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All e-Commerce businesses selling expirable products bear a huge risk.
They must sell such products not just before their expiry dates, but a minimum of x days ahead of it.
The value of x varies based on the local laws and the selling company's policies.
In the case of Amazon, x=50.
Yes, the topical and consumable products listed in Amazon must be ordered at least 50 days ahead of its expiry date. If not ordered by then, the item will not be accounted for in the customer search results.
Assuming the order to delivery time is another 7 to 10 days (in worst cases), Amazon shows a great commitment by delivering the expirable products at least 40 days ahead of its expiry.
There's no doubt that giants like Amazon, Walmart and Target have appropriate AI solutions in place to minimize the supply-demand gap, especially for the expirable products.
They plan well ahead and take proactive measures in stock management, with a laser-focused targeting to sell these products to the right customers at the right time.
However, one cannot guarantee that the supply is always equal to the demand. Hence, these big companies also deal with expired products.
When a product remains unsold until x days before its actual expiry, it is either disposed or returned back to the seller.
Either way, it is a loss for the e-Commerce platform. If it is disposed, they incur a loss for managing the product in the warehouse.
If returned back to the seller, they incur a loss due to the shipping cost (which they may recover from the seller based on the applicable policies).
On the other hand, it is a loss for the seller as well. It is even more painful for a seller to incur a loss on a product that still has x more days to expire.
Though the sellers may find buyers in local stores after the items' return from Amazon, the probability of selling it before expiry is still in question.
In this blog post, we'll see a way how companies like Amazon can drive the sales of products nearing the actual expiry date?
A quick heads-up! This method may require some amendments in the local laws.
Then some readers could ask why was this blog post written, if legal changes are still required.
Well, this solution shared here will justify the sale of expirable items for a certain period even after the x days ahead of its expiry!
It is still up to the e-Commerce companies to evaluate the method shared here, and take it up with the respective governments, for getting the applicable laws amended.
Before we jump into the way, let's define the expirable product and the potential buyers.
The Market
Let's take the example of an eatable product, say cookies.
The potential buyers (with the ability to serve it faster) of cookies could be:
A business (say a hotel, that provides cookies as a complimentary snack)
An individual hosting a party
A hotel with over 100 rooms can serve 1000 cookie packets within a couple of days.
On the other hand, an individual buyer could host a party and serve more cookies to 10s or 100s or even 1000s of guests attending the party.
From Amazon's view, the hotel is a B2B customer, and the individual is a B2C customer. Both have the ability to serve large number of cookie packets in a much shorter time (well ahead of its expiry dates).
These buyers are potentially looking for a bulk-order deal, and can consume the product much faster.
Amazon can sell the cookies nearing expiry dates to these buyers, at least until 10 days ahead of its expiry.
However, transparency is important.
Hence, Amazon must highlight the product expires soon, along with the exact expiry date (in a way it gets the buyers attention mandatorily) when they show the product to the customers.
Now Amazon must also convince these potential buyers why they should order in Amazon?
When they buy outside of Amazon, they simply get a discount for a bulk order.
Here's where the idea of what we call Proportional-Margin Pricing chips in.
The idea is simple. The sellers must set a different pricing for cookies that crosses x days ahead of the expiry date of the item.
They must vary their margin proportionately based on the cookies' nearness to their expiry dates at the time of ordering.
The higher the number of days to expire, the bigger the margin.
Proportional-Margin Pricing - The Math Explained
Let's see how the math behind this idea works with a simple example.
Assume a seller lists a cookie at at $10 per packet, with 50% margin. The cookie's expiry date is 6 months (approx. 180 days) from manufacturing date.
So, the cost price of the cookie is approx. $6.67, and the seller is listing the product to make a profit of $3.33 per sale.
CP + Margin (50% of CP) = $6.67 + $3.33 = $10
Assuming the product takes a month from getting manufactured to arriving at Amazon shelf, the product expires in approx. 150 days.
The product must be sold within 100 days, as per Amazon's policies.
At the end of 100th day, the product must get listed only for specific customers (requiring delivery in the applicable zip codes) with proportional-margin pricing.
The seller can reduce the margin proportionately between the 50th day (say, at 35% margin) and 10th day (say, at 12.5% margin) of expiry.
Then, the cookie packet's price on would be:
$9 when it is 50 days ahead of expiry date
$7 when it is 10 days ahead of expiry date
Let's assume a customer places an order for the cookie 30 days ahead of its expiry. At that time, the proportionate price would be $8, with a margin of $1.33 at 23.75%.
For an even more attractive deal, a bulk-order discount on top of the proportional-margin price, can be given. Example-
5% discount (on the total order amount) for above 100 quantities (or) 10% for orders crossing more than 1000 quantities etc
Note: Assuming a worst case shipping to delivery timeframe, it's good not to list the product for sale even at proportional-margin pricing, when a product is just 10 days ahead of its expiry date.
The Benefits
The gap between the target sale date and actual expiry date of the product is decreased by 80%.
The seller can still make a minimum margin of 12.5% even on the 11th day ahead of the product's expiry date. If bulk-order discount is provided (assuming 10% for orders more than 1000 quantities), the margin is still 11.25%.
The potential buyers can buy products nearing expiry at a less price, and still get it consumed ahead of its expiry. Resource wastage is reduced.
All stakeholders (buyers, sellers and Amazon) are benefitted in a transparent way. No hidden agenda by any of the parties!
No back and forth from Amazon warehouse to seller, and the associated shipping costs.
The Path to Execute
Below is a quick overview of the steps to implement the perspective shared above:
Study the regional law of different locations for the sale of expirable products in e-Commerce platforms
Present this idea to the local governments and justify the sale of products nearing expiry
Whenever laws are amended in a particular region, update the expirable product listing status for the appropriate zip codes
For the appropriate zip codes, remove any maximum quantity restrictions for items that still has x (or less than x) days to expire
Allow sellers to setup proportionate margin (for the allowable zip codes) while listing an expirable product
Promote the advantages to buyers (in applicable zip codes) and to all sellers
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