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Fake reviews have been a yearslong problem in ecommerce to the point that illicit product ratings obtained in exchange for payment have created a marketplace of their own. As this activity became more well-documented over the last several years, Amazon has filed lawsuits to address the issue. Now, the Federal Trade Commission (FTC) is weighing additional action of its own.
According to a news release, the FTC on Thursday voted to open up public comment on a proposed rule that would “combat deceptive or unfair review and endorsement practices.” This would include practices such as fake reviews, suppressing negative reviews and paying for positive reviews.
Following a 3-1 vote, the FTC initiated publication of an Advance Notice of Proposed Rulemaking (ANPR) that seeks public comment on potential harms that such practices cause, as well as whether a rule would help consumers and “create a level playing field for honest marketers.”
“Companies should know by now that fake reviews are illegal, but this scourge persists,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection, in a statement. “We’re exploring whether a rule that would trigger stiff civil penalties for violators would make the market fairer for consumers and honest businesses."
Exploiting ecommerce growth
Fake reviews prey on a key area of the ecommerce shopper experience: The availability of crowdsourced product reviews from people who have used a product. Amazon began including unbiased reviews on product pages in its earliest days, as founder Jeff Bezos argued that providing an authentic viewpoint was a key way that the site could help customers make decisions about a product that they could not otherwise inspect and hold in their hands.
It turned out to be a prescient move. Reviews have since become widely used, and are especially important for smaller brands seeking to build credibility. In a Pew Research study from 2016, roughly eight-in-ten Americans said they consult online ratings and reviews when buying something for the first time.
Ecommerce growth meant more new sites with more reviews. As marketplaces continue to expand, there will likely be more reviews. For instance, Albertsons implemented reviews on its ecommerce stores this year. But the illicit actors realized that it was possible to game the system. They set up incentive structures that paid people to buy a product, and leave a review that wasn’t true.
“The rapid growth of online marketplaces and platforms has made it easier than ever for some companies to create and use fake reviews or endorsements to make themselves look better or their competitors look worse. It can be difficult for anyone—including consumers, competitors, platforms, and researchers—to distinguish real from fake, giving bad actors big incentives to break the law,” the FTC wrote in its press release.
Illicit actors, in turn, have manipulated this process to drive sales. A recent study published in the INFORMS journal Marketing Science found that marketers selling on Amazon, Walmart, Wayfair and other marketplaces purchase fake reviews. The study looked at fake reviews on Amazon, and found that they had an impact on sales and ratings of the brands.
“For the products in our research observed buying fake reviews, roughly half of their reviews were eventually deleted, but the deletions occurred with an average lag of over 100 days, allowing sellers to benefit from the short-term boost in ratings, reviews and sales. Almost none of the sellers purchasing fake reviews were well-known brands,” said Davide Proserpio of the Marshall School of Business at the University of Southern California, a co-author of the study with Sherry He and Brett Hollenbeck of the UCLA Anderson School of Management.
Amazon has taken action to root out the problem. The latest example came at the same time as the FTC meeting on Thursday, as the company announced it filed criminal complaints in Italy and Spain against brokers of fake reviews. The company has filed a total of 10 lawsuits in the US, including one in July targeting Facebook Groups where arrangements for the fake reviews are made, and another in February against two companies that orchestrate fake reviews across multiple marketplaces. It also sent a cease and desist to five websites in Germany that were directing visitors to a fake review broker, and the site operators have since complied.
“Holding bad actors accountable through litigation and criminal referrals is one of many important ways that we protect customers so they can shop with confidence,” said Dharmesh Mehta, Amazon VP of selling partner services, in a statement. “In addition to continuing to advance our robust detection and prevention of fake reviews in our store, Amazon will remain relentless in identifying and enforcing against bad actors that attempt to engage in review abuse.”
The FTC has been sending signals that it would bring more enforcement, as well. In 2021, it issued a warning to marketplaces such as Amazon, Walmart, Target and “an array of large companies, top advertisers, leading retailers, top consumer product companies and major advertising agencies." It aimed to put companies on notice that they could face fines of up to $43,792 per violation if deceptive practices were found to be in use. In January, it took enforcement step against Fashion Nova, ordering the site to pay $4.2 million for suppressing negative customer reviews on its website.
“These practices don’t only harm the consumers who place their trust in fake reviews,” said Khan, in a statement issued at the meeting. “They also pollute the marketplace and put honest businesses at a competitive disadvantage.”
The publication of the advanced notice this week marks an escalation. FTC Chairwoman Lina Khan said the rule “could enable us to obtain civil penalties and return money to consumers injured as a result of deceptive or unfair reviews and endorsements.”
It is expected to be published “shortly,” according to the FTC, and the public will then have 60 days to comment.
A dissenting view
Commissioner Christine S. Wilson opposed the publication, and was the lone dissenting voice on Thursday.
In a statement, Wilson said she “agrees that these practices are unlawful,” but questioned whether additional rulemaking was the best use of FTC resources when it has already made other enforcement tools available, and added that “the harm that results from the deception at issue is speculative in nature.”
“Rather than churning out another proposed rule, perhaps we should stay the course on these initiatives and devote the incremental resources to enforcement in other critical areas,” Wilson said. Wilson called on the commission to pay more attention instead to enforcing the Opioid Addiction Recovery Fraud Prevention Act, which inflicts penalties on bogus treatment programs.
“The opportunity cost of yet another rulemaking should not be understated,” Wilson said.
Here is the complete list of practices that the proposed rule would address:
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Accurate inventory is now essential for Amazon FBA sellers, writes Emplicit's Evan Sherman.
Amazon used to be a lot more laissez faire about how Fulfilled By Amazon (FBA) sellers used their fulfillment centers. Sellers could send in inventory, and, while the space wasn’t unlimited, if their sales were not as forecasted they would simply pay long-term storage fees. Sure, if a seller’s inventory management was poor enough they would have their inventory storage limits reduced and pay higher storage fees, but this was just an incentive not to let things slide too much.
However, in 2022 Amazon reduced storage limits overall to the point where some FBA sellers had sales and catalog size impacted, and in March 2023 Amazon revised their inventory system. There is now an incentive for FBA sellers to be highly accurate with inventory management because Amazon will reward them with increased storage limits. Precision is a carrot now, rather than a stick.
In this article, we provide five strategic methods that sellers can utilize to optimize inventory management on Amazon.
1. Leverage data to anticipate demand, and regularly monitor and adapt
Achieving successful inventory management on Amazon requires a profound understanding of past demand patterns and the capacity to accurately forecast future demand. Seasonality, market trends, historical sales figures, competitor activity and planned promotions all play a crucial role in determining the trajectory of sales.
At Emplicit, we advocate for the analysis of multiple historical data points, encompassing previous 7, 30, 60, and 90-day sales figures. Our logistics experts factor in internal factors such as stock availability, marketing spend, promotions, and sales and margin targets, and external factors such as seasonality, Amazon trends, new category restrictions and market entrants. A comprehensive review of shipments in working, shipped, or receiving status is also beneficial. Striking a balance between what has been sold, what is available, and what's en route to an Amazon fulfillment center is key to precise forecasting.
Inventory management isn’t a static task; it requires constant vigilance and flexibility. FBA sellers should regularly review and modify their demand forecasts, adjust their replenishment suggestions based on demand shifts, and update their minimum reorder points as required.
Sellers should review sales daily, plan replenishment frequencies to suit their needs, and maintain appropriate inventory levels at Amazon. Weekly replenishments can help keep a seller’s inbound pipeline full, minimize out-of-stock instances, and account for unforeseen supply chain disruptions.
2. Prioritize items based on sales and profitability
Amazon’s organic and paid algorithms prioritize products with high sell-through rates. This means best selling products end up selling better. Focusing on high-performing items allows FBA sellers to reduce monthly storage costs, avoid aged inventory and the associated fees that Amazon imposes, and curtail the need for costly removal orders. And sales velocity is the quickest way to get Amazon to increase your storage limits. Concentrate on the 20% of items that generate 80% of sales.
At the same time, sellers should prune their catalogs by removing slow-selling items. These items negatively affect Amazon’s Inventory Performance Index (IPI) score, which directly influences the space Amazon allocates to a seller’s inventory in their fulfillment centers.
If sellers are tight on inventory space, as well as the best-selling products, they should prioritize products with higher margins until Amazon provides additional storage, and they should reduce marketing spend accordingly – something which necessitates a close relationship between inventory and marketing.
Ranking products by sales and margins, and calculating the storage space each product takes up will go a long way towards understanding and anticipating demand on Amazon.
3. Capitalize on Amazon's capacity monitor for space management
Amazon’s capacity management system is a new system for allocating inventory limits to FBA sellers and allowing sellers to gauge their inventory capacity at Amazon’s fulfillment centers. It also enables sellers to bid on increases to their inventory limits.
Previously, Amazon had restock limits which were updated weekly based on the seller’s previous 90-day sales. Restock limits were determined by Inventory Performance Index (IPI) metrics such as sell-through, excess inventory, and stranded inventory. However, because the restock limits were updated weekly, it was challenging to plan accordingly, especially heading into a peak season or if a seller was about to run a promotion.
With Amazon’s Capacity Monitor program, sellers are given a monthly capacity outlook based on the cubic feet of space occupied by their products in Amazon’s fulfillment centers and their IPI metrics. Amazon not only provides a current month outlook on available space; they provide an estimate for the next three months which can aid in the inventory planning process.
To take advantage of the new system, it’s imperative FBA sellers understand their product's physical footprint in relation to the allotted space Amazon provides (Amazon does still provide unit estimates). Knowing a product’s cubic feet and the product tier designation allows for effective planning of inventory replenishment. Exceeding space limits means overage fees from Amazon, however, if a seller knows they have a peak in sales coming up they can bid for additional capacity (in cubic feet). However, selling-through this additional inventory means Amazon waives those fees, so it’s a win-win.
At Emplicit, we have seen the capacity monitor program benefit our clients, with many clients seeing an increase in the amount of inventory they can ship in – likely due to healthy sell-through velocity and other IPI metrics. The program has fundamentally changed the way we approach managing our inventory on Amazon, so everything sellers do regarding inventory planning should be within the context of Amazon’s capacity monitor program.
4. Consider Amazon-specific packaging
Smart sellers should already be considering the impact of their product packaging on their FBA fulfillment fees. If the actual product size allows, sellers can generate significant savings by reducing the size of their packaging. Amazon’s Small Standard rates are 15-20% cheaper than Large Standard rates depending on weight, and Amazon’s Small & Light rates are 15-27% cheaper still than Small Standard rates. However, fulfillment cost savings are not the only reason to reduce packaging size, smaller packaging can significantly increase Amazon inventory cost-efficiencies.
With Amazon’s capacity management system providing inventory space based on cubic feet rather than number of units, the space each product takes up is now more important than ever. While larger packaging sizes can sometimes improve sales in brick and mortar retail, sellers should consider developing smaller Amazon-only packaging. This will not only reduce fulfillment costs, but allow more units to be stored in the same inventory space. The combined savings can more than offset the cost of a redesign and second packaging print run.
Additionally, smaller packaging may qualify sellers for Amazon’s Compact By Design badge. This helps brands stand out, and increases click-throughs and conversions. (We suspect there are algorithm tweaks for brands with certain badges too, but it’s difficult to prove.) Amazon-specific packaging can help with Transparency (anti-counterfeiters) and help combat unauthorized resellers.
While it might seem like a significant investment and not something the inventory team typically gets involved with, reducing packaging size is a long-term way for FBA sellers to optimize inventory management.
5. Ship from China straight into FBA with Amazon Global Logistics
Amazon Global Logistics (AGL) offers a streamlined solution for sellers whose products are manufactured in China. AGL eliminates the need to use freight forwarders who would usually receive a shipment from China, then split up that shipment and forward on to multiple Amazon fulfillment centers per the standard FBA process. Instead, sellers can book shipments directly with Amazon, complete the necessary export/import documentation, and ship directly to US, UK or European fulfillment centers – sending the entire shipment to a single fulfillment center.
If leveraged properly, AGL can save sellers thousands of dollars in warehouse and 3PL fees and reduce the need for inventory to be processed multiple times before it arrives at Amazon’s fulfillment center, meaning inventory gets where it needs to be quicker.
AGL offers two shipping options – Standard Ocean Freight and Fast Ocean Freight – with the standard option giving sellers the opportunity to either ship via a full container load (FCL) or less than container load (LCL). Shipping partial container loads with Amazon doesn’t slow shipments down versus other carriers because of Amazon’s scale. Amazon’s economies of scale mean that AGL can offer shipping prices from mainland China and Hong Kong that most sellers are unable to match. And Amazon’s expert customs brokers get products cleared through customs quickly because Amazon has a vested interest in shortening the time to market.
This one-step international shipping direct to Amazon was actually something we pioneered before the advent of this service from AGL – working with our client Shapermint and their manufacturers in China and logistics team to ensure packaging and shipments were FBA compliant. However, now AGL offers this service, it’s an even easier solution to a common challenge. We suspect AGL will roll out in other international manufacturing markets, but Amazon is tight-lipped for now.
The importance of expert inventory management
Amazon inventory management is complex and needs constant attention. Sellers can hire a fractional inventory specialist because this is not something that should be trusted to an Amazon generalist. If sellers get inventory right, it will keep pace with sales. But if they get it wrong, their inventory can become the main thing holding them back.
Evan Sherman is the director of logistics at Emplicit.