Intro to Amazon Sales Tax for Non-U.S. Sellers 

Nearly half of all sellers on Amazon’s U.S. marketplace are non-domestic. It makes sense that sellers from other countries desire entrance into Amazon’s U.S. market, given that the U.S. itself is one of the largest consumer markets in the world, and Amazon is the largest online marketplace within the U.S. In many ways, Amazon can serve as a gateway to the U.S. market for non-U.S. brands.  

Expanding into the U.S. from another country comes with a whole host of complexities, not least of which is taxes. If you want to sell on Amazon’s U.S. marketplace, but you’re based out of another country, what are the tax implications?  

First, let’s be very clear: Kaspien is not a tax expert. Don’t take any statements in this post as tax advice. If you’re serious about expanding your brand into Amazon.com from another country (or even from within the U.S.), you should absolutely speak to a tax professional. 

That said, we can share details about Kaspien’s experience working with international brands for the U.S. marketplace, including important context on recent legislation and preliminary considerations.  

Does Amazon Charge Sales Tax?  

For many years, Amazon and other online retailers were able to avoid collecting sales taxes in many states. Why? Because prior to 2018, most states’ sales tax laws did not explicitly address ecommerce and how it differs from physical store sales.  

That all changed with the landmark U.S. Supreme Court case, South Dakota v. Wayfair, Inc.  

Amazon Sales Tax After South Dakota v. Wayfair, Inc. 

In June 2018, the U.S. Supreme Court ruled that sellers must pay sales tax in U.S. states if they exceed a certain sales or number of orders threshold, even if they lack a physical presence in the given state.  

This decision meant that sellers would have to track sales and orders at a state-level, and register in the appropriate tax jurisdictions when the time comes. Naturally, this placed quite a burden on online sellers, which, thankfully, nearly every state has recognized and attempted to ease.  

Amazon Sales Tax Collection 

As of August 2021, 46 states have enacted Marketplace Facilitator laws, which transfer the responsibility of collecting and remitting sales tax from individual sellers to marketplaces (Amazon, Walmart, eBay, Etsy, etc.).  

Brands that sell on Amazon or other U.S. online marketplaces do not have to track, collect, or remit sales tax for sales that occur on these platforms; the marketplaces automatically do it for you. This applies to any brand selling in the U.S., even those coming from other countries. 

You can read about each state’s policies in this helpful state by state guide. 

Marketplace Facilitator Laws Do Not Cover Direct Websites 

It’s crucial to note that Marketplace Facilitator laws apply, like the name says, only to marketplaces. If a seller sells product through their own website, they must still track those sales and orders as well, and file as required in all relevant taxing jurisdictions.  

For non-U.S. brands who wish to sell in the U.S., this distinction means that selling on a marketplace will likely be easier than selling directly to consumers, at least as far as taxes are concerned. The marketplaces will automatically calculate and collect taxes, and where applicable, remit them to sellers through their settlement reports. Sellers can then use these reports to file their tax returns. 

A Registered Agent in Every State 

Sellers who exceed the sales or transaction threshold for a given state AND sell outside of marketplaces must have a physical presence in that state so that taxing authorities can communicate with them. This applies to non-U.S. brands selling in the U.S. as well. 

Instead of opening up 50 offices, most sellers use registered agents. Registered agents are contracted specialists who serve as your company’s legal contact for tax purposes. In our experience, they charge around $50/year/state.  

Sales Tax, Income Tax, Property Tax, Oh My 

So far, what we’ve discussed applies only to sales tax. Some states have income tax laws, which could affect the requirements you must meet. We’ve seen this requirement appear when sellers use a third-party logistics (3PL) provider or storage facility in an applicable state. Likewise, some states have property taxes that could come into play.  

This is a conversation with a tax professional, as the requirements can vary depending on your business. The best advice is always to consult a tax professional because the implications to your business could be substantial. We only know our experience, and your business may be subject to different laws and regulations. 

Amazon Payment Options for Brands 

Sales tax, of course, means there was a sale, and that means someone is getting paid. So, we’ll close this post out with a quick review of Amazon payment options for brands. If you sell on Amazon.com, you’re likely to do so in one of several ways: 

  • Sell your products wholesale to a retailer 
  • Either to Amazon Retail (first-party or 1P) or a third-party seller (3P), like Kaspien 
  • Sell your products on Amazon through your own seller account 
  • You can do this yourself, or hire an Amazon agency to manage your seller account for you 

If you sell your products to a retailer, you’ll get paid via a purchase order. As the recipient of the payment, you do not incur any taxes. As the buyer, the retailer would pay any applicable taxes. 

If you sell your products through your own seller account, you’ll get paid through Seller Central. Marketplace Facilitator laws would apply here. 

To learn more about the pros and cons of each approach, check out our post, “Amazon Retailer vs Amazon Agency.” 

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Amazon Q2 2021 Earnings Report

Amazon published their Q2 earnings report today. The report was the first with Andy Jassy at the helm of Amazon, having replaced Jeff Bezos as CEO on July 5, 2021. This earnings report showed more humble growth compared to most recent quarters, with net income decreasing by $300 million from Q1 2021. Nevertheless, Amazon boasted positive performance across the board, year-over-year (YoY). 

OVERVIEW  

  • Net sales increased 27% YoY to $113.1B compared to $88.9B in Q2 2020 
  • Operating cash flow increased 16% YoY for the trailing twelve months  
  • Operating income grew 32%, reaching $7.7B in Q2 2021 compared to $5.8B last year  
  • Amazon’s net income increased to $7.8B compared to $5.2B in Q2 2020 and $8.1B in Q1 2021  
  • Amazon has over 950,000 employees in the U.S. 

SEGMENTS 

  • North American net sales grew 36% YoY 
  • International sales grew 28% YoY 
  • The “Other” segment, which consists largely of Amazon advertising revenue, grew 87% YoY to be just $38 million less than the record revenue set in Q4 2020 
  • AWS grew 37% YoY

AMAZON MARKETPLACE HIGHLIGHTS  

  • Third-party seller services grew 34% YoY 
  • Retail sales now account for only 50% of Amazon’s revenue
  • Prime Day 2021 was the largest Prime Day ever 
  • Prime is now available in 22 countries 
  • Business Prime now has over 1 million members
  • Amazon Advertising added over 40 new features 

Moving Prime Day to Q2 Supports Strong Quarterly Performance 

Q2 2020 marked massive growth in ecommerce sales as more shoppers than ever flocked to Amazon during stay-at-home orders. This growth presented a rather difficult challenge for Q2 2021 to continue boasting strong year-over-year growth (which also isn’t ideal for a new CEO’s first quarterly earnings report). 

Though Amazon spokespersons denied it, it seems likely that this was a key factor in Amazon’s decision to move Prime Day 2021 into the second quarter. And it worked.  

According to the earnings report, Prime Day 2021 was “the biggest two-day period ever for small and medium-sized businesses in Amazon’s stores worldwide.” Additionally, Prime Day 2021 was the biggest Prime Day ever, with Prime Members from 20 countries buying over 250 million items during the event.  

Prime Day 2021’s success undoubtedly boosted performance metrics for Q2, contributing to the 27% growth in net sales YoY. 

Key Takeaways for Brands Selling on Amazon 

There’s plenty to process in the quarterly earnings report, but the most interesting takeaway in this writer’s opinion is the continued growth of Amazon advertising revenue, and what that indicates for brands selling on the platform. 

Amazon Advertising Competition Continues to Rise 

Amazon made clear that Amazon advertising remains a keen focus for the future, stating that Amazon Advertising added over 40 new features and self-service capabilities. Amazon also announced in Q2 that ads were being made available for Amazon Streaming TV and Twitch.tv, which together reach 120 million viewers per month in the U.S. 

Amazon Q2 2021 Advertising Revenue Chart

It’s also notable that the “Other” segment, which consists mostly of Amazon advertising revenue, grew more than it did the previous quarter, making it one of the few performance metrics to do so. This growth can be attributed to the fact that many Amazon sellers reduced their advertising budgets in Q2 2020 as the coronavirus created economic uncertainty. 

With more sellers advertising and sellers increasing their ad budget, brands must learn how to overcome rising ad costs without sacrificing performance.

Amazon FBA is Still Playing Catch Up

Amazon stated that is has been “playing catch-up pretty much since the pandemic started” – something that brands selling on Amazon are all too aware of. As we head into the busiest time of the year for online retail, brands selling on Amazon will need to prepare supplementary and alternative fulfillment strategies. FBA has long been the gold standard for online fulfillment, but repeated inventory restrictions has driven more brands to create hybrid FBA + FBM fulfillment strategies.

Amazon’s Growth Slowed, but It’s Still Growing

Amazon’s Q2 earnings of $113.1 billion fell short of the $115 billion expected, which resulted in the stock falling as much as 5%. Nevertheless, this is still the third quarter in a row where Amazon has boasted over $100 billion in quarterly earnings, an absolutely mind boggling thought. While Amazon’s revenue growth may have failed to meet investor expectations, it still easily maintains its reign as the largest U.S. online marketplace and a key factor in consumer brands’ digital strategy.

Marketplace Earnings Reviews  

Read our breakdowns of Amazon Q1 Earnings Report, Amazon’s Q4 Earnings ReportAmazon’s Q3 Earnings ReportQ2 Earnings Report, and Q1 2020 Earnings Report.

Want something even more comprehensive? Download the complete State of Amazon: 2021 Report!

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Amazon Demand Side Platform (DSP) Advertising

As Amazon becomes more crowded and traditional Amazon advertising becomes more expensive, leading brands are seeking ways to distinguish themselves. One such method is programmatic advertising. In Amazon’s case, this is the Amazon Demand Side Platform or Amazon DSP. 

What is Programmatic Advertising? 

Programmatic advertising simply means using automation – a program, if you will – to buy and sell ads. 

What is Amazon Demand Side Platform (DSP) Advertising? 

Amazon DSP is a platform that allows brands to programmatically buy display, video, and audio ads that appear across Amazon’s vast media network.  

The greatest value add of Amazon DSP is that it allows advertisers to tap into Amazon’s first-party data. As a shopper on Amazon, every search, view, click, purchase, and review is tracked. This data tracking extends to Amazon’s myriad properties, from their websites and apps (more on that below) to their consumer devices, like Fire TV and Amazon Echo.  

In short, Amazon has a wealth of data about how, what, when, and potentially why consumers buy what they buy. While keeping the data anonymous, Amazon DSP allows advertisers to use it for marketing their products. 

Do You Have to Sell on Amazon to Use DSP Advertising? 

Brands are not required to sell products on Amazon to utilize Amazon DSP. They can use DSP to direct shoppers to their direct website, for example.  

As of August 2021, Amazon DSP is available in the following countries: 

  • Australia 
  • Brazil 
  • Canada 
  • France 
  • Germany 
  • India 
  • Italy 
  • Japan 
  • Mexico 
  • The Netherlands 
  • Saudi Arabia 
  • Singapore (coming soon) 
  • Spain 
  • The United Arab Emirates 
  • The United Kingdom 
  • The United States 

Where do Amazon DSP Ads Appear? 

Amazon DSP ads can appear on: 

  • Amazon, including on the homepage, Amazon Live page, product detail page, all reviews page, search page, deals page, and thank you page 
  • Amazon owned websites, such as Audible, Buy Office Mojo, Goodreads, IMDb, ShopBop, Twitch.tv, and Zappos
  • Amazon owned apps 
  • Amazon devices, such as the Amazon Echo, Fire TV, Fire table, and Kindle 
  • Affiliate websites and apps in Amazon’s network 

Amazon Ad Specs

Amazon’s ad sizes and policies can be found here. This page includes ad specs for Amazon DSP, audio ads, Fire TV, IMDb, Twitch, and a dozen other options.

Targeting Options in Amazon DSP 

Unlike traditional Amazon ads that target specific keywords or ASINs within the Amazon marketplace, Amazon DSP ads use Amazon’s first-party customer data to retarget consumers based on demographics, location, interests, categories they previously browsed, previous product views, previous purchases, device type, and more. 

Specifically, audience targeting is broken out into six options:  

In-Market  

Shoppers who have demonstrated high intent to buy within your product subcategory within the past 30 days. 

Lifestyle 

Shoppers whose search history and previous purchases relate to a particular lifestyle, such as pet owners or outdoor enthusiasts. 

Contextual  

Shoppers who have recently browsed for products similar to your offerings. 

Remarketing 

Shoppers who previously searched for, viewed, or purchased your or a competitor’s product. 

Audience Lookalike 

Shoppers who resemble the demographics and buying behavior of your previous customers. 

Advertiser Audiences 

Lists that the advertiser provides. 

What Ad Types are Available in Amazon DSP? 

There are four ad types available currently in Amazon DSP. 

1 – Static Ads 

Like the name suggests, static ads do not have dynamic elements. These ads feature a simple image and call-to-action. They can direct shoppers to an Amazon product listing, Amazon Brand Store, or your direct website. 

homepage ad placement

2 – Dynamic Ads 

Dynamic ads are just that – dynamic. The content within the ad is automatically optimized based on the audience. For example, if Amazon has observed a purchasing behavior wherein a shopper is more likely to read customer reviews before purchasing a product, they can serve an ad displaying a customer review.  

product detail page ad placement

Dynamic ads can only direct to an Amazon product listing page, so this is not a viable option if you use DSP to promote your direct website. 

3 – Video Ads 

Convenient that the names for each ad type is self-explanatory, right? Video ads display videos on and off Amazon, and they can direct to your products on Amazon or your direct website. 

Source: Amazon

4 – Over-The-Top (OTT) 

Okay, this is a slightly less descriptive name. OTT ads are full screen video ads that display on TV sources. Like a typical television commercial, these ads are not clickable. Instead, their purpose is to create awareness and incite shoppers to take action in a separate medium. 

Fire TV ad placement
Source: Amazon

What does Amazon DSP Cost? 

Amazon DSP requires a minimum total ad budget of $35,000. This minimum budget varies by country. The minimum required ad spend can also be lowered by partnering with an agency that manages a considerably larger monthly ad budget (typically achieved by managing ad spend for multiple clients). 

What is the Difference Between Amazon DSP and Sponsored Display Ads? 

Amazon also offers Sponsored Display Ads, which share some similarities with Amazon DSP. One of the biggest differences is costs: Amazon DSP comes with a minimum budget of $35,000, while Sponsored Display Ads are a pay-per-click (PPC) ad type just like Sponsored Product Ads and Sponsored Brand Ads. The other big difference is that Sponsored Display Ads are self-service, while Amazon DSP requires management (more on that below).

Amazon Sponsored Display Ads

Sponsored Display Ads target shoppers based on previous engaged with designated ASINs rather than by keywords. These ads can appear on and off the Amazon marketplace. Sponsored Display Ads blur the lines between the Awareness and Consideration stages of the buyer’s journey, inciting interest in shoppers both off and on Amazon. They are a potent tool for retargeting, though they lack the audience targeting and ad placements of DSP. 

How to Start Using Amazon DSP Advertising 

If you want to launch an Amazon DSP ad campaign, you have two options: self-service or managed-service. 

Managed-Service 

Under this option, Amazon will manage your DSP ad campaigns for you. The Amazon team provides data, consulting, and an advertising plan (more on that below). To access this option, you must commit at least $35,000 in ad spend. 

Self-Service  

If you’re able to spend at least $100K per month on DSP, you can access the self-service option. In this model, Amazon does not manage your DSP campaigns, but the name itself is a little misleading, as you still have to work through an authorized agency. The benefits of this model is that, through your Amazon agency, you can exercise greater and more direct control over your DSP campaigns than if an Amazon account manager ran your campaign. 

Can Kaspien Manage My Amazon DSP Advertising? 

We can! Kaspien has run multiple DSP campaigns successfully for our partner brands. If you’re interested in learning more, please reach out to your account manager or get in touch with us through our contact form. 

What to Expect from Your Amazon DSP Plan 

When you decide to launch an Amazon DSP ad campaign, an Amazon account manager will be assigned to you (or your agency, if you have an agency manage it for you). The Amazon DSP team will use Amazon’s exclusive first-party data to prepare a report that includes: 

Category & Brand Insights 

This section may include common concerns for your product category, trends on when shoppers are most active in this category, data related to branded searches, repeat purchase rates, which ad types your top competitors use, and percentage of competitors who run advertising. 

Advertising Plan 

This section features a detailed DSP advertising plan based on that data, which also includes the opportunity size. The opportunity size may factor in the number of shoppers who have visited your product category, the number of shoppers who visited products similar to yours but not purchased, the number shoppers who visited your product but not purchased, and the number of shoppers who bought your product. Target for customer acquisition and/or average revenue per customer needed in order to hit growth goals.  

Recommended Budget to Achieve Designated Goals 

The recommended budget is based on the goals you provided and the data/trends the Amazon team discovered in their review. The recommended budget may be broken out by quarters and key holidays/sales events. 

Amazon DSP Advertising Case Study 

Background 

Strider is a leading kids’ toy company known for their revolutionary bikes. We’ve partnered since 2018, steadily growing their Amazon sales. Amid the chaos of 2020, we launched one of our most ambitious Amazon DSP campaigns yet. 

Our Strategy 

We set two goals for the DSP campaign: Increase new customer acquisition and improve conversion rates for shoppers already familiar with Strider. 

To support these goals, we targeted shoppers who had viewed Strider’s or competitors’ listings but not converted. We also used dynamic display ads, which show shoppers the Strider product most relevant to their previous browsing history. The ads appeared on Amazon.com, Amazon devices, Amazon-owned sites like IMDB.com, and affiliate websites and apps. 

Our Results 

Amazon DSP Advertising Case Study

  • 2,159 units sold 
  • $244,000 total sales 
  • 4.9 ROAS (compared to the 3.0 ROAS Amazon projected in their plan) 
  • 188,000 unique shoppers reached 
  • 5.9 million impressions 

The campaign successfully brought more shoppers over the finish line and into the Strider family, with 66% of orders coming from shoppers who had previously viewed Strider products, and 84% coming from shoppers who had not previously purchased Strider products on Amazon. The first-time buyers will likely continue to buy from Strider for years to come. 

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Stop Unauthorized Sellers on Amazon

Counterfeit sellers pose a growing threat to consumers and brands, especially in ecommerce. According to a January 2020 report by the Department of Homeland Security, there were $509 billion worth of counterfeit goods flowing through international trade in 2016. The rise in international counterfeit trade, which was made easier through the growth of ecommerce, is expected to displace over 5 million jobs by 2022. The threat of counterfeits – both to consumer safety and to economic stability – led DHS to recommend that marketplaces be held liable for counterfeit goods sold on their platforms.

Amazon took notice. According to their 2021 Brand Protection Report, Amazon seized over 2 million counterfeit goods from FBA centers in 2021 before they were sent to customers, and Amazon blocked 10 billion suspect listings from publishing on Amazon.

While Amazon’s heightened anti-counterfeit efforts are sincerely appreciated, the threat remains. Brands cannot wait on Amazon to better police the marketplace; they need to take action themselves to create a robust Amazon brand protection strategy.

In that spirit, we’ve written a new eBook containing 10 strategies for protectively and reactively protecting your brand control on Amazon. You can download it for free, or keep reading for an excerpt. 

Three Key Areas for Amazon Brand Protection 

Legal Compliance 

Legal compliance encompasses the basics: You should file for intellectual property rights (IPR) so you have legal footing if counterfeiters or copycats appear. Your product must also meet all legal criteria for selling the particular product type, which are set by various regulatory agencies, such as the Consumer Product Safety Commission (CPSC), Food & Drug Administration (FDA), Federal Communications Commission (FCC), Department of Energy (DOE), Federal Trade Commission (FTC), Environmental Protection Agency (EPA), National Highway Traffic Safety Administration (NHTSA), and more. 

Marketplace Compliance 

Marketplace compliance largely overlaps legal compliance, but Amazon actually has stricter requirements than many regulatory agencies. You should familiarize yourself with Amazon’s content requirements, otherwise a non-compliant claim could result in your product listing getting suspended for weeks or months. 

Supply Chain Control 

Unauthorized sellers obtain product through an unsecured distribution network. Counterfeit product enters at fulfillment centers, where it mixes with genuine inventory. Once black market or gray market sellers have inventory and are in your listings, they can add erroneous or misleading content, violate your pricing policy and cause cascading issues with your authorized online and brick and mortar (B&M) retailers, and undermine consumer’s trust in your brand.  

Two Types of Unauthorized Sellers 

Delving deeper into the supply chain issues, there are two types of unauthorized sellers who present different threats and require different solutions. 

Gray Market Sellers 

The gray market represents sellers who obtain and sell genuine goods, but they do so on unauthorized channels not approved by the brand. Amazon does not take action to mitigate gray market sellers, as doing so would be antithetical to their goal of offering the most expansive product catalog available.  

Black Market Sellers  

The black market represents counterfeit goods that are being illegally manufactured, violating the brand owner’s intellectual property rights. Amazon will take action against counterfeit goods (if you can provide proof), although they won’t take action against copycat products that encroach on IPR. 

The vast majority of brands send their product to Amazon’s fulfillment centers so they can provide Prime shipping speeds with FBA. Once inventory is at FBA, Amazon prefers to commingle inventory because it is more efficient; however, this practice makes it incredibly easy for counterfeit products to mix with genuine products. 

Are All Unauthorized Sellers Bad?

While the dangers of counterfeit products are obvious – their poor quality puts consumers’ safety at risk and they undermine public trust in your brand – you may be wondering if gray market sellers are really that much of an issue. Afterall, doesn’t more sellers mean more sales, and therefore more purchase orders to you as the manufacturer? 

Not quite.

Do You Trust Them to Represent You Well?

Unauthorized sellers are problematic because they represent how your brand is represented to consumers, without having a vested interest in representing your brand correctly. Any seller carrying authentic product can update content in your Amazon product listing, including title, bullet points, and imagery. This can lead to inaccurate or misleading information, poor branding, and inconsistencies between your sales channels.  

Enrolling in Amazon Brand Registry is a huge help for this issue, as it allows you to designate who has permission to edit listing content.

How Will They Affect Your Pricing Strategy & Business Relationships?

Unauthorized sellers also often drop pricing below MAP to capture sales. Since Amazon and other major marketplaces enforce pricing parity, this can result in rolled buy boxes, which reduces your total sales.

Normal vs Suppressed Buy Box

Normal vs Suppressed Buy Box

The break in pricing policy can also harm relationships with authorized sellers, both in online and brick-and-mortar channels. Because there isn’t a direct relationship between your brand and the unauthorized seller, getting them to uphold your pricing policy can be nigh impossible. 

How to Protect Your Brand Against Unauthorized Sellers 

So, how do you combat these issues? We’ve written an entire eBook about just that. Specifically, the eBook breaks down how to use 10 programs/tactics you can leverage, including:

  1. Brand Registry
  2. IP Accelerator
  3. Brand Gating
  4. Transparency
  5. Project Zero
  6. Filing for IP
  7. Differentiated packaging
  8. Non-commingled inventory
  9. Distributor contracts
  10. U.S. Customs

Download the eBook


 

Conclusion

Brand protection goes beyond Amazon. All digital and physical sales channels can affect each other because they all affect your brand’s representation to consumers. As such, a holistic approach is essential for long-term stability and success. Whenever you start planning to launch a new product or expand onto a new sales channel, carefully review how it will impact other channels. 

If you want help planning your ecommerce strategy, reach out to Kaspien. We have over 13 years of experience helping brands flourish on the world’s leading online marketplaces. 

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Myth-busting the Amazon A10 Algorithm

In late 2019, the Wall Street Journal reported that Amazon had changed its A9 algorithm to favor its own brands. By mid 2020, Amazon-focused businesses, including software providers, Amazon agencies, and third-party sellers, started posting articles about an “A10” Amazon algorithm, although they described different changes than the WSJ article. Blog posts about the A10 algorithm have continually popped up ever since, describing how factors that affect product rank have been changed to carry more or less weight than before.

The trouble is, not one of those blog posts cites a primary source to back up their claims that Amazon actually did unleash a new algorithm. In fact, many of these posts simply parrot one another, without providing any data to back up their claims.  

So, we’re setting out to do some myth-busting. We’ve reviewed internal data to try to confirm or deny – based on Kaspien’s experience – claims about significant changes to the Amazon algorithm. 

Myth-Busting Claims Made about the Amazon A10 Algorithm 

Every commentor agrees that, if Amazon has been updating their algorithm, they have done so through a series of updates, rather than launching a brand-new algorithm all at once. These series of updates could be laying the groundwork for a new algorithm, or they could be simple fine-tuning of an already remarkable machine.  

Below are the common claims being made about the algorithm update, as well as what Kaspien’s data shows to confirm or refute the claims. 

Shopper Searches Now Matter More in the Amazon A10 Algorithm

The Claim 

It is understood that Amazon’s algorithm looks at many factors to determine product rank, including ratings, reviews, seller rating, sales velocity, fulfillment method, inventory amounts, pricing, and many more. One of the most important factors is keyword relevancy. 

Keyword relevancy simply means, how relevant does Amazon think your product is to a given search query? This is determined by the keywords incorporated into a product listing. 

Some claim that under the A10 algorithm, keyword relevancy has been given more weight, with the goal of showing consumers what they want to see, rather than what sellers want them to see. 

Kaspien’s data shows… 

Plausible. Keyword relevancy has always been important for success on Amazon, and Amazon has built its empire by being customer obsessed. It wouldn’t be surprising if Amazon tweaked its algorithm to favor customer queries more.  

However, this claim is difficult to confirm or refute because, as you will see later, other ranking factors, such as ads and fulfillment models, have not become less important. Furthermore, Marketplace Pulse notes that for years, Amazon has steadily replaced algorithmically generated recommendations on the search results page with ad placements. That Amazon would expand advertising then reduce its importance seems counter-intuitive.  

On that note, let’s take a look at our next claim. 

Amazon Advertising has Less Impact under the A10 Algorithm

The Claim 

Native Amazon ads, such as Sponsored Product Ads and Sponsored Brand Ads, now carry less importance for product rank under A10 than A9. Like the previous claim, the explanation is that Amazon is trying to show shoppers what they want to see by weighting other ranking factors higher. 

Kaspien’s data shows…  

Busted. Amazon advertising remains a key driver for increased traffic, click through rate, conversion rate, and sales velocity, all of which are important ranking factors. Amazon ad costs are rising, but this is due to sellers increasing their ad budgets after many pulled back ad spend in 2020. 

This is reflected in Kaspien’s performance metrics. Comparing 2020 to 2021 year-to-date, we see that conversion rate and click-through-rate have both improved, while advertising cost of sale (ACOS) rose from 8.04% to 8.53% and cost-per-click (CPC) rose from $0.31 to $0.38. If advertising seems to be having less of an impact now, it’s because the rise in competition necessitates more sophisticated strategies. 

We can also look to Prime Day 2021 to demonstrate the continued importance of Amazon advertising. Kaspien saw booked orders grow by 25% year-over-year, while our advertising revenues increased around 70% and impressions were up 40%, clearly demonstrating the impact of ads for channel growth.  

Last but not least, let’s look at how Amazon itself is approaching advertising. In 2020, Amazon’s advertising revenue exceeded $21 billion, growing 66% year-over-year. Amazon has a vested interest in making ads a desirable offering on their platform, and they do that by maintaining their value to sellers. 

Build Highly Profitable Amazon Advertising Campaigns

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Off-Amazon Marketing has More Weight

The Claim 

Amazon’s A10 algorithm greatly favors products that receive traffic from off-site. This would mean that Google Ads and social media advertising would play a much more important role in product rank on Amazon. 

If true, this update to the algorithm is a frankly clever tactic by Amazon to grow their market share: they have significantly increased the incentive for sellers to actively promote their marketplace on other platforms. The existence of Amazon Attribution and the recent launch of the Brand Referral Bonus program lend some credence to this claim. 

Kaspien’s data shows…  

Plausible. The aforementioned WSJ article published in December 2019, and blog posts about the A10 algorithm became increasingly common starting around May 2020. If these blogs caught onto A10 shortly after its launch, we would expect to see products that were being promoted through off-site channels – such as Facebook or Google – to see an immediate improvement in product rank around the same time (assuming the brands had large enough audiences to send a notable amount of traffic).  

Unfortunately, that’s a rather difficult assessment to make given the fact we had a global pandemic that drastically altered consumer buying behavior during this same time period. Supply chain issues, inventory shortages, a surge in online shopping, and more means there are simply too many concurrent variables to definitively say whether or not off-Amazon marketing has more weight. 

All that said, even if off-Amazon marketing doesn’t have more influence on Amazon that it used to, it still has meaningful influence on Amazon, as it has for some years. Anytime you can direct more shoppers to your Amazon listing, regardless of source, it will impact your product rank. Learn more about using social media to drive traffic to Amazon. 

Seller Authority Matters More in the A10 Algorithm

The Claim 

“Seller authority” consists of many factors, including the seller’s age, number of ratings, average rating, product return rate, return handling efficiencies, product catalog size, and product catalog diversity. The idea is that these factors are key indicators of how much value a seller adds to the Amazon customer experience. To reflect that, sellers with higher seller authority are more likely to win the Buy Box than newer/smaller sellers, all other things being equal.  

These factors were considered under the A9 algorithm, but the A10 algorithm allegedly increased the influence these factors have on a product’s organic placement on the SERP. Once more, this claim is based on the idea that Amazon wants to improve the customer experience. 

Kaspien’s data shows…  

Plausible. Kaspien is one of the oldest third-party sellers on Amazon (founded in 2008). If this claim is true, then products sold by Kaspien should benefit. When we look at the data, we see that Kaspien and most of our partners have grown substantially YOY, but how much of that growth is attributable to seller authority is a hard thing to isolate.  

We ran marketing for many of our brands, and we have dedicated account managers providing strategic guidance. There was also a global pandemic, which drove more shoppers to buy online than ever before. The truth of the matter is that seller authority never exists as a variable in isolation, so it’s nigh impossible to quantify how much impact it has on its own. 

FBA has Less Weight / FBM has More Weight 

The Claim 

Since early 2020, Amazon has repeatedly restricted inventory quantity limits at FBA centers and raised the inventory performance index (IPI) requirements, making it challenging for brands to maintain sufficient inventory levels at FBA. As of July 2021, sellers are permitted 55 days of inventory coverage at FBA, including lead time.  

Some have claimed that, because of this turbulence, Amazon’s algorithm is now no longer favoring FBA orders over FBM orders. 

Kaspien’s data shows…  

Busted. Reviewing orders from January-July 2021, we see no change in the ratio of FBA orders compared to FBM orders. If there was any favoritism in 2020, it is no longer present.  

FBA vs FBM Orders in 2021

So, why might others have made this claim? Well, because Amazon FBA has been so turbulent, larger sellers have been forced to invest in more FBM options. As a result, FBM orders have risen, but not disproportionately to FBA orders. Learn more about the benefits of diversified fulfillment strategies for Amazon.

Other Variables that Affect Product Rank in the Amazon A10 Algorithm

The above list covers only claims about factors that had allegedly changed in Amazon’s A10 algorithm. There are many variables that can affect product rank, including: 

  • Keyword relevancy 
  • Keyword density 
  • Listing traffic 
  • Price 
  • Sales velocity 
  • Conversion rate 
  • Discounts 
  • Inventory coverage 
  • Customer reviews 
  • Average star ratings 
  • Answered questions 
  • Seller rating 
  • Number of returns and return ratings 
  • Product margin 
  • Fulfillment model 
  • Shipping speed 
  • Prime eligibility 

How to Improve Product Rank in the Amazon A10 Algorithm 

To improve organic product rank, focus on the following tactics: 

  • Write product listings with both consumers and the algorithm in mind. This means strategic keyword usage, while maintaining a compelling value proposition that will excite shoppers.  
  • Set clear and accurate expectations through images and text. Miss-set expectations are a leading cause for negative customer reviews, and positive reviews are key for good rank. 
  • Speaking of reviews, try these 5 Amazon-compliant review generation strategies to get some more. 
  • Increase listing traffic. The above tactics improve organic traffic. Use social media advertising to drive additional traffic to Amazon. 
  • Sales velocity is a leading factor in rank, so you need to sell more. How? In addition to the above, use Amazon adsDSP, and Amazon coupons to boost sales. 
  • Shoppers cannot buy if you don’t have inventory stocked. Make sure you maintain complete coverage through FBA and FBM hybrid solutions. 
  • Price competitively. Amazon’s value proposition to consumers is that it offers the largest product selection at the lowest prices. Therefore, competitive pricing is an important ranking factor. 
  • Maintain inventory coverage. Stocking out removes your listing from the search results page, and product rank atrophies as a result. This creates a domino effect: If product rank goes down, marketing performance and sales velocity also go down and take time to recover. 

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Amazon announces Brand Referral Bonus program

What is the Brand Referral Bonus Program? 

On July 15, 2021, Amazon announced the Brand Referral Bonus program. According to Amazon, the program allows participating sellers to “earn a bonus averaging 10% of product sales driven by your non-Amazon marketing efforts.” The bonus is credited to Amazon sellers through their referral fees.  

Why Should Sellers Join the Brand Referral Bonus Program? 

Amazon lists three reasons why sellers might consider joining the Brand Referral Bonus program:  

  1. Amazon claims joining the program will “improve the efficiency of your non-Amazon marketing and advertising campaigns” that drive off-site traffic to Amazon.  
  2. The credit to referral fees saves sellers money. 
  3. Shoppers who buy additional products within 14 days of clicking the non-Amazon ad also contribute to the bonus/referral credit.   
Brand Referral Bonus program
Retrieved July 15, 2021

Why is Amazon Launching this Program?  

According to Amazon, this program is simply a continuation in their “effort to help brands succeed.” That may be true, but there’s also something in this for Amazon: market share. Katie Capka, Inbound Marketing Manager at Kaspien, commented on the announcement:

We’ve seen a trend of Amazon introducing services for sellers, like the Brand Referral Bonus Program, that reward sellers for sending off-Amazon traffic back to Amazon. This directly aligns with Amazon’s strategy to capture as much of the ecommerce market share as possible. If Amazon is a key piece of your brand’s strategy, you should keep services that provide you more insights and compensation – in this case, from external traffic – on your radar.

Let’s unpack that a bit more.

Ecommerce Competition is Rising 

More companies are breaking into the digital space to vie for consumers’ dollars. Shopify exploded in 2020. Target, Walmart, and eBay each grew their online sales in double or even triple digits. Google has announced integrations with Shopify and BigCommerce. Facebook has announced intentions to grow its ecommerce services. 

Amazon normally charges sellers a 15% referral fee for sales made on its platform. Shopify, in contrast, charges 2.9% + $0.30 processing fee. The Amazon Referral Bonus program brings Amazon into closer competition with Shopify. However, as Marketplace Pulse notes, “the Brand Referral Bonus program is mostly going to benefit Amazon. If not for the simple reason that the second time the shopper orders the brand’s product on Amazon, the brand will be back to paying the full 15% fee.”

Consumers Go to Amazon to Buy 

All of these companies’ U.S. ecommerce market share are but a small fraction of Amazon’s. But, they’re growing, and growing aggressively. Furthermore, Amazon has long-held a reputation for being a place where consumers go to buy products, but not necessarily where shoppers go to engage with brands.  

A Branded Experience on Amazon 

Amazon seems to be trying to revise that narrative. The addition of A+ ContentAmazon Brand Stores (which are now much easier to discover organically than they once were, thank goodness), Amazon AttributionAmazon AffiliatesAmazon AssociatesAmazon LiveAmazon Posts, the Manage Your Customer Engagement tool for direct D2C emails, and now the Brand Referral Bonus program – all of these are aimed at creating a branded experience within the Amazon marketplace.  

By making Amazon a place where shoppers can engage with brands in a relational as well as transactional manner, Amazon increases its value proposition and directly combats D2C competitors like Shopify and BigCommerce. 

Which Brings Us Back to Market Share 

By increasing its value proposition, Amazon positions itself to retain and expand its market share. While promoting Amazon product detail pages via social media advertising and influencer marketing is a proven tactic for growing Amazon sales (we’ve been offering these services since 2017), the benefit was simply more brand awareness and more sales.  

This program is the most explicit way that Amazon has ever incentivized sellers to direct off-Amazon consumers to Amazon listings. 

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D2C email marketing via Amazon's Manage Your Customer Engagement Tool

What is the Manage Your Customer Engagement Tool? 

In April 2021, Amazon unveiled a new marketing tool for brands enrolled in Amazon Brand Registry called “Manage Your Customer Engagement.” This tool allows brand owners or their authorized sellers to directly message shoppers who “follow” the brand on Amazon.  

How does Amazon’s Customer Engagement Tool Work? 

When Amazon launched their social media-esque Amazon Posts, they added a “Follow” button to Amazon Brand Stores and to the posts themselves. Shoppers who follow a brand are automatically notified whenever the brand publishes a new Amazon Post.  

Combat Wipes Brand Store Showing Posts

The Manage Your Customer Engagement tool adds another way that brands can engage their followers, this time through direct messages through Amazon’s messaging platform.  

How Does it Work Exactly? 

Shoppers must choose to follow a brand before they can be emailed. Sellers do not gain access to any identifying consumer data; they can only see the number of shoppers that will be emailed when schedule an email campaign.  

To set up an email campaign, sellers must add: 

  • A high resolution brand logo 
  • The new product they wish to promote 
  • A delivery window 

Besides the above, emails currently offer next to no customization options. Once a campaign has been prepared, Amazon reviews it for approval. Amazon notes that approvals can take up to 72 hours, so schedule your email several days in advance. Once approved, the emails will be sent to followers during the 5-day delivery window through Amazon Messaging. 

After an email has been sent, sellers can see only a few performance metrics: total reach, open rate, click through rate, and opt-outs. They cannot see which shoppers took which actions or whether anyone purchased the featured product. 

Eligibility Requirements for Manage Your Customer Engagement 

To utilize this tool, brands must: 

  • be enrolled in Amazon Brand Registry 
  • have an Amazon Brand Store 
  • sell on the U.S. marketplace (non-U.S. Amazon marketplaces do not offer this feature currently) 
  • The product must have been on Amazon for less than 6-months 

Amazon Email Marketing Expands Amazon’s Venture into Traditional D2C Marketing 

While the Manage Your Customer Engagement tool is still only a pilot, it represents Amazon’s latest foray into more traditional direct to consumer (D2C) marketing.  

In recent years, Amazon has added Demand Side Platform, or Amazon DSP, which allows sellers to target shoppers based on demographic information, location, and interests. Amazon also added ad placements on Twitch, a massive live streaming network, which targets viewers based on their interests.  

In July 2021, Amazon launched the Brand Referral Bonus program, which offers brands a credit of up to 10% product sales driven by non-Amazon marketing efforts. This program is a clear demonstration of Amazon’s attempt to increase market share by incentivizing brands to promote Amazon listings on external channels.

Brand Referral Bonus program

Such targeting capabilities have long been used by social media platforms and search engines, but Amazon has traditionally focused on product-interest and keyword targeting. Over time, Amazon seems increasingly interested in monetizing its first-party consumer data through new advertising tools, while maintaining satisfactory privacy over consumer data. 

Kaspien’s Preliminary Test Results 

We tested the new tool over a one-month period to promote a new product for one of our partners. 

Key Metrics 

  • Followers: 1,700 
  • Reach: 545 
  • Open Rate: 21.47% 
  • Click-Through Rate: 0.92% 
  • Clicks: 5 
  • Unsubscribes: 1 

Campaign Learnings 

  • Sales are not attributed in metrics  
  • We tracked sales manually, and identified a 29% sales lift for the ASIN while the campaign was running 
  • Cannot assume that all followers will be “reached” with campaign 
  • Only 32% of their followers were reached 
  • Campaigns have limited customization; customization options include: 
  • Product ASIN – must be “buyable” and “new” within the last 6 months 
  • Logo selection – 3:1 aspect ratio required, PNG preferred type 
  • Header Preview – Either a dark or light background 
  • Campaign Delivery Window – M-F date range 
  • There is no A/B testing at this time 
  • There are no segmentation/targeting options offered at this time 

Should You Use Manage Your Customer Engagement? 

If you’re already brand registered, have a Brand Store, and are launching a new product, there is no reason not to leverage this tool.  

  • It’s free and requires low effort 
  • It boosts product visibility 
  • It can encourage brand loyalty 
  • It bypasses competitor ads by going straight to the shopper 

There is a caveat, of course. For this tool to have any material impact, you need a large number of followers. To acquire followers, we recommend using Amazon Posts and encouraging your social media followers to also follow you on Amazon to get notified of your latest products and deals. If you’re curious, read our blog post about using social media to drive Amazon sales. 

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Amazon Ads are getting more expensive

Amazon Ads are Getting More Expensive 

On June 9, 2021, Marketplace Pulse published an analysis of Amazon advertising in 2020 and 2021. They found that the average cost-per-click (CPC) is up 50% year-over-year and up 30% since the start of the year. Likewise, the average advertising cost of sale (ACOS) up 36% year-over-year and up 20% since the start of the year. 

Average CPC Reported by Marketplace Pulse 

  • 2020 Average: $0.85 
  • January 2021: $0.93 
  • June 2021: $1.20 

Average ACOS Reported by Marketplace Pulse 

  • 2020 Average: 22% 
  • January 2021: 25% 
  • June 2021: 30% 

In their report, Marketplace Pulse notes that advertising costs are rising as a result of more brands advertising on the platform while the amount of ad real estate has remained relatively unchanged. Additionally, established brands and brand acquirers are investing larger advertising budgets into Amazon, further driving up CPC costs. 

The report has a sobering conclusion: As Amazon advertising gains more prominence, customer acquisition costs (CAC) will only continue to rise. 

How Kaspien’s Ad Performance Compares 

To succeed in this landscape, you need a cost-effective ad strategy – which Kaspien has. Just take a look at how our ad campaigns stack up to those reported by Marketplace Pulse. We think it paints a pretty compelling picture: 

Marketplace Pulse vs Kaspien metrics for 2020 

  • Avg. CPC: $0.85 vs Kaspien $0.31 
  • Avg. ACOS: 22% vs Kaspien’s 8% 

Marketplace Pulse Metrics vs Kaspien metrics for 2021 YTD 

  • Avg. CPC: $1.20 vs Kaspien’s $0.42 
  • Avg. ACOS: 30% vs Kaspien’s 11% 

How Does Kaspien Achieve Lower Amazon Ad Costs? 

We achieve results like this thanks to our proprietary advertising software, AdManager. We use it when we manage Sponsored Product and Sponsored Brand campaigns for our Retail and Agency partners, and it’s also available as SaaS. AdManager deploys best-in-class software features to drive incredible results. Here are just a few highlights:  

Day Parting 

Schedule your ads to run during the days and times that deliver the most sales for the best cost. Users can also view performance results for multiple key metrics. After implementing Day Parting, we see ACOS improve 40%. 

Dynamic Bid Optimizations 

Unlock the transformative power of tiered bid optimizations. Create custom bid management rules that can bid up or down daily at the keyword level based on any combination of performance metrics. 

Search Term Optimization 

AdManager automatically identifies and adds high-converting search terms as keywords to your campaign to ensure continued relevancy and sales. It also automatically identifies and negates poor-performing terms to minimize wasted ad spend. 

Profitability Enhancing Budget Optimization 

Make sure your most profitable campaigns are always running. AdManager lets you set custom rules that automatically increase daily budget for high-performing campaigns if they run low, so your most profitable campaigns never turn off. 

Through features like these, AdManager improves our partners’ ACOS by up to 50% and boosts total Amazon sales by 30% on average! 

Expertly Crafted Campaign Architecture 

While AdManager is our not-so-secret weapon, a tool is only as good as the person using it. In studies conducted over the last five years, Kaspien’s advertising experts have repeatedly validated the following tactics as best practices for campaign architecture. 

One Product Per Ad Group 

Campaign architecture determines what data is visible to advertisers, which directly impacts their ability to optimize campaigns. As such, it’s important to provide advertisers the clearest data possible.  

The best way to do that is to limit campaigns to one product per ad group because the most critical factors that impact campaign performance live at the product-level, such as price, margin, rank, keywords, target advertising cost of sale (ACOS), ideal cost-per-click (CPC), and inventory levels. 

One Product Per Match Type 

In a similar vein, we also recommend building Amazon campaigns with one product per match type. This model further helps advertisers use data insights to drive optimizations. 

One Product Per Match Type

Through this design, you enjoy the following benefits: 

  • Accounts for each product’s margin and price 
  • If a product runs out of stock, the ads stop running, preventing wasted ad spend 
  • Can see which search terms converted for each product, enabling better keyword optimization 
  • Can negate search terms from Broad Match or Phrase Match types when adding the search terms as Exact Match keywords, improving relevancy and cost-efficiency 

4-Campaign Build for Amazon Ads

Combining one product per ad group and one product per match type, we get a campaign architecture that looks something like this: 

4-Campaign Build

In the 4-Campaign build, advertisers can harvest search terms from Automatic, Broad Match, and Phrase Match campaigns to create keywords for Exact Match campaigns. This enables continual keyword generation, improving campaign relevancy. When using the 4-Campaign build, it’s important to remember to negate search terms in Automatic, Broad Match, or Phrase Match campaigns after adding them as keywords in Exact Match campaigns. If you don’t, you’ll split relevancy across campaigns. 

With more precise data at the campaign and product levels, you have a clearer picture at both the macro and micro scale. With a clearer picture, you can make smarter strategic decisions, which in turn yield better results. 

Of course, it would be foolish to say that this 4-Campaign build is a one size fits all. We’ve seen it be highly effective for brands across the spectrum, but there will always be exceptions. Depending on your goals and if you have variation listings, you may need to modify the 4-Campaign build. 

Want the Unabridged Guide?

Download the free eBook: Architecting Amazon Sponsored Ad Campaigns.

Amazon ad architecture eBook

 

Make Your Amazon Ads More Cost-Effective 

We’ll end with two facts: Amazon advertising is getting more expensive, and Amazon advertising will remain an important part of growing your brand online.  

Once you’ve reconciled those facts, the next step is taking steps to minimize your ad costs without sacrificing performance. For that, you need better tools and better strategies. Kaspien can help with both: we can manage your advertising campaigns for you or you can use AdManager yourself. 

Learn More about Amazon Marketing Services  

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Toys & Games strategy

If there’s one thing people will always have an appetite for, it’s entertainment. 2020 saw that appetite grow even stronger as COVID-19 forced millions to adapt to virtual learning, remote work, and social distancing.  

Whether it was to alleviate boredom, reduce anxiety, or just have fun, the Toys & Games category on Amazon boomed in the historic year. Nearly every major Toys & Games brand also experienced notable growth in 2020, including Lego, Hasbro, and Mattel. In 2021, the global Toys & Games industry is expected to surpass $330 billion in revenue. 

It wasn’t just multibillion-dollar brands that grew either. Kaspien partners with hundreds of Toys & Games brands of all sizes. In 2020, we saw Amazon sales increase 30% year-over-year. Ad costs were also down, with our advertising cost of sale (ACOS) decreasing 29% year-over-year.  

As we move through 2021, the Toys & Games category continues to enjoy strong performance. Comparing January through April 2021 to 2020, Kaspien’s partners in the Toys & Games have grown Amazon sales by 18%, on average. Even with Amazon’s strong category presence and the ubiquity of the top toy brands, the constant desire for fresh entertainment means new opportunities for growth continue to emerge for brands of all sizes. 

Category Landscape 

One of the Largest Categories 

Amazon has one of the largest selections of toys in the world, making it a popular destination for shoppers and sellers alike. As a result, brands operating in the Toys & Games category face tough competition, including household name brands like Lego, Hasbro, and Mattel. To succeed in this space, brands need dedicated Amazon expertise, whether they hire for that internally or acquire it through a partnership. 

Toys and Games brand logos

High Competition, but Niches Create Opportunity 

While Toys & Games as a whole is a saturated category, there are dozens of subcategories and niches that offer ample opportunity. Toys & Games can differ immensely by factors such as price, complexity, target age range, target gender, genre, trends, type, and more. Products and marketing aren’t competing with each other at a category level, but on a niche level.  

Amazon Retail (1P) has a Strong Presence 

Speaking of larger brands, Amazon Retail (Amazon first party or 1P) partners with many of the biggest players in this space. According to documents provided by Amazon to the U.S. Congress, Amazon Retail holds 9% of toy listings on Amazon while capturing 42% of toy sales on the marketplace. Over 99% of Amazon Retail’s toy sales come from brands sold through Amazon Retail, rather than Amazon’s private label brands. 

Toys represents Amazon’s second largest category presence by share of listings, coming in after books. Toys also represent Amazon’s third largest category presence by share of sales, coming in after books and consumer electronics. 

Toys and Games Share of Sales

Amazon’s large presence in this space can make it challenging to capture top placements when selling in the same subcategory. If you are considering launching a new product in the Toys & Games category, it’s worth researching if you’ll be competing with Amazon Retail. 

An Abundance of Digitally Native Brands 

The Toys & Games category is also home to many digitally native brands. Over 26,000 games have been funded through Kickstarter, raising over $233.8 million. The success of digitally native brands in this space can be at least partially attributed to shoppers’ hunger for new experiences. While some games endure literal centuries, such as the Game of Life (whose origins date back to 1860) or Monopoly (tracing back to 1903), they are the exceptions to the norm, especially in an age of near instantaneous global communication.  

Toys and Games Kickstarter

For brands in this industry, this reality is both a blessing and a curse. New opportunities constantly present themselves, but so too do new competitors.  

Copycats & Counterfeits Abound 

Just as the hunger for something new makes Toys & Games fertile ground for digitally native brands, it also makes it prime hunting territory for copycats. It’s easy to metaphorically (or literally) slap a new coat of paint on a toy or game, then market it as something new. This also makes the category vulnerable to counterfeits. The Department of Homeland Security’s 2020 report on counterfeits listed Toys as the 9th most common counterfeit product seized in 2018. 

COVID-19 Impact on Toys & Games 

On the consumer side, COVID-19 led more shoppers to invest in at-home entertainment. Many children shifted to online school while some parents also shifted to working remotely. Having both child and parent at home during the work week quickly highlighted the need for having entertainment options that didn’t require adult assistance.  

On the seller side, nearly every brand faced delays in manufacturing and supply shortages, especially those dependent on supplies and production from overseas. In the Toys & Games industry, that represents a significant portion of the field, as China dominates production for this industry. In 2019, China led global toy exports, exporting nearly $63 billion worth of toys, including 80% of US imports. 

Rules & Regulations 

Along with the Baby and Health & Personal Care categories, Toys & Games is one of the most regulated categories on Amazon. At Kaspien, we highly recommend working with a specialist to help when launching new products in this space, as failing to prepare the required documents in advance or submitting information incorrectly can delay or interrupt sales for weeks to months. 

Toys & Games eBook cover

Download the eBook to Read this Section 


Shopper Psychographics 

Shoppers Search by Many Variables 

Toys & Games is an incredibly diverse product category. To make it easier to find the products for the end user, shoppers often narrow their search by multiple factors, including but not limited to: 

  • Product type 
  • Age 
  • Sex 
  • Price 
  • Complexity 
  • Material quality / durability 
  • Indoor/Outdoor 
  • Game duration 
  • Number of players 

Toys and Games Searches

Low Brand Loyalty 

When it comes to games, shoppers demonstrate little brand loyalty. By the time they go to Amazon, they are interested in buying either a particular game or a particular type of game. Who the creator is matters less than finding something with the right combination of age range, gender, duration, genre, number of players, and price. The exception to this rule is when shoppers seek expansion packs to games they already own.  

For example, one of our partners runs Sponsored Brand Ads. Over the ads’ lifetime, 86.5% of attributable orders have been new-to-brand. Now, Sponsored Brand Ads are known to attract new-to-brand customers, but even so, the metric is indicative of the low brand loyalty seen among board game shoppers. 

Toys, on the other hand, are a mixed bag. Many toy brands create product lines of complimentary toys to boost brand loyalty. For example, a line of superhero toys is incomplete without buying each hero. The same is true of any movie, show, or comic that features multiple characters. In this case, shoppers care less about the brand selling the toy and more about the product line the toy is part of. For sellers, this affects their marketing strategies.  

The general exception to the rule of low brand loyalty is when safety or education is involved. Since children (and adults, for that matter) learn in different ways, parents may be more apt to buy from the same game company if they find an educational game that works well for their child. Likewise, in the case of outdoors toys that could risk a serious injury if misused or broken, parents may pay more mind to the brands they patronize. 

JumpOff Jo Science Kit

Gifts for Friends and Family 

Many shoppers in this category are purchasing gifts for their children, their children’s friends, family members, and so on. The gift should demonstrate their care for the recipient, so these shoppers care greatly about the product’s safety and quality. This assessment is most often made by reading other customer reviews. If the product has few reviews or low ratings, shoppers are far less likely to take the risk of getting an unsafe or low-quality product. 

Children Make Wish Lists Too 

Adults aren’t the only ones adding products to Amazon wish lists. It is becoming increasingly common for children to browse Amazon and add products to their Amazon list, especially in preparation for birthdays and holidays. When optimizing listing content, sellers should keep in mind that they are marketing to two audiences. 

Online & In Store are Equally Important 

According to Statista, 29% of consumers state they prefer to buy toys entirely or mainly online. Another 40% of consumers stated they are equally willing to buy toys online as they are in stores. That puts the percentage of shoppers who prefer to buy online at roughly the same size as those who prefer to buy in stores, meaning that Toys & Games brands cannot afford to ignore either sales channel.  

Conclusion 

This is only a small taste of what our eBook has to offer. Download the free eBook to learn how to actionize this information about the category landscape and shopper psychographics.  

Kaspien is a proven expert in this field. Since 2008, we ‘ve served over 400 Toys & Games brands. In 2020, we delivered the following results for our partners in this category: 

  • 42% avg. increase in orders YOY 
  • 4.5% avg. ACOS  
  • 29% avg. decrease in ACOS YOY 
  • 50% increase in ad sales YOY 

Download the eBook 


Amazon Dropshipping Webinar

On May 24th, Amazon once again imposed new inventory restrictions for FBA sellers. This new round of restrictions is the latest in a series of inventory limits dating back to March 2020, and comes as a result of FBA centers reaching capacity ahead of Prime Day. 

While Amazon’s response is wholly understandable – they only have so much space at their fulfillment centers – their inventory restrictions still hurt FBA sellers. If sellers cannot stock enough inventory to meet consumer demand, they are actively bleeding sales. 

So, what can sellers do to capture these sales that they will otherwise miss? Enterprise-level dropshipping. And as it so happens, we’re hosting a webinar about exactly that on June 29th 

Whom is this Webinar For? 

This webinar is made for both small & medium businesses and enterprise brands that sell on Amazon. If your online sales rely on FBA, you should strongly consider leveraging dropship as a supplementary solution.  

Just take a look at how we used dropship to support MyMedic, a brand in the First Aid category, overcome FBA volatility: 

Mini Case Study 

In 2020, quantity restrictions at Amazon FBA put MyMedic at risk. Their product was in high demand, but they did not have enough FBA inventory space to meet that demand. We partnered with them to fulfill orders through dropship, enabling MyMedic to continue capturing sales even if FBA ran out of stock. 

The results? In a 3-month period, MyMedic sold an additional 2,100 units through dropship – that’s on top of their FBA sales! Without dropship, those are sales they would have simply lost. 

How Else is Amazon Dropshipping Useful? 

Historically, dropship has been seen as a less ideal option than FBA for Amazon sellers, and that’s still more or less true. Generally, FBA will be the preferred option. However, there are certain times when dropship may be preferable to FBA. Here are just a few examples: 

Dropship Is Better For Amazon B2B 

Generating over $25 billion in annual sales, Amazon Business offers rich potential. However, large volume orders, combined with FBA quantity limits, often makes dropship a better match for B2B orders. 

Dropship Is Superior For Some Products 

Not all products are suited for FBA. Plenty of types of products can be fulfilled more cost-effectively through dropship than FBA. This can include: 

  • Oversized products, such as instruments, sports equipment, or furniture  
  • Newer products that do not yet have the sales velocity to meet our PO thresholds  
  • Clothing and other products subject to rapidly changing trends 

Gather Purchasing Data 

Dropship can serve as a testing ground for FBA, allowing us to learn how products perform in the Amazon marketplace. We apply those learnings to successfully transition products to FBA. 

We took this approach with PlexiDor Performance Pet Doors. After a poor experience with a third-party seller, PlexiDor was hesitant to entrust inventory with another FBA seller. They asked Kaspien to start with selling via Amazon dropship instead of FBA to prove we could drive sales and uphold their brand integrity. 

We used dropship as a testing ground, building our understanding of PlexiDor’s products within the context of the Amazon marketplace. As we drove sales and earned PlexiDor’s trust, we transitioned products from dropship to FBA. We retained dropship capabilities for all FBA listings, which allowed PlexiDor to capture additional sales when Amazon reduced FBA storage limits. 

Our Results 

  • 100% of product catalog represented on Amazon  
  • 30 SKUs transitioned from dropship to FBA  
  • 75% sales growth year-over-year 
  • $185K Amazon ad sales at 6% ACOS 

Amazon Dropshipping Case Study

Attend our Dropship Webinar to Learn More 

These are just a few examples of how dropship can be used effectively to grow your Amazon business. Attendees to our June 29th dropship webinar will learn even more about: 

  1. Why you should set up dropshipping capabilities as a supplement to Amazon FBA. 
  2. How to run Amazon dropship at scale effectively to capture additional sales and validate new products for FBA.  
  3. Ideal use cases for dropship, including oversized products, slow sales velocity, Amazon Business, and more 

 

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Amazon Back to School Guide

Back-to-school sales have long been established in brick-and-mortar stores, and they’ve bled over into ecommerce. Consumers expect to see exciting deals on Amazon, just like they do when they walk through a physical store.  

Of course, preparing for seasonal events on Amazon is a little different than preparing for the same event at brick-and-mortars. To help you prepare for the Back-to-School season on Amazon, we’ve compiled a list of best practices. 

Amazon Categories Supported by Back-to-School Sales 

Let’s start with which product categories benefit the most from this period.  

The end of summer brings much with it for Amazon sellers, including Back to School sales, Labor Day weekend trips, and the first whispers of the holiday season. During this period, we see several product categories enjoy a sales boost driven by the seasons of life. 

Apparel 

Back to school shopping often includes new clothes. Children have outgrown their old clothes, literally and figuratively, by the time the next school year rolls around.  

Office Supplies 

AKA school supplies. Kids need new binders, paper, pens and pencils. And when the kids restock, parents and teachers do too.  

Amazon Business also provides opportunities here, as schools may also place bulk orders for supplies. In Amazon’s 2021 B2B conference, re:Shape, they even included a university’s use of Amazon Business as a case study. 

Arts & Crafts 

Who doesn’t love an old fashion school project? Well, like them or not, they’re quite common, and so parents and teachers alike are buying students all sorts of art supplies.  

Sports & Outdoors 

By August and September, Sports & Outdoors sales are past their peak, which typically hits in June and July. However, with summer coming to a close and a three-day weekend afforded by Labor Day, some shoppers make a last hurrah, buying items for one more summer adventure before transitioning to fall and winter sports. 

Toys & Games 

As Sports & Outdoors exits the spotlight, Toys & Games is preparing to enter. Truthfully, Toys & Games sales don’t start to soar until November, but the end of summer marks the period when brands should be finalizing marketing plans for the holidays. 

Amazon Inventory Management & Fulfillment for Back-to-School

Of course, to capture seasonal sales on Amazon, you must have inventory. Surprisingly, that has become a point of uncertainty as Amazon continues to impose stricter inventory quantity limits for FBA. Shoppers expect brands to be on Amazon, so you need to be there to meet that expectation, with or without FBA. 

To that end, here are a few tactics we’re recommending to our partners. 

Establish Dropship as a Backup Plan 

Dropship proved itself to be invaluable in 2020 as Amazon’s fulfillment network struggled to handle the sudden surge in customer orders and seller shipments. When Amazon blocked entire product categories from shipping inventory into FBA, brands that could dropship were able to continue fulfilling orders. 

In a three-month period, one of our partners sold an additional 2,134 units through dropship on top of their FBA orders! Without dropship, they would have simply lost those sales because their FBA inventory cap was too low. 

As FBA volatility continues, Kaspien is encouraging all our partners to establish dropship capabilities. By setting up Amazon dropshipping, our partners are able to continue satisfying their customers, regardless of any FBA curveballs.  

Leverage Seller Fulfilled Prime (SFP) 

While dropshipping is an invaluable safety net, it doesn’t automatically guarantee the same shipping speed as FBA. This can be a significant issue for shoppers who procrastinate and find themselves scrambling to get their school and office supplies in time. 

Fulfilling orders through FBA negates this issue, but it’s currently volatile. On the dropshipping side, brands can explore Seller Fulfilled Prime (SFP). SFP is an Amazon program where the brand fulfills the order while providing a Prime-equivalent experience. Products fulfilled through SFP feature the Prime badge on the search results page and product listing. 

Amazon verifies every SFP seller to ensure quality control. In February 2021, Amazon withdrew SFP credentials from some sellers after an internal audit found that many SFP sellers were not consistently meeting the requirements (largely due to being closed on weekends). 

Given the strict criteria and indefinitely closed application process, getting SFP authorized is almost impossible. To gain SFP capabilities, you’ll need to work with a third-party seller or third-party logistics provider who is already authorized. 

Enroll in Amazon Small & Light 

Moving away from FBA issues and dropshipping, there’s another Amazon program that deserves our attention: Small & Light. 

School supplies, arts and crafts, and apparel can be quite light and inexpensive. To make products like this still viable to sell on its marketplace, Amazon created the Small & Light program, which reduces fulfillment fees for products that are sold via FBA, priced under $7, and sell at least 25 units per month. 

You can learn about this and other cost-saving programs in our post, “How to Minimize Amazon Seller Fees. 

Organic Marketing Tactics for Back-to-School

Moving on, let’s delve into Amazon marketing tips and tricks you can use to increase traffic and conversions. We’ll start with free marketing tools and practices. 

Review Listing Content 

Periodic content audits are always a good idea, and doubly so for seasonal products. Conduct keyword research again to see what new keywords should be incorporated into the frontend and backend of your listing, and which terms might be worth cutting.  

Read customer reviews to see if there is a common question or misunderstanding about the product. If so, update the copy and/or add an image or video to provide clarity.  

Finally, review your images. Are they still up-to-snuff and relevant, or have they become outdated? 

Use Brand Store Versions 

Amazon added a feature for Brand Stores that allows you to create multiple versions of a given page. This tool can be used to create holiday or event themed pages, which you can schedule to run during a specific date range before automatically reverting to the default page version.  

If applicable to your product catalog, create a Back-to-School version of your Brand Store’s home page. You can also create a dedicated Back-to-School page and include it in your Brand Store nav bar if you have a large enough catalog to warrant it. And of course, this practice works great for any holiday that’s relevant to your offerings.  

Create Variation Listings 

Any time that you offer multiple sizes, quantities, colors, or patterns of a product, it’s worth checking if you can create a variation listing. Variation listings provide an intuitive and convenient shopping experience for your customers, helping them identify the right version of your product for their needs and eliminating the guess work. Variation listings are a great option for many product types, but are especially useful for office supplies, apparel, and arts & crafts. 

Use A+ Content Comparison Modules 

If you are unable to create variation listings, another way you can showcase more of your product line is through the comparison module for A+ Content. There are no limitations for which types of products you showcase in this section, so the products can be complementary, substitutes, or completely separate from the product of the given listing (Although we do recommend showing substitutions or complementary products since it’s a nice shopping experience).  

A+ Content Page

For example, if the listing is for a backpack, the comparison module could show other school supplies. If the listing is for a bike, the comparison module could show helmets and bike lights.  

Amazon Advertising for Back-to-School

Review Last Year’s Data 

Just as with organic marketing, your paid marketing efforts should start with a review of what worked and what didn’t in the past.  

If products performed worst than expected, review the metrics. If click-through-rate (CTR) is high but conversion rate is low, it indicates that shoppers were interested in the ad, but weren’t persuaded by the listing content. In that case, you may need to update the listing images, text, and A+ Content.  

If the number of clicks are low but conversions are high, you may need to increase your ad budget.  

If all metrics performed well, double down this year and allocate an aggressive marketing budget for those products’ ad campaigns. 

Create and Launch Ads Early 

Amazon ads take time to build relevancy, which is why we almost never recommend turning off your Amazon ads, even during slower seasons. Reducing an ad budget as demand and competition wanes is one thing, but turning off your ads for months at a time means you’re sliding back down a hill that you’ll have to climb again when the sales season returns.  

Generally, we recommend launching ads or increasing ad budget about one month prior to your sales season, giving you time to build momentum and refine search term optimization so you can hit the ground running.  

Of the four main Amazon ad types, we recommend focusing on Sponsored Product Ads, which have the highest conversion rate of any Amazon ad type. These are the best known ads on Amazon, appearing alongside organic results on the search results page. 

Sponsored Brand Ads and Sponsored Brand Videos are great options for products with high sales velocity (the single placement per page means these ad types are highly competitive, so the odds of winning the placement for a product with low sales velocity isn’t great).  

Last but not least, Sponsored Display Ads appear on related product listings, including yours and competitors’. While the concept of capturing sales from competitors at the last minute sounds exciting, many shoppers have already made a decision by that point. Instead, Sponsored Display Ads are best used to target complementary and substitute products, similar to the comparison module for A+ Content. 

Use Amazon Deals if You Have Strong Performers 

Shoppers are looking for back-to-school deals, right? Well, Amazon happens to allow sellers to run three types of deals: Deal of the Day, Lightning Deals, and 7-day Deals. Each of these are short-term promotions that can be used to accelerate sales velocity. Deals can be especially effective during major holiday events, Prime Day, and your peak seasons. 

Of course, there’s a “but.” While deals can deliver fantastic results, you should know that Amazon will determine the deal price, the minimum inventory order quantity, the duration of the deal, and deal fees. As such, Amazon deals tend to work best for products with a strong performance record. 

Pair Ads with Amazon Coupons 

If you don’t qualify to run an Amazon, you can still achieve the effect of a deal through Amazon coupons. coupons also indirectly support product rank improvement. Like any type of paid marketing on Amazon, higher sales indicate to Amazon’s algorithm that shoppers like the product. Since Amazon is a customer-centric platform, the algorithm will rank the product better. This increases the product’s visibility and organic sales, creating a cyclical effect. According to Amazon, coupons increase sales by 12% on average! 

If you run an Amazon ad for a product that also has a coupon, the coupon tag will appear in the ad. This has a one-two punch effect: the ad means more shoppers will see the product, and the coupon incentivizes shoppers to click into the ad and convert. 

Is Amazon DSP Right for Back-to-School? 

Last but not least, there is Amazon Demand Side Platform, better known as DSP. Amazon DSP allows brands to use Amazon’s first-party data to target shoppers with ads on Amazon.com, Amazon devices and applications such as Fire TV or tablet, Amazon-owned sites like IMDB.com, or affiliate websites and apps in Amazon’s network. 

These ads extend your reach, re-engage shoppers, and support new customer acquisition. In 2020, we ran a two-month DSP campaign for Strider, a leading kids’ toy company known for their revolutionary bikes. That campaign generated over $250,000 in sales, 5.9 million impressions, reached nearly 200,000 unique shoppers, and boasted a 4.9 return on ad spend (ROAS). 84% of orders also came from shoppers who had not previously purchased Strider products on Amazon. 

Clearly, DSP offers huge potential. It also has a high cost, with Amazon requiring a minimum budget of $35,000. As such, you’ll need to consider which season you want to make that investment. If back-to-school sales are not your peak sales season and you have a limited budget, you should reserve DSP for your peak season.  

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May 24th was a normal Monday morning like any other for FBA sellers, until they saw their storage limits had been slashed in half. While the inventory restrictions are an immediate pain point, the news may also be a canary in a coalmine:  

If Amazon is tightening inventory restrictions ahead of Prime Day, we can expect that inventory restrictions will impact Q4 as well. Brands that are overly dependent on FBA will be poorly positioned to capitalize on Amazon sales opportunities. Investing in diversified fulfillment solutions, such as dropship, will be critical for overcoming the volatility in the marketplace. 

Why did Amazon Restrict Inventory Limits? 

An Amazon representative told Kaspien this move was in response to limited fulfillment center capacity. There is simply more inventory being sent to Amazon FBA centers than Amazon can handle. 

Amazon quantity limits are affected by past and future sales, current inventory levels, new selection, and FBA capacity. Quantity limits are also affected by sellers’ IPI scores. IPI is impacted primarily by inventory movement. The faster inventory cycles through FBA, the better, so long as you never stock out. If inventory sits stagnant in FBA centers, a seller’s IPI score will suffer. Likewise, if a seller runs out of inventory, their IPI score can take a hit. 

In 2020, Amazon temporarily restricted which product categories could send shipments into Amazon fulfillment centers. Amazon also increased the inventory performance index (IPI) threshold several times. Sellers who failed to meet the new score thresholds were subject to more severe inventory limits. 

There was hope that Amazon would lift the restrictions in 2021. However, earlier in the year, Amazon transitioned from Amazon Quantity Limits to storage utilization quotas. Many brands saw even stricter limits with this transition, and the recent reductions only made it worse. 

Fool me Once…. 

Amazon’s repeated inventory restrictions brings to mind an old axiom: Fool me once, shame on you. Fool me twice, shame on me.  

At this point, it’s clear that brands need to be ready to pivot their Amazon strategy at the drop of a hat. Amazon makes unilateral decisions that negatively affect your Amazon business and without warning far too often to sit idly by. Your customers expect your products to be available on Amazon, and you need to take steps to meet that expectation, whether it’s through FBA or not. 

So, what alternatives and supplements can brands use for FBA? 

Dropship Directly to Consumers 

Many people know of dropshipping as something a high-energy “entrepreneur” on social media talks about as a great side hustle for easy money. It can be that. But dropshipping can also be much more than that when applied at a larger scale.  

This was seen clearly in early 2020 when Amazon imposed category restrictions for inbound shipments. Affected brands turned to Amazon dropshipping to continue selling even after FBA inventory ran out. There was even a period where Amazon prioritized FBM and dropship orders over FBA orders!

Dropship was crucial during this time. For example, in a three-month period, one of our partners sold an additional 2,134 units through dropship on top of their FBA orders! Without dropship, they would have simply lost those sales because their FBA inventory cap was too low. 

Since 2020, dropship has consistently proved to be an invaluable safety net against volatile supply chains. And as this latest update shows, Amazon is still experiencing the aftershocks of that volatility.  

Types of Amazon Dropshipping 

Dropshipping, in its simplest terms, is when the manufacturer ships product directly from their warehouse to the end-consumer, instead of sending it to a fulfillment center.  

For Amazon dropshipping, that translates to using Fulfilled by Merchant, or FBM, instead of FBA. An even better version of FBM is Seller Fulfilled Prime, or SFP. Let’s explore each of these a bit further. 

FBM from Your Warehouse 

FBM is exactly what it sounds like. Rather than an Amazon warehouse shipping orders to consumers, the merchant’s warehouse does. FBM requires the seller to have a warehouse in which they can store and fulfill inventory. It also does not come with guaranteed 2-day shipping. As such, Amazon favors FBA listings over FBM listings. 

FBM from a 3P Warehouse 

If you don’t own a warehouse, there are third-party logistics providers who provide similar services to FBA (including yours truly). You can partner with one of these providers to create FBM offerings, but they too will be treated as lesser options to FBA by Amazon’s algorithm. 

SFP from a 3P warehouse 

If the idea of Amazon favoring FBA over FBM irks you, you’ll likely be interested in SFP. SFP functions practically identically to the FBM model, except that the provider has been certified by Amazon as being able to consistently provide a Prime-equivalent shipping experience for Amazon shoppers.  

The SFP program has been closed to new applicants for well over a year, so if you are not enrolled in SFP already, you’ll need to seek a third-party seller or third-party logistics provider who is.  

The Benefits of Amazon Dropshipping with Kaspien 

One downside to dropshipping on your own is that you are responsible for tax logistics and customer service. If you partner with Kaspien to dropship on Amazon, the sales pass through our Seller Account instead of yours, which means we’ll handle the taxes and customer service for you. We’ll also pay you on a weekly basis, unlike Amazon, which pays dropshippers twice per month. 

Above and beyond that, we take a brand-centric approach to our partnerships. We’ll use dropship in whatever way serves your brand best. That could involve using dropship as a safety net, using dropship as a testing ground for new products to prove that we can drive success for them, and adding your full product catalog to the marketplace. 

Co-sell with Another FBA Seller 

Dropshipping is a great solution, and more brands are recognizing its value after the turbulence of 2020. However, it’s not the only solution for those impacted by Amazon’s inventory restrictions. In addition or alternatively to dropship (though it really should be in addition), you could authorize another FBA seller. 

By adding another FBA seller, you effectively increase the storage space allocated to your products at FBA. From your customers’ perspective, there’s little in their shopping experience. They see the same the same listing, they get the same shipping speed regardless of FBA seller, etc.  

From your perspective, you’re receiving another purchase order, which is always lovely. You’re also allowing another seller to access to your listing content and impact how your brand is presented to shoppers. That’s a big deal, so you should only partner with a seller you can trust.  

Kaspien has been serving as brands’ trusted Amazon partner since 2008. Our commitment to true, mutually beneficial partnerships earns feedback like this, shared by SRAM:  

Kaspien has been instrumental in our success on the Amazon platform with their commitment to SRAM. The time and energy the Kaspien team puts towards our brand’s needs extend beyond the SEO, marketing, and sales aspect of the business; they also ensure that we are communicating constantly and remain aligned and informed on our position on the Amazon Marketplace. We are proud to partner with Kaspien. 

Sell on Amazon with Kaspien

If you’d like to explore Amazon dropshipping or FBA with Kaspien, reach out. For more Amazon news and strategy, subscribe to our weekly blog newsletter!