The Battle of Fulfillment: Fulfillment by Amazon vs. by Merchant

Photo by Super Straho on Unsplash

In the world of e-commerce, Amazon stands tall as a colossus, offering unparalleled reach for businesses of all sizes. For registered brands navigating this digital marketplace behemoth, crucial decisions revolve around fulfillment methods: to fulfill orders with Amazon (FBA), in-house (MFN, commonly known by FBM), or use a combination of the two. There is no right or wrong choice. Rather, three options that might make sense at different moments in your business’s lifetime. Each avenue presents a unique set of advantages and drawbacks that should be leveraged to promote your brand’s success. 

Fulfillment by Amazon (FBA)

Fulfillment by Amazon (FBA) is a service offered by Amazon that allows sellers to store their products in Amazon's fulfillment centers. When a customer places an order for a product, Amazon takes care of picking, packing, shipping, and customer service for those orders. In short, FBA enables sellers to hand over the logistics of order fulfillment to Amazon with its extensive infrastructure and expertise in e-commerce logistics. Below are some of the pros and cons of this service:

Pros:

1. Prime Perks: Amazon Prime has over 200 million paying Prime members. Leveraging FBA allows brands to tap into the perks these customers pay for including free two-day shipping. This significantly enhances product visibility and attractiveness, potentially leading to higher conversion rates.

2. Operational Offloading: Amazon sellers have a lot of things they need to juggle in order to be successful. By entrusting storage, packaging, shipping, and customer service responsibilities to Amazon's vast network of fulfillment centers, brands unburden themselves from logistical headaches. Additionally, the Amazon network facilitates international expansion without requiring brands to establish a physical presence or navigate complex cross-border logistics independently. This allows brands to focus more intently on crucial core business functions like product development, marketing, and sales.

3. Customer Confidence: Amazon's robust customer service and return management under FBA not only instills confidence in buyers but creates a hassle-free return experience for both sellers and their customers. This win-win exchange also fosters positive shopping experiences, bolstering brand reputation and encouraging repeat purchases.

Cons:

1. Fees Accumulation: While FBA streamlines operations, it comes at a cost. Fulfillment fees, storage fees, and other charges can eat into profit margins, particularly for low-margin products or slow-moving inventory. Brands must carefully assess the financial implications to ensure viability.

2. Inventory Control: Amazon is constantly receiving and moving inventory around its fulfillment network. When brands surrender inventory management to Amazon, they relinquish direct control over their stock levels and storage conditions. How the product is packaged, where it is stored, and quality assurance is totally out of the brand’s hands, potentially increasing the risk of a dissatisfied customer. 

3. Dependence Risk: Relying solely on FBA for fulfillment ties the brand's fate closely to Amazon's policies and performance. Any disruptions or policy changes within the Amazon ecosystem could have significant ramifications on the seller if they have not diversified their marketplace.

Fulfillment by Merchant (MFN)

MFN stands for "Merchant Fulfilled Network." It is sometimes known as FBM, or “Fulfilled by Merchant.” MFN or FBM refers to a fulfillment method on Amazon where sellers handle the storage, packaging, and shipping of their own products directly to customers, without utilizing Amazon's fulfillment centers. In other words, sellers fulfill orders from their own facilities (or through third-party logistics providers) rather than relying on Amazon's infrastructure for order fulfillment. Below are some of the pros and cons of this service:

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Pros:

1. Cost Control: MFN empowers brands to retain control over fulfillment processes, potentially leading to some product savings compared to FBA's fee structure. With judicious management of logistics and resources, brands can optimize operations to maximize profitability.

2. Inventory Management: Maintaining control over inventory affords brands greater flexibility and agility in responding to market fluctuations and customer demands. They can adjust stock levels, implement promotions, and customize packaging according to their personal preferences and strategic objectives at a moment’s notice.

3. Brand Control: MFN allows brands to uphold their unique brand identity throughout the fulfillment journey. From packaging design to shipping methods, from customer service to returns, brands can curate cohesive brand experiences that resonate with their target audience, fostering brand loyalty and differentiation.

4. Adaptability: MFN enables brands to experiment with various fulfillment strategies and channels beyond Amazon's ecosystem. This flexibility empowers them to diversify revenue streams (See FBA Con #3), explore alternative marketplaces, or even establish direct-to-consumer channels, reducing dependence on any single platform.

Cons:

1. Shipping Challenges: With MFN, brands bear the responsibility of shipping orders promptly and efficiently. Navigating shipping logistics, particularly for international orders or peak seasons, can pose logistical hurdles and require robust infrastructure and resources. Additionally, Amazon will suspend selling privileges if MFN shipments are consistently confirmed or delivered late. 

2. Prime Exclusivity: By opting for MFN, brands forfeit the inherent advantages associated with Amazon Prime, potentially deterring Prime-centric customers accustomed to expedited shipping and other perks. This could translate to diminished competitiveness and conversion rates, particularly in markets where Prime membership penetration is high. Furthermore, Amazon has a “Vine Review Program” that enables sellers to provide products to pre-approved reviewers, known as Vine Voices, in exchange for honest reviews. This program is only available for FBA products, meaning that MFN brands don’t get the option to enroll in the Vine program to jumpstart listing reviews. 

3. Customer Expectations: In an era of fast-paced e-commerce, meeting customer expectations for swift delivery and seamless service poses a significant challenge for MFN sellers. Any delays or mishaps in fulfillment could result in negative reviews, eroding trust and damaging brand reputation.

4. Scale Limitations: Scaling fulfillment operations under MFN necessitates careful planning and investment in infrastructure and resources. Rapid growth could strain internal capabilities leading to operational inefficiencies, fulfillment delays, or compromised service quality if not managed effectively.

The FBA-MFN Combination 

The FBA and MFN methods are not mutually exclusive and can be used concurrently within the Amazon marketplace. For example, a brand may have one product that it feels is better suited to be fulfilled in-house because of its special carrier shipment needs or fragility, and another that is better suited for FBA with its speedy shipping and off-site storage benefits. Still, another product could have both FBA and MFN shipping options. When this is done, the FBA offer takes priority for buyers. If (or when) the product inventory runs out at the Amazon fulfillment centers, the product listing is automatically flipped to show the MFN offer from the brand. This limits the chance of the brand losing the sale and a customer seeing an “out-of-stock” notification. 

Photo by Erda Estremera on Unsplash

Conclusion

For brands navigating the Amazon marketplace, the choice between FBA and MFN fulfillment (or the decision to set up both FBA and MFN options for products) hinges on a myriad of factors, including operational priorities, financial considerations, and long-term strategic objectives. While FBA offers convenience, global reach, and Prime privileges, it comes with associated fees and dependence risks. On the other hand, MFN provides cost control, brand autonomy, and adaptability but requires meticulous logistics management and may lack the customer allure of Prime benefits.

Ultimately, the optimal fulfillment strategy varies from brand to brand and necessitates a nuanced understanding of business needs, market dynamics, and customer expectations. By weighing the pros and cons of each approach judiciously, brands can chart a course toward sustainable growth and success in the ever-evolving landscape of e-commerce.

If you’re still unsure which option makes the most sense for you, connect with a member of the TripleLine team today.