Target's discount error causes Amazon sellers to lose buy box during Prime Day.

• CNBC interviewed Amazon sellers who claimed they were penalized by the company after its pricing algorithms discovered their products were being sold at a lower price on Target's online marketplace.
• Amazon's Prime Day is next week, and Target is running a competing discount event that ends on Saturday.
• Amazon's pricing algorithms have been the focus of an FTC lawsuit.

During 's weeklong deals event, Brandon Fishman offered a discount on his vitamin-infused coffee. Despite his concerns about the impact on his business, he didn't anticipate his sales falling off a cliff.

Fishman was in for a surprise as Amazon's automated systems detected his bag of VitaCup coffee was available at Target for $13.43, $1.50 cheaper than his listing on Amazon.com.

Amazon's core principle is to provide "the lowest prices on Earth's largest selection." It is the responsibility of Amazon merchants to uphold this promise. If a merchant sells their items at a lower price on a competitor's website, they risk losing valuable virtual real estate in e-commerce, specifically the buy box. The buy box is the first listing that appears when a visitor clicks on a product and the one that is purchased when a shopper taps "Add to Cart."

Despite being the owner of the VitaCup brand, Fishman admitted that he lost the buy box to a reseller of his coffee products.

Since the Target issue caused me to lose the buy box all week, my sales on Amazon decreased significantly, as stated by Fishman, who has been selling VitaCup coffee on Amazon since 2017 and generates approximately $20 million in annual sales on the platform.

Amazon has long employed algorithms that scan the internet to match or beat the prices of products listed elsewhere. Similarly, other marketplaces, including , utilize such systems to provide the cheapest prices.

The FTC has accused Amazon of employing an "anti-discounting strategy" and a "massive web-crawling apparatus" to stifle competition, which has drawn scrutiny from lawmakers and regulators.

The FTC's claims have been rejected by the company, stating that the pricing tool is essential for conducting good business.

As any store owner wouldn't want to advertise a poor deal to their customers, we don't showcase or advertise deals that are not fairly priced, wrote David Zapolsky, Amazon's general counsel, in a blog post following the lawsuit. Additionally, Amazon has stated that third-party sellers set their own prices.

An Amazon spokesperson declined to comment on the concerns raised by sellers.

The importance of the buy box

In 2015, Amazon introduced Prime Day as a way to entice new subscribers to its $139-yearly program while highlighting its own products, particularly electronic devices and services. This promotional event has since become a significant source of revenue for other retailers, who frequently hold competing sales events coinciding with Prime Day.

According to a note to clients on Friday, JPMorgan analysts predict that total revenue for Prime Day, which begins on Tuesday, will be $7.9 billion this year, representing an 11% increase from 2023.

Amazon's bargain bonanza, known as Circle Week, began on July 7 with Target running discounts across its site.

Fishman and other sellers faced issues due to a change in Target's promotion of deals during Circle Week. Previously, the company would display the discount percentage off the regular price to prevent triggering Amazon's pricing algorithms, according to Fishman.

This year, Target displayed the actual sale price of the item instead of listing it as 25% off, which caused Fishman to lose the buy box because it was indexed by Amazon's pricing algorithms.

The buy box button is crucial for a seller's success on Amazon, as it allows shoppers to quickly and easily purchase their product without having to navigate to a separate window. According to the FTC, nearly 98% of sales made on Amazon occur through the buy box button.

Mason Arnold's experience last week was similar to Fishman's.

Due to the launch of Target's Circle Week, Arnold's sales of Sunwink herbal tonics and powders on Amazon decreased significantly as he lost the buy box to resellers.

To regain the Amazon buy box, we must reduce our Amazon prices, according to Arnold.

Sunwink reduced the price of one of its products from $23 to $19, resulting in an increase in sales. However, Arnold is uncertain if he will be able to make a profit at this price point. Amazon retail is already a low-margin business due to intense competition for pricing, as well as the costs associated with fulfillment, advertising, and other services.

"We reduced our prices, resulting in a loss of money until it is resolved," Arnold stated. "The total amount of losses is uncertain, but it is at least hundreds of thousands of dollars for us," he added.

Some resellers purchase Arnold's products from offline discount retailers and sell them at a higher price on Amazon, causing him to compete with his own brand.

Fishman stated that he and other sellers in his network raised their concerns to Target, which subsequently modified the Circle Week discounts on certain listings to display "See price in cart," requiring shoppers to add the product to their cart to view the price. Fishman noted that this change circumvented Amazon's pricing algorithms.

Target disputed the claim and declined to comment further.

Amazon's e-commerce business is heavily reliant on third-party sellers, with Arnold and Fishman being among the most significant contributors. Since 2017, these sellers have accounted for at least half of all goods sold on the site, and in the first quarter of this year, their share increased to 61%.

Fishman claims that the company's swift punishment of sellers hinders their ability to earn a living, ultimately suppressing competition.

"Fishman stated that their main objective is to always offer the lowest price. However, as a brand, he believes that if he wants to have a sale on Target for a week, he should be allowed to do so, rather than being on sale everywhere."

WATCH: Amazon is playing catch-up when it comes to AI