Prime Day, Amazon’s annual shopping event, has transformed into a battlefield for sellers, testing their fundamental capabilities and long-term strategies. Despite the anticipation, many sellers found themselves grappling with the harsh reality: booming sales, but dwindling profits. The reasons behind this paradox are multifaceted.
Heavy Discounts Erode Margins
This year, the discounts offered on Prime Day were unprecedented, reaching near “bone-breaking” levels. Electronics saw discounts spike from 14% to 22%, while apparel, home furniture, toys, and sports equipment also experienced significant markdowns. Although sales volumes surged, profit margins failed to mirror this growth, remaining stagnant or even declining compared to regular promotional periods.
Unsustainable Costs
Beyond the Prime Day discounts, sellers invested heavily in promotional activities, including Best Deals (BD) and Lightning Deals (LD). Despite noticeable traffic and increased sales volumes, the overall financial outcome was far from profitable. Some sellers, aiming to clear inventory, ended up with higher Advertising Cost of Sales (ACoS) instead of the expected sales boom.
Low Return on Investment
Leading up to Prime Day, sales volumes dipped, only to normalize during the event. However, the return on investment (ROI) remained disappointingly low. For instance, sellers reported that while last year’s Prime Day sales were 5-6 times higher than usual, this year they barely reached 3 times, with lower prices and lesser profits.
Escalating Ad Costs
Amazon’s dynamic bidding strategy during Prime Day, which saw bid increases on “rest of search” and “product page placements” soar from 50% to 100%, significantly inflated advertising costs for many sellers.
Rising Competition
Amazon faced fierce competition from platforms like TEMU, TikTok, Target, and Walmart, all of which launched major promotional campaigns around Prime Day. This intensified the price wars, further squeezing sellers’ margins.
Strategic Insights for Sustainable Growth
Prime Day highlights the need for sellers to adopt a long-term, sustainable growth strategy. Understanding Amazon’s traffic trends and category reshuffles is crucial. For instance, high-growth categories in Amazon’s top six markets include mattresses, laptops, and phone cases in the US, and phones, air fryers, and toys in the UK.
Embracing Category and Supply Chain Shifts
Sellers should note the shifting high-growth categories and adapt accordingly. For example, vacuum cleaners and fitness equipment saw substantial growth in Germany and France, with Chinese brands like Tineco and Xiaomi gaining significant market share.
Investing in Product Quality
As Amazon’s role evolves, integrating low prices with high-quality products becomes essential. Reflecting on the 2023 Black Friday and Cyber Monday sales, over 20% of Chinese quality sellers saw their sales increase by more than 50% year-over-year, and 15% experienced over 100% growth.
Developing Competitive Products
To thrive, sellers must focus on continuous product iteration and innovation. Key considerations include addressing customer pain points, aligning with industry trends, and delivering products that offer significant value to both businesses and consumers. Companies like Anker and game developer miHoYo exemplify this approach, achieving substantial success through high-quality, innovative products.
Agile Development for Lasting Success
Adopting an agile product development approach can help sellers respond effectively to market changes, reduce risks, and ensure continuous product improvement. This strategy has proven successful for many Amazon sellers, with a significant portion of their sales coming from newly created products within the past 12 to 24 months.
Conclusion: Building Long-Term Customer Relationships
The ultimate goal for sellers should shift from one-time transactions to building long-term customer relationships. This involves enhancing post-purchase experiences, including customer service, loyalty programs, and efficient return and repair processes. By focusing on the lifetime value of customers, sellers can achieve sustainable growth and enduring success on platforms like Amazon.
What strategies have you found effective during major sales events like Prime Day? Share your insights and join the conversation below.
