Disclaimer: This blog post is not meant to prioritize concerns of capitalism over concerns of global public health.
As the coronavirus has spread throughout China and into other countries, factories that supply the world with all sorts of products are starting to see delays. While Chinese New Year may have temporarily masked the appearance of manufacturing challenges caused by the virus, those challenges are now becoming clearer as US-based Amazon sellers are discovering that delays in manufacturing are likely to result in unexpected shortages of inventory.
If you’re a seller on Amazon, your “sales rank” can incur quite a bit of damage if your inventory runs out. Today, products with better sales ranks are more likely to show up at the top of organic search results of customer products searches, so it is critical for sellers to work to maintain the sales ranks of their products. While Amazon has not officially released the formula it uses to calculate the sales rank of individual products, I learned during my time at Amazon that sales rank was based on a blend of a product’s 7-day trailing sales volume and 30-day trailing sales volume. Should a product be out of stock for more than 7 days, that will hurt the product’s sales rank considerably; yet when the product is out of stock for more than 30 days, the sales rank essentially goes to zero. A product that has been out of stock for more than 30 days but is now back in stock basically has to start from scratch with no sales history to jumpstart its now null sales rank. So while Amazon sellers may be faced with delays in overseas inventory shipments, the key is to avoid being out of stock for more than 30 days.
There are multiple levers you can use to manage inventory levels that are likely to run out, each path with its own set of trade-offs.
1. Cut ad budget/traffic
If you’re currently running Amazon advertising or using any off-Amazon traffic-building efforts for specific items soon to run out, slowing or completely cutting the traffic will reduce the number of customer visits to your product detail pages, and hence sales should drop. If you are using off-Amazon traffic that is generating higher conversion rates than traffic from Amazon advertising efforts (e.g., sales funnels or email marketing to existing off-Amazon customers), I suggest turning down the off-Amazon advertising first. It is easier to regain the benefits of off-Amazon advertising than to regain Amazon advertising traffic on products that have had their Amazon ad budget deactivated. In all cases, you will need to increase your monitoring of paid search-driven sales and total sales during this period of delayed replenishment inventory.
2. Increase prices
Simple economics at work here – if you raise prices, demand falls. But things can get tricky on Amazon for a couple of reasons. First, if your product listings have competitive offers from other sellers, you will likely reduce your buy box percentage, enabling other sellers to sell their units while you await replenishment. Second, if you raise the price on Amazon but the product remains available on other sites (whether sold by you or other sellers), Amazon’s scraping technologies will likely find these lower prices and immediately turn off the potential for you or other Amazon competitors with similarly higher prices to be buy box eligible on this product. Third, if you raise the price of your product but you have provided the Amazon catalog with list price information that shows the list price to be lower than your newly increased price, expect Amazon to remove your buy box eligibility on the product.
3. Remove digital assets on your listing
This action may seem suicidal, but if you have Brand Registry on your product and can control the content on the listing, consider removing content such as bullet points, secondary images, infographics, and videos. Such an action will most likely reduce customer conversion on your listings, as customers are left unsatisfied with the content on the product page and will be less likely to purchase. Should you take this unusual step, be sure to save your existing listing content somewhere so you can reload it once your inventory replenishment situation is resolved. And keep in mind that reducing the quality of your product listing is likely to hurt your brand equity with consumers. However, given how Amazon customers continue to favor unbranded search during their organic search of products, you will unlikely slow down the number of Amazon customers new to your product that choose to consider your products.
4. Shift inventory from other channels
If you have reserve or emergency inventory of product, or inventory that you can take from other channels where the short-term loss of sales rank isn’t going to hurt you as much as Amazon, take the necessary steps to move product around. Obviously, other channel partners may not be happy that you can’t fill their purchase orders, but your business off-Amazon is likely to have less collateral damage than the impact of stockouts on Amazon.
During my many years both working at Amazon and with companies participating on the Amazon channel, I have seen that the Amazon algorithms are unforgiving to sellers dealing with external factors such as this current inventory replenishment challenge. Today, as you wait for your overseas suppliers to get back on track with your manufacturing orders, remember that we all need a “rainy day” contingency plan in place for our businesses.
James Thomson is a partner at Buy Box Experts, previously served as business head of Amazon Services and is author of The Amazon Marketplace Dilemma (2017) and Controlling Your Brand in the Age of Amazon (2020).