Everyone has a few products they love, but only buy when they are on sale. Whether it’s electronics, luxury fashion, or even our favorite candies, sometimes we just refuse to pay full price, but are quick to pull out our credit card when we see a good deal online. For me, this product is Liquid IV. I feel like it really helps me not be dehydrated after a long flight. I wasn’t surprised when I heard that Liquid IV products were among the top sellers during the successful Prime Big Deal Days event on October 10-11.
Surpassed Expectations for Prime Big Deal Days
This was the second time Amazon held Prime Days in the fall, and this edition outpaced the previous edition last year. Amazon has reported that consumers ordered more than 150 million items from third-party sellers. Over 60% of sales on Amazon come from the two millions third party sellers registered on the marketplace, most of them being small to medium sized businesses. It is clear that Prime Days are a strategic issue for anyone selling on Amazon, as the platform sees a massive, temporary surge in traffic. Let’s take a look at how customers reacted to this event, and what the multiplication of Prime Days means for Sellers.
In a statement, Doug Herrington, CEO of Worldwide Amazon Stores, described Prime Big Deal Days as “a strong start to the holiday shopping season, offering Prime members an exclusive early opportunity to save and surpassing our expectations.” He also noted that the event outpaced the previous year’s holiday kickoff event, with more Prime members participating.
Numerator’s report indicates that the average order size during Prime Big Deal Days was $53.47, which was slightly lower than July’s Prime Day sale but higher than last October’s Prime Early Access sale. This could be due to the event being only 3 months after the more anticipated Prime Days in July. Or maybe because Black Friday is only a few weeks away. But even though customers spent less than in July, witnessed a significant surge in website traffic.
Sellers must prepare for these Prime Days and anticipate how strong will be the increase in the demand for their product. Ensuring that their products will be in stock at all times is crucial to not miss out on sales, but overstocking can be costly, especially with increasing storage costs during the holiday season. Alternatively, businesses can take advantage of these events to clear out slow-moving inventory. It’s worth noting that customers hunting for deals tend to have a Prime membership, and tend to be more loyal to Amazon. This gives sellers an opportunity to showcase their products to many potential returning customers.
Numerator also reports that more than half (60%) of Prime Big Deal Days items sold for under $20, while 4% were over $100— the average spend per item was $27.90.
What it Means for Sellers
Now, let’s talk about profitability. These statistics reveal that most items bought were relatively inexpensive, with an average price per item at $17, and many items priced under $15. Sellers already have to pay selling fees, and shipping. On smaller items, shipping fees make up a substantial portion of the sale price.. In addition to the fees, many sellers chose to offer discounts and lower their prices during the Prime Days to boost sales and take advantage of the increased traffic. And because businesses want as many customers as possible to see their products, most of them are also invested in pay-per-click advertising (the cost of advertising tends to increase temporarily, as sellers are competing harder for keywords). You see where I’m going with this – while sales are great, profitability may not always follow for 3rd party sellers.
However, some sellers have profit margins high enough to sustain price cuts while remaining profitable. In other cases, sellers may sell at very low margins, or even at a loss. This can be a deliberate customer acquisition strategy so they will become repeat buyers in the future. If Amazon or Walmart decides to host Prime Days more frequently, this could place even more pressure on sellers to maintain low prices to stay competitive. Customers don’t need to buy a new TV every quarter, but many of them appreciate the opportunity to buy household staples at a discounted price multiple times a year.
Is this a positive or a negative for businesses? I’d say it depends on various factors, mostly their brand identity, customers’ attachment to the brand, and available substitutes. When a customer stays loyal to a brand, and is not influenced by discounts on alternative products, Prime Days can be a great deal for that brand. They see increased traffic and don’t face intense competition, they can more easily maintain healthy profit margins. On the other hand, when customers are less loyal and more price sensitive, brands need to compete harder to gain sales. Businesses can either stay away from Prime Days and potentially miss out on sales, or participate actively but at the cost of much lower profit margins.
Predicting the success of Prime Days can be difficult, as many factors are at play. Amazon is spending tremendous resources to advertise them, businesses must prepare and craft a relevant strategy for their offer and their competitive landscape. Customer behavior is always changing, based on economic conditions and what other major ecommerce players are doing. Only time will tell if these special events will become more frequent in the near future, or if Amazon found the best schedule for the moment.