sales. But not necessarily because it's a better service.
Does Amazon stack the deck?
Some would say yes. In an article on VentureBeat, Christina Farr reported on Amazon's alleged practice of deleting negative customer feedback related to shipping for FBA clients.
It's a powerful incentive for partnering retailers to opt for an FBA contract, and an offer that can't be refused for retailers selling through Amazon's network who would otherwise ship with a competing 3PF provider. In a sense, Amazon competes with its own partners as they attempt to muscle in on profits.
Retailers who opt to go it alone on the fulfillment side bear the full weight of negative feedback related to shipping— even for situations beyond the retailer's control, such as stolen deliveries, ice storms that shut down major metros during the holiday season, or mail carrier-initiated damage. On the flip side, under Amazon's terms of service, businesses that opt for FBA can contact Amazon directly and ask that negative shipping feedback be erased.
FBA isn't the only way Amazon can squeeze you.
When Amazon manages your inventory, like a traditional 3PF would, you get the convenience of not having to pay for warehousing, capital maintenance and a lot of picker labor, but you sacrifice something which may be interminably more valuable: your data.
Many retailers forget that Amazon is also in the retail business itself.
When you begin moving a lot of a certain product, Amazon knows it’s profitable and may begin to stock it on the retail side of its own business. And with its buying power and economies of scale, Amazon is able to sell more units cheaper than you could keep up with.
You need a pack and ship partner that can compete on price without becoming your competitor.
If you were to look closely at Amazon's pricing, you would find that in many cases, their storage and inventory management fees aren't the market gold standard. In fact, they can be quite high:
And Amazon does have a tendency to pass those costs along to their consumer (and by definition, if you are under an FBA contract, your consumer) base.
For one thing, FBA users' listings are "ranked without a shipping cost" (Amazon's own words), making them appear to be more attractive relative to non-FBA sellers hosted on its marketplace. Amazon makes FBA sellers' shipping costs invisible to the consumer, then charges them on the back end under the assumption that most consumers have opted for Amazon’s Prime service (new price hikes have changed more than a few minds about the premium service).
You customers may not appreciate those kinds of practices. Remember, your third party fulfillment provider should be a partner to your business, not a competitor.
That’s not to say you should abandon your Amazon storefront altogether. Just think about who’s handling your fulfillment. When you are searching for pack and ship companies to fill your organization's needs, make sure you check out their service terms up front and understand the implication of those terms— for you, and for the customers you serve.
Your business is riding on customer satisfaction just as much as it does on your product margin.