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Amazon Takes on Chinese Peers with New Pricing Strategy

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Amazon.com, Inc. (AMZN - Free Report) is reportedly adopting a new pricing strategy to handle threats from the ePacket program that benefits its competitors like Alibaba Group Holding Limited (BABA - Free Report) , eBay Inc. (EBAY - Free Report) and Wish.com.

According to a report from Bloomberg on Wednesday, Amazon is bringing down the fees that it charges merchants who sell a particular category of items through the company’s Fulfillment By Amazon Small and Light program. 

Amazon’s expansion efforts in China didn’t go as well as it would have liked. This was primarily due to fierce competition from local company, Alibaba. It appears that Amazon has therefore decided to take on Alibaba in a different way.

The Revised Rates

According to Bloomberg’s sources, Amazon will now allow merchants to pay 67% less for three, flat, 1-ounce packages, bringing down the payable amount to $1.61. The revised rate, which takes effect from Jul 1, will cover small, flat items such as mobile phone accessories and stickers that can fit into envelopes.

Small and Light versus ePacket

Fulfillment By Amazon Small and Light, a program introduced last year, offers free shipping for a large number of popular small items. The offer is funded by the charges that Amazon receives from third party merchants for handling, storage, packaging and delivery from fulfillment centers.

The ePacket program, on the other hand, is an agreement between the U.S. Postal Service and China Post that offers China-based merchants a fast and low cost shipping option on small packages and provides cheaper access to U.S. shoppers.

The program is undoubtedly frustrating for U.S. sellers like Amazon who find their hands tied while trying to stay competitive. U.S. sellers often raise their voices against this program claiming that it offers unfair competitive advantage to Chinese merchants.

The recent move appears to be Amazon’s way of lowering costs compared to ePacket so that the Small and Light program becomes more attractive to Chinese sellers.

Expected Advantages

The e-commerce giant recognizes the value of pricing, so that’s what it is offering customers and now suppliers. Lowering costs for China-based merchants will help the company to source goods directly from the country and sell them to the rest of the world especially the U.S. and Europe through its fulfillment centers.

It appears that the company will continue to support this group of merchants and won’t mind incurring losses initially to expand its inventory and get a price advantage over its competitors in the long run.

Currently, Amazon is a Zacks Rank #3 (Hold) stock.  A better-ranked stock in the wider technology sector is CommVault Systems, Inc. (CVLT - Free Report) sporting a Zacks Rank #1 (Strong Buy).

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