Amazon may have had its fair share of both ups and downs in 2021. And despite record success, that success also came with a price — namely in the form of increased scrutiny from government officials.
Now, a new lawsuit filed by the Washington State Attorney General's office has effectively shut down one of the more popular programs available for FBA sellers.
The “Sold By Amazon” Program
The “Sold by Amazon” program (SBA) was launched in 2018 as an invite-only beta version, allowing select third-party sellers with an active or pending trademark to partner with Amazon by establishing a minimum payment rate provided they agreed not to compete with the retailer.
If sales exceeded any minimum gross proceeds, a portion of any additional revenue from a product sold through the SBA program would be subsequently allocated to Amazon.
For Amazon sellers with a professional selling account and a trademark registered through the Amazon brand registry, the “Sold by Amazon” program should have been an enticing alternative to Sponsored Product ads.
But Amazon isn't necessarily as accommodating to sellers as it might seem.
Why “Sold by Amazon” Was Shut Down
As a result of a two-year investigation into antitrust practices, Amazon has indefinitely suspended the Sold by Amazon program, the office of WA state Attorney General Bob Ferguson has announced.
According to a lawsuit filed by the attorney general's office in King County Superior Court, the program decreased competitive offers by raising prices at artificially high levels through increases and discount prevention, requiring consumers to pay more for products sold by the Amazon SBA program.
As a result of the probe, Amazon has agreed to pay $2.25 million to the state of Washington as well as provide annual updates to the attorney general's office regarding their compliance with state and federal antitrust law.
Was Amazon Fixing Competitive Prices?
A chief point of the investigation centered around whether or not Amazon fixed minimum prices to its advantage, alleging that Amazon used its A9 algorithm to match and lower its prices to those of top-selling enrollees in the program.
Once the price of SBA products increased, the suit alleges, sellers saw a decrease in sales as a result of shoppers opting to purchase similar yet more affordable products from Amazon through its private label brands.
This isn't the first time Amazon's private label brand strategy has come under scrutiny. A recent report alleges the eCommerce giant had created competitive product knockoffs from Indian marketplace sellers, subsequently manipulating the A9 algorithm to rank higher searches for their product lines.
The Washington suit also claimed that Amazon prevented many FBA sellers from offering discounts, risking a lack of sales while still paying Amazon for fulfillment and storage fees and allowing Amazon to maximize its profits.
“Consumers lose when corporate giants like Amazon fix prices to increase their profits,” stated the attorney general's office in a press release.
“Today's action promotes product innovation and consumer choice, and makes the market more competitive for sellers in Washington state and across the country.”
Amazon's Response to the Lawsuit
As early as June 2020, Amazon announced it would be winding down the SBA program altogether for reasons unrelated to the investigation, which began three months prior.
“This was a small program to provide another tool to help sellers offer lower prices, much like similar programs common among other retailers, that has since been discontinued,” said Amazon spokesperson Glenn Kuper. “While we strongly believe the program was legal, we're glad to have this matter resolved.”
The settlement occurred directly after a similar antitrust suit was filed by Washington, DC Attorney General Karl Racine in May 2021 alleging Amazon has illegally maintained a monopoly by raising third-party prices and imposing restricting contract provisions on sellers.
Both suits follow on the heels of recent Congress and Senate bills, including the Ending Platform Monopolies Act and the American Innovation and Choice Online Act — the latter of which has resulted in Amazon issuing a recent statement citing the potential for ‘collateral damage’ to third-party sellers as a result.
What's the Next Step for Amazon Sellers?
Given the increased attention and scrutiny from federal regulators regarding alleged antitrust practices, brand owners on Amazon are in a unique position. On one hand, selling on the world's most successful digital commerce platform ensures their product line will reach as wide of an audience as possible.
But on the other hand? Amazon does not play fair.
Despite predictions to the contrary, it doesn't appear likely that Amazon will divest its third-party business anytime soon. To do so wouldn't just further alienate public sentiment. It would mean losing the vast majority of their current sales volume.
What brands can do in the meantime is to maximize their presence on Amazon, particularly when it comes to competitive pricing. Brand owners should be aware that Amazon's focus has always been customer-centricity. It's the foundation they were built on. And a customer's focus is as much based on a price point advantage as it is on the quality of a product.
Amazon may not seem like a rational entity. But there's a method to their madness. And learning to cope with that irrationality can be a small price to pay for growing your customer base.
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