The ‘Buy with Prime’ initiative enables Prime members to shop on non-Amazon websites using their saved checkout details and enjoying Prime benefits like free, fast delivery, and free returns.
Sellers availing themselves of the feature will pay service fees, payment processing fees, fulfillment, and storage fees calculated per unit, according to Amazon. Participating merchants will use the Prime logo and display expected delivery dates on eligible products while checkout will go through Amazon Pay.
Initially, the program will be invite-only to Amazon marketplace sellers with their merchant sites that are using Fulfillment by Amazon. Eventually, non-FBA retailers and brands will be included.
Are merchants primed to adopt BWP? Will they sell more items or will it be a sell-out to Amazon? Should sellers be worried about letting Amazon be in the know of their metrics?
Shopify can heave a sigh of relief
Looking at the numbers, BWP does not exactly seem like a “Shopify-killer” initiative. While it is too early to enumerate ‘Buy With Prime’ users and not yet feasible to measure the penetration of FBA outside Amazon, a useful metric to gauge the potential base for the program would be the number of DTC merchants with Amazon Pay checkout enabled on their sites. Amazon Pay is conditional to Buy With Prime. This number would be the as-is upper limit of the potential base.
As per PipeCandy’s survey of 21,000 US DTC brands, 17% of the merchant's sample offered Amazon Pay as a checkout alternative. Extrapolated to the entire US DTC merchant base, there could be around 25,000 DTC merchants with an Amazon Pay checkout. A bulk of these merchants are in the midmarket (USD 5M-50M ) GMV range which accounts for just 8% of the overall US B2C physical goods aggregate GMV generated in the United States.
In comparison, Shop Pay checkout is enabled on a greater number of DTC merchant sites ( we are coming out with a report on Shopify Payments shortly) provisionally quantifying the stickiness of merchants to the Shopify ecosystem. Amazon may not have a significant base to start with but when the rollout to non-FBA merchants starts, it would be interesting to see how many conversions would they be able to achieve.
Cost of instant gratification
Shipping speed is another trojan horse that would help Amazon to achieve conversions. In a February 2021 Digital Commerce 360/Bizrate Insights survey of 1,047 shoppers on conversion rate, 68% of consumers said fast shipping would lead them to place an online order.
36% of online shoppers have ordered online for same-day delivery from a web-only merchant in 2020. Therefore, Amazon’s own nurturing of consumer expectations via its FBA and Prime delivery commitments might as well work for it to affect non-FBA conversions. This is reflected in the delivery speeds offered by DTC merchants. At least 41% of small and medium DTC businesses offer next-day delivery. These numbers steadily increase as the volume of business (gross merchandise value) increases.
Offering two-day and three-day delivery options in addition to next-day delivery has become a norm with DTC brands to match Amazon’s own Prime delivery standard of two days. Those that are offering next-day or two-day delivery outside of FBA will have an advantage with FBA sign-ups in terms of costs. Besides offering Fulfilled By Amazon to third-party sellers on Amazon, Amazon also offers MCF - Multi-Channel Fulfillment - a fulfillment service for brands that sell outside of the Amazon Marketplace. These merchants need to have an Amazon Seller Central account but need not necessarily sell on Amazon.
The fulfillment fee for MCF starts at USD 3.99 per unit order and goes up to USD 13.83, and the storage fee ranges from USD 0.75 per cubic foot to USD 2.4 per cubic foot per month. These are effectively the only price points that FBA/MCF merchant users have to contend with.
Non-FBA customers however have a higher outlay for fulfillment via third-party logistics providers and have to contend with at least four varying price points including inventory intake fees, ‘pick and pack’ fees, Storage fees, and shipping costs. The first two themselves can push the cost of fulfillment for the merchant anywhere from USD 8 to USD 20 per one-unit order. While storage costs with 3PL are lower than Amazon (ranging from USD 0.3 to USD 0.55 per cubic foot per month), the overall costs with 3PL are higher than FBA.
If you are in 3PL and can provide a more nuanced take on Amazon FBA/MCF vs. 3PL costs, please write to me. I am happy to host you in our newsletter.
Perhaps the only factor that still offers some differentiation for non-Amazon merchants is in packaging – Lumi-powered, pastel-shade glossy (or matte) packaging versus Amazon’s staid brown paper box packaging but this adds to fulfillment costs.
Buy with Confidence
On the contrary, the presence of a ‘Buy with Prime’ button can act as a strong conversion boost for 84% of the non-Amazon Pay checkout users in the less than 5M GMV range, These are small brands with low branding mostly placing ads on social media or Google Ads. The Buy with Prime logo on the face of the website (or in the ad) can potentially provide a quick endorsement (or validation) for the merchant with the curious consumer. After all, Amazon has almost 300 million users worldwide with at least 150 million of them subscribed to Prime.
The stick works where the carrot does not.
The most compelling graph from last week is that the trendline of eCommerce sales as a percentage of retail is retracing back to pre-pandemic growth levels. That said, costs are moving in the other direction.
If the economy is Elon Musk and the average eCommerce seller is Twitter, Amazon looks just like the ideal poison pill. But Musk is relentless and so is the economy. It’s another matter that switching allegiance to Amazon may not isolate the brands from falling discretionary spending but it at least will put some cash in the pockets of the small and mid-sized brands.
There is no Sequoia on their cap table to send the “Winter is coming” presentation but all brands feel the winter and there is a knight in shining armor.
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