Shoppers might prefer to order bulky, heavy household products (e.g., cans of soup, bottled beverages) to be delivered, so that they don’t have to worry about lugging the heavy packages home. But that option creates a stringent challenge for Amazon, the site that receives many of these orders. These products might be too heavy for shoppers to carry, but they’re also way too heavy for Amazon to ship cost effectively.
In response, it has adopted several solutions, mostly in collaboration with the brands that sell their products through its channels. In particular, it requires many companies to promote or even limit their offerings to larger case sizes. For example, rather than
making a 6-pack of Smartwater the default option, linked to Amazon’s easy reorder Dash button, the brand’s owner Coca-Cola agreed to feature a 24-bottle case. The price per bottle is higher, and Amazon avoids the costly need to ship multiple small but heavy packages.
Larger packages also apply to seemingly more convenient products. For example, Campbell Soup Co. pushes cases of canned soup, but it also encourages consumers to purchase larger packages of its Goldfish snack crackers. Rather than the small bags that they might grab from a physical store shelf, Amazon shoppers find larger cartons on offer, which again help increase the efficiency of the shipping process.
Furthermore, many more products are coming directly from the producers, representing a notable shift from previous practices. In the past, Coca-Cola would ensure that Amazon’s distribution centers were well stocked with beverages; today, it receives orders from Amazon and ships the products directly to consumers. By eliminating a step in the delivery process, the companies lower the costs throughout the supply chain.
Another option for suppliers is to alter the formulation of their products to facilitate shipping. For example, Seventh Generation encourages consumers to consider laundry pods instead of liquid detergent when they are shopping through Amazon. The pods are less expensive to ship, with less risk of damage as well.
Moreover, Amazon is increasingly turning to its Prime Pantry to facilitate and create customers’ orders. Shoppers buying household goods and groceries receive incentives to fill an entire box. Thus they still can request a 6-pack of water instead of a case, but they also are likely to add other items to their order. By ensuring the box is full, Amazon avoids inefficient shipping—while also encouraging expanded sales.
Finally, if it simply cannot make money on an item, Amazon designates the product as one for which it “Can’t Raise A Profit.” The resulting acronym describes what the company thinks of these products, many of which it will simply stop selling. To avoid such a designation, suppliers continue to seek ways to reformulate their packaging and volume designs. Although the responsibility thus has shifted up the supply chain, for most sellers, the benefits of selling through Amazon far outweigh any costs associated with ensuring they remain viable offerings for sale and delivery.
Discussion Questions:
- How is Amazon becoming more profitable through better supply chain management and buying practices?
Source: Laura Stevens, Sharon Terlep, and Annie Gasparro, The Wall Street Journal, December 16, 2018.