October 14, 2019
Amazon is stepping up its e-commerce domination with same-day shipping, even for products that cost less than $5, according to analysts at Edgewater Research. Rather than having to combine your “add-on” item to a larger purchase in order to reach a $25 minimum order to qualify for Amazon Prime shipping deals, the company is providing members with free same-day shipping, even if the only item is a $2 roll of dental floss. Amazon’s willingness to lose money on such a model illustrates its desire to compete with stores like CVS, Target and Walmart, where consumers often go for convenient purchases.
While the new approach could lead to additional complaints regarding anticompetitive business practices, it could also help Amazon since laws generally protect companies that offer lower prices.
“Amazon has now essentially removed its ‘add-on’ program and is also starting to place wholesale orders for cheap items it once turned away due to profitability concerns,” reports Vox. “The category of products likely to be most impacted by the changes? Consumer packaged goods — or CPG items — which encompass everything from deodorant to toothpaste to shampoo.”
Consumers commonly make their CPG purchases at supermarkets, pharmacies, and chains such as CVS, Rite Aid, Target, Walgreens and Walmart.
While selling low-cost items has sometimes been challenging for Amazon, “the combination of these changes, coupled with Amazon recently speeding up Prime shipping from two days to one, means that Amazon could become the go-to retailer for a category of regularly consumed household items that it has yet to deeply penetrate.”
The new model will likely be welcomed by Prime members and numerous brands, but should be of concern for many retailers. It should also cause some to ask whether or not this approach will be viable as a long-term strategy.
“It’s been great for the manufacturers; they’re experiencing sales growth,” said Andrea Leigh, a former Amazon exec and current VP at Ideoclick. “But I want to warn them all not to get too comfortable. In six months, Amazon is going to come back to you asking for money and could hold the brand hostage.”