𝗨𝗻𝗽𝗼𝗽𝘂𝗹𝗮𝗿 𝗼𝗽𝗶𝗻𝗶𝗼𝗻: Amazon's new and increased FBA fees are justified and align the incentives perfectly to ensure sustainable growth. Here's why:
I will make a few points that build on each other. Please read until the end before forming your opinion.
Some of this is common knowledge, but based on the collective seller's response in the last few weeks, remembering the basic building blocks that enable the FBA model is probably a good idea.
1. There is no such thing as free shipping. The cost of shipping is always baked into the selling price. Everyone knows this. Yet offering free shipping converts better because of the perceived value of not having to pay for shipping separately.
2. Amazon's famous free 2-day prime shipping has quietly become a free same-day or next-day shipping benefit. In the first seven months of 2023 alone, Amazon delivered 1.8 billion units on the same or the next day, a 4X increase over the same period in 2019.
3. There is no way for anyone on earth to deliver a wide assortment of products nationwide for free with same-day or next-day speed! (see point 1). So, these costs are baked into the selling price. If you sell a $20 gadget that costs $5 to make, it will cost you another $15 on average to deliver it with the same-day or next-day speed nationwide, which leaves you with $0—you don't have a business.
4. You don't have to offer same or next-day delivery nationwide. It's perfectly OK for you to provide that service only to your local customers and offer 3/4/5 day delivery for the rest of the country. Many businesses do this and make plenty of money.
5. Amazon enables you to offer same or next-day delivery of your products nationwide. Consumers love it. Do you know who else loves it? Sellers. Do you know why? When you offer that delivery speed nationwide, customers keep returning and buying so much more that Amazon sells almost double the next ten competitors combined!
6. How does Amazon offer this so-great-everyone-loves-it shipping speed while charging sellers a (relatively) low flat fee for fulfillment? The (not so) secret answer is that they put fulfillment centers near almost every major city, allowing them to keep small amounts of inventory of each product near each customer, which keeps shipping costs low as everyone's order is a local order.
7. But how does the inventory spread across the country like that? Sellers either ship inventory to each location or send it to a hub that breaks it into smaller shipments and distributes it to all locations. Amazon does and has been doing this for sellers for many years. Even when you ship to multiple locations, they distribute it further to 20+ locations. It costs money to move inventory around the country (remember point 1? shipping is never free). Yet, until now, there has been no extra charge for it. Now, you will start paying for this excellent service.