Pros and pitfalls of Fulfilled by Amazon (FBA)

Posted by:
Jodie Fardoe

16 Apr 2021
Operations

Amazon is extremely powerful, but it can be a complicated marketplace for sellers. There’s a lot to navigate (particularly around rules and regulations) and many options to weigh up.

Some online retailers use Fulfilled by Merchant (FBM) to stay in charge of the fulfillment process by shipping orders from their own warehouse – others opt for FBA whereby Amazon takes on that responsibility. And of course others outsource everything to a 3PL as a FBA alternative.

Whichever fulfillment route is taken, this crucial decision can have a major impact on business operations, the delivery experience and ultimately, brand reputation.

What are the pros of using FBA?

As an Amazon seller, you gain valuable access to Amazon’s humongous customer base and logistics infrastructure. Everyone knows Amazon – it’s a household name synonymous with online shopping.

It’s a valuable source of revenue and an effective route for new, growing brands to gain visibility without the expense of mass advertising. When you sign up to FBA, you’re placing the responsibility of fulfilling customer orders in the hands of Amazon.

In the most simplistic form, here’s how FBA works…

  • You register as a seller, list your products on Amazon and select ‘Fulfilled by Amazon’
  • You or your manufacturer/supplier send your products to Amazon’s warehouses
  • Amazon pick, pack and ship your items to customers in line with their shipping and delivery times (including 2-day Prime)
  • Amazon will handle returns and customer support
  • You pay Amazon for storage and fulfillment for each product sold.

The pitfalls of FBA

While this all sounds wonderful, there are a few known FBA sticking points that may hamper your brand growth effort.

Fierce competition

Amazon. eCommerce giant. Access to more than 197 million potential customers around the world, every month. That’s why you’re all for using FBA.

But, competing with Amazon itself is inevitable for many merchants. In fact, half of sellers say Amazon sells products that directly compete with their products, and two-thirds are concerned that this increased competition is driving prices down.

Plus, product placement fluctuations on Amazon’s algorithmically generated search and product listing pages adds another layer of competition complexity – so too does the ‘Buy Box’ which displays lower-priced offers from different FBA ‘me too’ sellers.

Then there’s the pandemic which led to an increase in online shopping, companies upping their eCommerce game and a surge in Amazon product listings/FBA sellers.

Co-mingled stickerless SKUs

Co-mingle: to mix together things of different types

If you decide to use FBA, you’ve the option of sending your products to Amazon’s warehouses without having to provide product SKU-level stickers on every unit.

Sounds much easier, right?

Not if your stickerless inventory gets mixed in with the inventory of other FBA sellers of the same SKU.

When a customer places an order from one FBA merchant, Amazon picks the most convenient inventory – even if that isn’t the inventory the seller sent in to FBA. This ensures the customer delivery promise is honored.

Where it gets even ‘stickier’ is when a seller sends in a used product, or even a counterfeit product, and you – as a new FBA seller – get in trouble with Amazon for selling a ‘questionable’ product to a customer, even if it wasn’t the product you supplied. At which point you might need to do a lot of work to prove your stock is genuine.

It comes as no surprise then that ‘Protecting against ‘black hat’ tactics, counterfeiters and other risks’ is one of the cited key challenges in this particular 2021 Amazon Seller Report.

Comply or close

Amazon’s big on compliance, rightly so, but bear in mind that any policies you’ve set previously go out the window with FBA. What you sell on Amazon must comply with their exacting requirements for shipping and returns.

And if you don’t comply? Your Amazon store could be closed with little or no warning. Sellers even talk of having their stores removed due to late shipping or bad weather (factors that were out of their control). Yes, really.

Amazon ad space

Amazon offers sellers the ability to advertise on the platform, and as with any type of advertising, competitors paying for it will push your products lower down the list. Then it becomes a visibility war.

All of those customer ad clicks equate to key intel for Amazon; what products customers are searching for, what they actually ‘add to basket’, how much they buy and at what price, and so on. Amazon can use that intel to its advantage, especially for its own brands, and so as a FBA seller, your products/sales can become somewhat cannibalized.

So, is FBA really that fulfilling?

The decision to use FBA boils down to control and what works best for your business.

How much trust do you place in the hands of Amazon to take care of your inventory and eCommerce delivery experience?

Using FBA can be a great way to scale a start-up business, but when you see a flood of sales, you’ll also see an enormous amount of admin. You might, in some ways, feel you’re working for Amazon rather than yourself, and that FBA just isn’t the right fit for your fulfillment operations.

Frau Green, an independent online craft shop based in Manchester, UK, moved away from using FBA to regain control of its brands.

One of the reasons why we switched from FBA to a 3PL was that we needed to have control over the branding on the packaging and invoices. James and James created a bespoke invoice template that perfectly suited our requirements, as well as creating two brands so we could despatch items under different branding. We also needed a fulfillment option that could despatch orders quickly.

- Sophie Green, Co-founder and Director - Frau Green

Sophie, Co-founder and Director of Frau Green said, “James and James’s excellent on-time fulfillment rates are invaluable to us. The system makes it clear what stage each order is in the fulfillment process, and also flags any orders which have errors in the address so we can confirm with the customer before despatch.

“One key feature of 3PL over FBA, specifically with James and James, is the ability to view which orders contain items which are out of stock. We order many items on a ‘Just In Time’ basis, and so to see which orders require more stock is important. We use this to keep track of any customers with backordered items and to be sure these orders are processed in a timely manner.

“With James and James, we’re saving tons of time on processing orders and booking in stock. Now that we’re not physically packing each order and receiving and storing inventory, we have more time to grow our business. Our CRM rates have improved too as we have an electronic record of tracking numbers and courier tracking links which we can immediately send to the customer.”

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James and James Fulfillment

It all began in 2010, when James Hyde and James Strachan couldn’t find a modern shipping service for the eCommerce business they ran. Faced with messy warehouses based on out-dated systems, they decided to build their own.

We’ve not stood still since, helping hundreds of online brands scale up – and scaling with them.