The Predicament
Amazon increased and reorganised its seller commissions across a number of categories. The new system includes a fixed 6% commission, regardless of the product’s quoted price. Additionally, Amazon has raised shipping costs for cross-country deliveries for the lightest weight category by up to 20%.
The Motive
This change can be related to Amazon’s present economic challenges, which have negatively impacted its profitability and cash flow and were caused by the recession and other macro issues. Amazon has chosen to increase its seller commissions, which are a significant source of revenue for e-commerce platforms like itself, and make personnel reductions in an effort to correct this problem.
This action contrasts with the success of platforms like Meesho, which rose as a result of having lower commission rates than other e-commerce platforms.
Impact on direct-to-consumer startups
D2C firms will be directly impacted by Amazon’s commission increase, notably in industries like beauty, personal care appliances, smartwatches, and baby items. The effect will be felt by companies including Mamaearth, Purplle, WOW Skin Science, mCaffeine, SUGAR Cosmetics, Bombay Shaving Company, boAt, and Noise. The new arrangement, which goes into effect on May 31, 2023, requires sellers of goods under INR 500 to pay twice as much in fee in order to keep selling on Amazon.
Marketplaces are now preferred by many sellers, especially D2C firms, as a way to reach a bigger audience and spur growth.
Proposed actions for D2C founders
Increasing their focus on an omni-channel presence that encompasses their own websites, various marketplaces, and offline channels are two ways that D2C founders might take into consideration.
Reducing burn and performance marketing while putting more of an emphasis on unit economics.
Improving customer satisfaction and product quality to get more favourable comments and evaluations.
Making use of influencer, digital, and word-of-mouth marketing while keeping a balanced strategy.
