By Martin Heubel, Founder and Director of Consulterce, a strategy consultancy for B2C Household & CPG brands.
Fulfilment costs are one of the biggest headwinds to Amazon’s profit margin. That’s because most brands sell their products in packaging designed for the offline channel on Amazon.
The problem is that these products often come in larger than required packaging formats, as the size is meant to appeal to in-store shoppers.
So to incentivise vendors to optimise their packaging, Amazon introduced a programme called SIOC back in 2008.
SIOC is a packaging certification standard and stands for ‘Ships In Own Container’. In other words, it describes a type of packaging that Amazon does not have to overpack with a cardboard box.
The benefits of SIOC are:
- The item is shipped in its own box
- Less packaging material is needed
- SIOC products use less storage space
- More items fit on a pallet, truck, container, etc.
Since 2019, Amazon charges a hefty penalty if 1P brands ship heavy or bulky items in non-SIOC packaging.
So the question many vendors are asking is:
How much is SIOC worth to Amazon?
But as so often with Amazon, the answer is not so straightforward. After all, the SIOC savings potential depends on many factors, such as the current packaging and portfolio mix.
If a product was previously delivered in inefficient packaging sizes, the savings rate for Amazon is higher than if the product was already delivered in smaller packaging but never SIOC-certified.
Yet, that isn’t helpful to answer our question.
The good news is that Amazon itself provides us with a good approach to solving it:
Through its penalty fees.
Non-sortable items incur a chargeback of €1.70/£1.50/$1.99 per unit if they are not SIOC certified.
And if we put these charges in relation to the item’s Average Selling Price (ASP), we can find the estimated margin savings from SIOC for Amazon.
For example, if an item has an ASP of $20 and is SIOC certified, we can estimate that the margin savings through optimised handling and shipping fees for Amazon is $1.99 / $20 = 9.95%.
Not a small number.
So if you want to improve Amazon’s profitability, while saving costs through more efficient packing dimensions and storage costs…
…SIOC is an effective but often overlooked starting point.
For further insight and support, contact Martin Heubel here
