December 27, 2023

$19.99 on Your Website, or $15.99 on Amazon? Same Product

Time for a little bit of marketing theory for you.

I won't mention the brand name here ... I'll get all sorts of emails filled with theory and none with reality if I do.

However, this brand sells replacement accessories.

  • $19.99 on their own website, with 10% off if you sign up for email marketing campaigns.
  • $15.99 on Amazon for the exact same product.
Think about the tax you have to pay Amazon for access to "their" customer. That tax eats into the $15.99 selling price, correct?

Let's assume that the cost of goods is $5.00. This means you might make $15 selling the item on your website, or you might make $6 selling the item on Amazon ... you give up margin dollars by selling for a cheaper price on Amazon and you give up margin dollars for the tax that allows you access to Amazon customers.

But you have to purchase the bags, regardless. So technically you don't need "access" to Amazon customers. Right?

We make tradeoffs every day. We seem pre-disposed to pay third parties taxes. Next time you are faced with yet another tax to a third party, ask yourself why you are paying the tax? Have a good reason, ok?

P.S.: This is an old-school story from 2001. I'm VP of Database Marketing at Nordstrom. Two members of my team are traveling with me to the "Catalog Conference" ... yeah, that used to be a thing. We'd meet with other brands, discussing how we were going to rent/exchange names with each other. In other words, we were granting access to our customers ... oftentimes for a tax.

The soul-breaking moment in this process was a meeting myself and two of my Managers were having with L.L. Bean. These meetings were occasionally (often) held in hotel rooms. My managers and I enter room 1433 or whatever room the meeting was in and we were greeted by thirteen individuals ... three from L.L. Bean and ten others ... list representatives from L.L. Bean and Nordstrom. To recap.
  • 3 Employees from L.L. Bean.
  • 3 Employees from Nordstrom.
  • 10 Individuals representing the list brands that represented L.L. Bean and Nordstrom.

These are the moments you realize that taxes are in play. We were spending money, and that money was trickling through the ecosystem. Of course, that was old-school cataloging ... those meetings were "disrupted" by the co-op model of everybody dumping names/addresses into a common pool and then bellying up to the bar to take whatever you wanted at $0.06 a pop. And that business model was "disrupted" by Google/Facebook ... two brands collecting an awful lot of tax revenue still, in 2023.

Tax dollars have to provide a disproportionate return on investment. I once had a CFO who questioned a line item in my budget where I was paying a list brand more than a million dollars. He wanted to know what he got in return for that investment? Good question! I showed him a five-year forecast of where our brand would head if we didn't make that investment, and that was the last time the line item was questioned. If you have to pay taxes, pay them in cases where you make a disproportionate return on tax ("ROT").

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