Podcast transcript
Introduction
Welcome to another live episode of Marketplace Masters. This episode is brought to you by MerchantSpring, the leading Marketplace analytics platform for Amazon vendors and the agencies that support them for more information, visit https://vendorcentral.merchantspring.io/vendor-central-analytics.
Marketplace Masters is all about going deeper into the challenges that Amazon vendors face to lift performance via practical actions and insights
Paul Sonneveld
Hi and welcome. I'm your host Paul Sonneveld and today we're going to learn how you as a vendor can prepare for the current round of Amazon Vendor Negotiations. Really to achieve strong commercial outcomes in 2023. You know, not far away.
To help us do this, I have invited Martin Heubel. He's been on our podcast before and certainly one of the most renowned experts in this area, too. Come and join his expertise.
Let me just do him the courtesy of introducing him. For those of you that haven't met him yet, Martin founded Consulterce to help BTC Household and CPG Brands reliably increase their 1P vendor profits with Amazon.
Prior to Consulterce, he had an extensive career with Amazon in Europe. So, it really brings a broad range of experience to the conversation today. Thank you for being on the show and joining us again today, Martin.
Martin Heubel
Thanks, Paul, for having me back and obviously excited to get this kicked off. I think everyone is probably right now in their preparation phase or even have started to negotiate with Amazon. So, I think the timing is very exciting for all of us and obviously also thanks for everyone joining in a busy time as in Q4.
Paul Sonneveld
Now it's certainly a very topical thing. I know we're all busy. You know, trading Q4 but, a lot of us are about to be hit with Vendor Negotiations or already in the middle of it. So, we really need to start shifting our mindset into that space in order to set ourselves up for success.
I know we've had overwhelming registration for this. This is probably a record number. In terms of registrations, I think we're looking across different platforms, close to 300 people have signed up, and we've already had people send in questions, as well, which will get onto the end of this session. But I just want to remind those that are watching live, whether it be Facebook, LinkedIn or YouTube, make sure you send us your questions as well through the comment field and we will try and I always say, do our best because we always fail miserably but we will try very hard to get to as many questions as possible.
All right. Well, without further ado, will be great just to set the scene a little bit here around the Vendor Negotiations. Maybe two quick questions to get yourself Martin. You know, one for those of us that are not in the thick of this Vendor Negotiations piece, maybe just lay out a little bit in terms of what's happening in terms of time frames and cycles right now. And secondly, what are some of the differences you know at a high level, and we'll get on to the Amazon Vendor Manager Targets in a sec. But just conceptually you know what's different this year versus perhaps last year. Let's kick this off there.
Martin Heubel
Great. I mean, look overall annual Vendor Negotiations are exactly what the name entails they’re Iterative Negotiations. Cook that Target the commercial set up between vendors and Amazon and for that typically, either Vendor Manager will reach out to you, or you will have received an email from Amazon that asks you to kind of renew the terms and to amend them respectively.
Amazon is doing that at an annual level typically for Hardlines Brands. So, Brands had set into categories like toys or for example also consumer electronics. They started follow the calendar year. So, starting in early January whereas the negotiation cycle for consumer goods vendors is starting a little bit earlier typically in the middle of Q4 right when everyone is also very much busy around their planning around Black Friday and Cyber Monday simply because Amazon wants to forward these discussions as early as possible.
Also, because they're at least in Europe, some kind of legal implications in order to conclude the negotiations, by the end of February. For example, in France, and some vendors also fall on the G scope with Amazon, especially in grocery categories. So, they're kind of moving that forward as much as possible, you know, to expedite also the progress of these negotiations.
The annual Vendor Negotiation or as Amazon calls them in short, AVN. It's really targeting the profitability set up with any kind of given brand, so they're looking at your cost price set up with them, their operational set up around supply chain, but also the trading terms that you're having in place. So, infamously known automated marketing, retail merchandising all of that.
Typically, it excludes anything that is related to Amazon Advertising simply because Amazon divides that into two different kind of PNLS with different set of account managers and also carves out the joint business planning process here and has them separately across teams.
To your second question. Paul, what is different as compared to maybe also in the previous years throughout the AVN, I think it goes without saying that we are finding ourselves in a very much different macroeconomic environment as compared to in 2020 and 2021.
So, we see that Vendor Managers on Amazon side are significantly under pressure to recover the costs of places specifically the inflation unfolding that also materialize across the entire value of supply chain. So, across warehousing, labor fuel, but also transportation. And we've seen that unfolding already for the 3P side of things. When Amazon pushed, especially in the US.
FBA prices up by 5%, and we can expect that Vendor Managers are kind of tasked to recover this cost increase that they've incurred internally for all of these aspects as well with vendors this year.
Paul Sonneveld
Yeah, that brings us really to that sort of next topic, on from here. Vendor Managers, you know, I'm trying to put myself in their shoes and not very good. I mean, I think you're much better at having you know, being in these types of roles before. But this year, looking at the targets they are going after they are looking to deliver, they're looking to achieve success internally. What do you see? What's on their agenda for this year? And, you know, when I say this year, I'm talking 2023, next 12 months.
Martin Heubel
It's an interesting one. Because what we've seen over the past two years is that availability was the core focus of Amazon. Right now, it is shifted more towards the profitability side of things. Again, in a landscape where Shopper demand is actually decelerating. Now, that creates kind of a very interesting dynamic because on the one hand you have Vendor Managers that are increasingly focused on improving their margin, also called net PPM and wanting vendors to either lower cost prices for that or increase the back-end terms in order to achieve that.
Now, the flip side more and more vendors are concerned about the removal of growth on the Amazon account that they have seen over the past three years simply because we do not see the effect of COVID anymore as much and shop at amount is more normalizing towards levels that we've also expected already a little bit earlier onwards in the year unfolding towards the end of 2022.
Now going into the next year, what we will see is that of course inflation is not going to go away anytime soon. Customers will look to purchase ASP products or products with a lower average selling price and also value products in order to really cut down their own costs. Because of course, they're disposable income is not growing necessarily either.
So I think the narrative enter the types of negotiations with Amazon is shifting towards a very interesting dynamic as in Amazon, not being able to deliver on their growth ambitions against which a lot of brands have invested over the past 12 months, which can also empower brands to really position themselves. A little bit different this year on how they challenge existing Investments against which they may have even increased their investment exposure of the last year.
To really say that look, we'll have to holistically reassess, which Investments drive a revenue attributable, growth uplift, and where do we also see a data driven of argument that we have to invest into it going forward. And of course, Brands can make these arguments also towards the internal counterparts, much more easily if they have the data to really inform their positions.
Now if a Vendor Manager comes around the corner and believe me, they will and asks you for an improvement of 2%, 3%, in an automated marketing or retail merchandising buckets or what they call often discretionary marketing. This will not necessarily go well down with brand simply because they do not get any concise data reports that they enable them to really show their internal stakeholders that, okay, this money is well spent here, or we should even increase our investment exposure.
The decelerating shopper demand of the flipside, also, empowers brands to bring on all of these investments that they're making, but where they do not see any kind of return from Amazon, in the case of a value exchange, meaning, all of your media spent, all of Your traffic.
So if you're, for example, shifting traffic from your own website, towards Amazon order to drive product detail page views and your conversions on Amazon itself. Or if you're also optimizing processes, which enhance the efficiency of Amazon, then these are all things that Brands bring to the table for which Amazon is not giving you any value in return. And I think in an overall situation where Amazon is not able to organically drive more growth for you and leveraging your media spent and all of the other things that you're doing in order to drive growth with Amazon is a very powerful position you can bring on to the negotiation table and you should leverage from commercial standpoint as well.
In the sense of media spent, we know that Vendor Managers always say okay look this is not part of my PNL, the sits with my advertising counterparts and while that may be true you are still able with advertising Investments to really understand that for each U.S. dollar invested, you get four, five, six US dollars in return and growth from Amazon.
Now, you cannot make the same kind of calculation because of the absence of data with your other retail investment such as automated marketing, discretionary marketing and so on. And so brand should really feel empowered to leverage their positioning here that they need to increase in then desperate exposure into the buckets where they get a data-driven kind of LI from whereas reducing the exposure, where they from Investments, where they do not get that in return from Amazon.
Paul Sonneveld
And can I just ask I mean, that sounds an environment where the top line growth is hard to come by you know, obviously paid advertising is a much more measurable way to spend those dollars and still continue to plug that top line. Obviously, that money doesn't flow into the Vendor Manager PNL in a lot of instances.
The argument that you play is a very rational argument here, but you know how receptive is speaking from in there being an ex-retailer myself, not on the Amazon side, but you know, more on the physical bricks and mortar world. How receptive are Vendor Managers to these arguments can offer, logic arguments, data-driven arguments. What's your experience in that?
Martin Heubel
Yeah, it's a very good point, because your Vendor Manager will not follow this argument by default, because they're in centered primarily to of course, grow the category, not necessarily a single brand and to improve profitability and efficiency through better operation. So, the implementation of supply chain efficiencies, for example. And that is all good and fine, right? But I think, if they are pitching to you as a brand to decelerate your promotional Investments, your advertising investment and to rather introduce profitability enhancing mechanism.
So to shift these investments into their net PPM then that leaves you with a business that is not going to grow going forward. And that is also not unfolding very effectively for Amazon because after all I mean, you're not going to be able to kind of maintain your category share within Amazon as well. So overall their category margin may decline to.
So, I think the key that I'm recommending brands in terms of the narrative, is to very clearly highlight to their Vendor Manager that look, we’re spending a million next year in Amazon advertising across different markets. And while we acknowledge that this doesn't sit in your PNL bucket, it's still indirectly drives your growth but also your bottom line in the form of your net PPM.
A lot of brands have very successfully worked with Amazon in the past and now going forward as well in a way on utilizing the annual negotiations to kind of fix a percentage of their media spent against products that are strategically relevant for Amazon. So also drive growth, but also drive their net PPM, but also still profitable for the brand.
So, if you define and identify these products, and you agree with your Vendor Manager to spend a certain percentage of your total media advertising spend for next year against these, you can reliably show to your Vendor Manager how you're able to not only improve growth on the account, but how you're also able to drive the portfolio mix in a way that it is, at least stabilizing or even positively influencing the margin performance.
So net PPM at account level and enables you to also exit these dreadful discussions where you always have just a negotiation around investing more against investment pillars that do not really make sense, especially in times, where we have an inflationary environment costs are going up and every company.
So every brand and supplier brand and it will also need to question where they invest more money against it. And of course, in the case of Amazon is very easy, more, most of the times, at least to increase your advertising spend, because you have clear and concise data, and you can also improve the LI from that whereas any kind of the retail Investments that your Vendor Manager will pitch to you are really unfolding very effectively in terms of growth and are mostly just well marketed in order to support Amazon's bottom line.
Paul Sonneveld
Yeah so really as a vendor you trying to make a case to the Vendor Managers say look, growth is going to be hard, let me spend my money. I'm going to look after you. I'm going to make sure that your net PPM is going to work out but there's a little bit of like trust me on this. I can't give you the money directly. I'm going to take care of it and I'm going to try and help you achieve your objectives that way.
Martin Heubel
Well yes. And this is why I always encourage brands to really follow a data-driven approach because quite frankly, So, you will see that if you had, for example, any kind of cost increases over the past that your average selling price has improved as well, and thereby had also a positive impact on your net PPM in the first place.
And I think Vendor Managers are very good within Amazon, to forget, the kind of trajectory of their ASP of their margin on your account and ask you still for more and more money up until the point, where it becomes very unrealistic for you to invest more.
So, I think it's very crucial for brands to really understand okay, do they really find themselves in decelerating margin performance environment with Amazon, or have they actually done a very good job of the last one, two or three years to actually improve their margin position with Amazon, to also kind of equip them with the arguments to say, look going forward, we'll have to optimize our spent it to retail and we rather have to work a little bit more smartly and more effectively. In the way we kind of allocate our promotional spend but also our advertising spent.
Paul Sonneveld
Yeah. So, in this environment where revenues hardened and there's a big focus on profit, sort of putting the advertising part to the side for a second. Are there things so if a Vendor Manager does want to improve their profit margin by 100 basis points they're looking for me to invest more in their business. Are there other things than growth that in this particular environment, I should be asking for, or I should at least consider, what other things are worth trading off if growth is not necessarily kind of directly available via the Vendor Manager?
Martin Heubel
So, it depends a little bit on the individual product categories that you were sitting in as a brand. But of course, there are certain investments into Amazon retail that can return a certain growth for consumer goods brands. This is typically subscribe and save. So if you do not while you are not invested into that right now then it's always a good starting point to look at getting a subscription for this.
If you're sitting outside of consumer goods categories, where you also do not have really replenishable products, I would always recommend to ask proactively for things like it's format options, so that customers can kind of access your products, especially the higher average selling price products about 50 to 100 US dollars or Euro or British pounds at a much more affordable rates that they can actually split the costs across for example, 12 months at a zero APR so they don't basically pay interest on it and you at the same time lower so to say, your entry barrier for these and Shoppers to access your more premium range.
You can also ask for things like Mutual strategy to actually work on your exclusive selection to get additional visibility for them. This can be deals and promotions page, with Amazon where your Vendor Manager can kind of pin these items without showing any kind of price discount. Or by also utilizing things like a brand week where your account gets more prominently shown throughout a certain time periods outside of the key promotional periods of Q4 or a prime for example.
Paul Sonneveld
As you were talking this really reminds me of the negotiation scores I personally did myself a couple of years ago where one of the instructors kind of recommendation was always like, Make sure you've got a really long list of all these small, little things that are maybe easy gives. But you know, you just keep asking for them and you may get quite a few of them, particularly this environment.
So I think even the ones that you spoke out there, I think there’s at least six or seven there that are, worth asking for or trying to make a case for which actually, you know, gets us into more sort of general negotiations principles, right? So there is kind of the current environment, but there's also kind of General I call it match Fitness, you know, How do we get ready? How do we re-energize ourselves again? How do we get ready to do to battle? Maybe sounds a little bit too high.
Martin Heubel
Yeah, absolutely.
Paul Sonneveld
Can you just take us through? You know what you see, I know you spent a lot of time with clients on this but what are those core principles for Success here? You know what really makes a difference when it comes to negotiating with Amazon and the Vendor Manager?
Martin Heubel
Yeah, I think there are a couple of principles specifically from the starting point of the kickoff meeting. When you really come together with your Vendor Manager and they kind of review together with you their previous or past year's performance.
And then also table the kind of proposal and trade terms ask them towards you. I mean, what we can always expect them to do and this is what they are famously known for is that they will bring lots of data in order to present their ask in order to present their overall story on why your account needs more investment in the one or other direction.
In order to really understand whether this makes sense or whether they're just kind of misinterpreting your data, it is very important that you also adopt a data-driven approach yourself, so you should certainly spend an extensive amount of time to prepare your annual terms negotiations with Amazon yourself.
Ask yourself, how has the growth actually unfolded over the last? Yeah, eight, nine, eleven months with Amazon since you concluded your joint business planning approach. Have they kept their promises when it comes to actually the participation and major deal events and have they actually work with you through the growth initiatives that they were promising with you to work on in order to achieve your growth ambition that against which you have invested in the first place.
And for that, you will also need to take a look at how for example, your promotional spend to run price promotions as unfolded. Has it actually made a major difference compared to the previous years that you invested more into it. Or if you're, for example, invested already against things like an installment plan or as subscribe and save is that actually returning your investment in a feasible way.
So, bring your own data, create your own data story. And also make sure that you presented to Amazon already in the kickoff meeting to kind of anchor their minds on where you are willing to invest and where you are, also not willing to invest to increase your exposure towards Investments even further.
And then I think what we always need to be clear on is that their employees, their Vendor Managers are trained to pressure so they will always come around the corner with a big ass for surprise request. It all to kind of get you a little bit out of your comfort zone and to also anchor you from the mindset perspective towards their best-case scenario.
And here it is very important that you also just like sit back, you are not shocked, you fix all of the issues up front before you kind of ensure that you’re entertaining any investment ass and you also ask back. So if anything is unclear or Amazon is not bringing forward the right kind of data for you to make a proper investment evaluation then, request that be very clear on what you require from them in order to evaluate the trade term investments that they are proposing.
And also do not feel pressured or rushed to agree because of course they want to quickly close the negotiation with you with as few and as little contact points as possible, which is why they will also default often towards an email approach where they just email you a new kind of terms proposal and ask you look just evaluate that. But they will not necessarily answer all of your questions that you've had.
And if you're still unclear on certain Investments, pushback feel empowered to also aspect for the data that you need, and if they cannot give them to you, there would always also caution against increasing your investments in these buckets and rather kind of find creative ways to push that into something, like, a volume incentive rebate which can tear against different grow thresholds, which ensures that you are not investing just against the growth ambition, but Amazon has no incentive to actually work with you on that growth ambition.
Paul Sonneveld
That sounds great refreshes there Martin. I think we can probably do more detailed topic on each of those. But you know, the key takeaways there I've got it's all about preparation, get your data, get your story, get your own Playbook and stay communicated.
Martin Heubel
Communicate it to Amazon and anchor them yourself. So if you if you really want to put it to the test, whatever Amazon is famously known for doing, anchoring you very high. This is why you often see an 800 basis points improvement year over year in terms Investments, you should almost do the opposite, you should anchor them very low. So you should bring the best case scenario from your side into the mix highlight to them. Your desired cost increases highlight from your side where you would like to reduce your investment exposure and also show them where you would be willing to move on.
So that both fronts are pretty clear from the get-go, but you're not giving away anything in the beginning and you're not and this is quite key already finding yourself in possible scenario where you kind of revealing what you're willing to invest and what your end scenario would look like.
So the Iterative approach in the negotiation is by design, and it's also wanted by Amazon. So do not think that you can skip this kind of Iterative approach by just like having a good relationship with your Vendor Manager. Because at the end of the day, they have transactional goals to achieve, and they will also move heaven and earth in order to achieve the internal targets.
Paul Sonneveld
Yeah. It's good reminder. You mentioned cost price increases is part of your broader strategy actually want to touch on that specifically because many vendors are probably facing the largest inflationary pressures they have seen perhaps in their careers and certainly we in their dealings with Amazon. I would suspect.
So that's I think a very pressing topic. How do you think about it? How do you think about working through managing and ideally getting cost price increases through with Amazon in this current climate and environment. I mean, big question, lots of topics, but probably on everyone's mind right now.
Martin Heubel
Yeah, for sure. And we've seen that over the past year already, that's a lot of brands have to give like two or three cost increases towards Amazon or pass it to Amazon. And we expect that to move forward, also, with the rising cost that we see. Generally speaking, the fewer cost increases you can pass on to Amazon, obviously the better because you know that each individual negotiation about the cost increase will last for several weeks. So you do not want to find yourself almost in every quarter in a cost negotiation with them.
Secondly, I think if you can make it part of your annual Vendor Negotiation, then that's always the kind of best approach. Because then also, your Vendor Manager that sits on the other side can holistically evaluate your account. Can also take a look at Okay. How is the margin trajectory been on your account in the past? Have you had any success in translating these cost increases into the market segments because they've seen also that the average selling price trajectory at account level is unfolding positively when they compared it over year.
Now, when we talk about cost increases, we need to factor in two things. Amazon typically holds fewer stocks or weeks of coverage of inventory as compared to most other retailers and be there are price follower. Meaning, they're kind of matching the prices of other sellers, but also other retailers in your market.
And if you are following an approach where you pass on the cost increase at the same time, as with all of your other retailers to Amazon, then oftentimes Amazon will be affected the first by the any of these cost increases meaning your other retailers, may have inventory of up to six months bought at the old cost price and thereby are able to also reflect the old price towards end customers because they have the right kind of margin from an inventory perspective, various Amazon because they have repurchased newer or fresher inventory at the updated cost price will still match the other retailers at the lower end shopper price but already have incurred these cost increases.
So, whenever you are like proposing to increase your cost prices with Amazon, make sure that A, you’re taking a look at how has your ASP trajectory been in the past or is it actually a mechanism for you to simply call back the module that Amazon has incurred already over the past few months.
When you're pushing through a cost increase, and if that is not the case, then you'll need to come up with a good storyline on how your softening the margin impact. The negative margin impact that Amazon Vendor Manager can expect from the cost increase. And here again it is you can become as creative as you want. Some companies work with a CPI trade back so basically give Amazon a certain budget or monetary incentive in order to improve their cost prices.
Other brands are working with enabling Amazon to place a larger bulk order prior to the cost increase date to enable Amazon, to stock up their portfolio at the old cost price. And this is typically something where you can sometimes use a little mix of both of them. But if you feel that you have, literally, no space to move into the one or the other direction, of course, you may just enforce a cost increase on Amazon but then you also need to evaluate the risk that stands against that of certain items becoming unprofitable. And thereby Amazon may be having the discretion to delist them at least on a temporary node up until they see that the market segment is adapting to these updated cost prices as well.
Paul Sonneveld
I was going to ask you about both buyers in the interplay and whether there's an appetite on Amazon's part to sort of buy up on the lower-priced inventory, in order to I guess get the benefit of an increased retail price hopefully an increased margin for amount of time. Sometimes there can be quite a powerful incentive. Is that common across most categories or is it really done on an exception basis?
Martin Heubel
It is done by default and it's part of the Playbook of Vendor Managers and also AVS Brand Specialists, they called internally an opportunity by to purchase the at the old cost, sometimes they will do that even without notifying your operational teams and you will see that they have stocked up already and placed larger orders than usual right before the cost increase date. So, it's important that you monitor that and that you make, that also part of an active discussion with your Vendor Manager whenever it comes to a CPI discussion.
And again, try to kind of consolidate these as much as possible. If you can make them part of your annual Vendor Negotiation. And then you also see that there will be more flexibility to kind of push, or at least stage these cost increases into more reasonable request from Amazon in return.
Paul Sonneveld
Yeah, it makes sense. I'm just looking at the clock over well, over the half an hour mark, but we've got some questions that are starting to flow in and actually has a few relating to this particular topic. So I might just throw them up here. We've got the first one here from Lucas it's a long one. “I know RRP is a sensitive topic within Amazon, especially vendor. However, is there anything you can do as a Vendor to increase the price, especially when it pressures, the cost price?...” I'll skip the rest. Clearly, retail pricing is Amazon's domain right? and there's some really strict guidance around that, depending on the regulatory environment that you operate in. However, what leaves do you have as a vendor?
Martin Heubel
Yeah. As always, this really critical to look at your distribution setup. Amazon can be understood as a mirror of your distribution strategy. So whomever you grant certain, park discounts, whether this is offline retailers or offline distributors, or wholesalers that are themselves sellers or vendors to Amazon. They will pass a majority of this discount in exchange for this bulk purchase towards the end Shopper.
So oftentimes, the optimization of your actual Market segment prices, if you want to call it like that, starts off site the Amazon account. So you really need to get a grip on your distribution strategy and educate your customer, or your client in that sense that they're the kind of holistic cross channel strategy also outside of Amazon, may have a severe impact on the kind of levels that they will see Amazon reflecting in terms of the end shopper price.
Of course, pricing is always at the prerogative of the retailer but we know that Amazon is a self-proclaimed price follower. You can see that on their website. They highlight that at several different subpages as well. So we need to treat it as such.
You can certainly try to offer exclusive or certain bundles that drive a better unique selling proposition towards the end customer and then Amazon may also not decide to follow the price point that other retailers have for less comparable kind of items. But you will need to kind of differentiate your product portfolio in the short term and probably then also look at your current distribution setup and see where the kind of leaks among your distribution channels are that drive down your shopper prices so much.
Paul Sonneveld
Yeah. Great. I have another tricky one here. This was sent in early to us. “How do you get cost price increases over the line by also avoiding bridging gaps in funding” due to that price matching that you just spoke about.
Martin Heubel
Yeah, I mean in general, the easiest way to push through a cost increases to delayed slightly with Amazon. And I know this is often not what brands would like to hear so you can actually offer to again grant Amazon bulk by offer right before the cost increase deadline is approaching Now, if they're tapping into that, then great, they can stock up at the old cost price for two to four weeks. For example, it depends a little bit on what you are average performances of translating your cost prices into the market segments.
If it's longer than you'll probably need to look at a like larger bulk offer towards Amazon, but this is really the only opportunity other than maybe also funding them through dedicated Agents set up contracts agreement.
Paul Sonneveld
Yeah. Thank you. There's a few other questions that are a bit broader in scope. I'll start off with Tina's question, just come in about Freight Allowance and I've heard this in particular, in relation to U.S. venders. But she's asking: “My Vendor Manager is asking for Freight Allowance as part of the annual negotiation, in your view, how important is this to Amazon in particular, in relation to the agenda for next year?”
Martin Heubel
Yeah. I mean Freight Allowances it depends on what your Vendor Manager really means by that Freight Allowances can incur as part of the damage allowance in order to kind of offset the cost at Amazon incurs from customer returns. But here, I believe they will probably be more against a supply chain efficiency program where they try to offset the encode cost by Amazon in exchange for offering you as a.Vendor. A more simplified supply chain set up.
So typically, what they say is, look, we can kind of cut out costs of our supply chain by removing certain steps in it. We can, for example, and sure that you are only delivering to one or two, warehouses in the US. And thereby we kind of distribute the volumes from these individual hubs towards our warehouse Network closer to the end customer and for that, they would like to see a certain Freight Allowance in order to kind of kind of carry the cost for that.
Now for Amazon, it is quite important simply because it allows them to cut efficiency, backlogs, they can also ensure that they are more in control of the inventory management themselves. And for it hopefully has some cost benefits as well but at the end of the day, it needs to be based on a business case.
So if it makes sense for you financially and your Logistics and supply chain teams positively signal to you that you can actually save costs even beyond of what you grant as a Freight Allowance to Amazon, then by all means, definitely entertain this option.
If you feel that your kind of spending the money twice, so you do not see the real cost benefit from it, you have an over complex setup as a result that you do not have the right capabilities and skill sets for an organization right now then overall the business case, wouldn't make sense at the freight allowance, even though it may be important to Amazon should not necessarily be entertained by yourself and you should kind of direct the focus of your vendor measure towards other investment buckets. We will see more value coming from.
Paul Sonneveld
Yeah, makes sense. Okay, we are well at a time but I've got three more questions and I'm going to live up to my promise of trying to do as much as we can. So how about three quick rapid-fire questions? There are a little bit broader in scope and some of them are a little bit outside Your day-to-day remit. But I think we would just value your opinion. So let's say ten or Twenty second limit. Let's see how far, first one here. I think it's quite a relevant one. “Do you think that the slowing growth on Amazon will accelerate the downsizing of the 1P by a Category Manager role? Will we see more automated buys?
Martin Heubel
I wouldn't say the two things are related. So the downsizing approach. I mean it's really a consolidation and efficiency approach that Amazon is following. Also in you, they kind of consolidate the headcount resources. I mean, of course, they want to cut costs but it just integrates into the automation and offshoring that they've done in the past. So I would say you will see more of it for sure. It's not necessarily only related to the slowing growth in retail. I'm given that we see that also the hiring freeze at the moment is this affecting also, its advertising and AWS division.
Paul Sonneveld
Excellent. All right. Very different one. I'm very interested in this and I'm not sure you know, the answer here but any insights will be great. “Do you think that being on Amazon Vendor gives your product and algorithmic boost in terms of ranking compared to third-party sellers” Is there an advantage in the search algorithm?
Martin Heubel
Yeah it's a classic question that I come across a lot and the answer is no there's no intrinsic benefits of being a vendor over a seller. But you may still see that indirect metrics may appear to leave you to that result or to come to that conclusion, because Amazon will compare your seller performance when it comes to returns, when it comes to the overall ranking at the ability to ship to end customers as quickly as possible against their own abilities of either an FBA or 1P approach.
And thereby, there may be differences where Amazon Vendor will be favored, but if you are 3P FBA seller, then from an operational standpoint, you will not see any differences. And then it more comes down to your ability to optimize the listings as well as Vendor Brands would be. But there's no intrinsic algorithm boost between a vendor such and a 3rd party seller that is on FBA.
Paul Sonneveld
Last one. AVS and signing up for it. The million-dollar question, “Is it worth it?”
Martin Heubel
Yes, generally it is but you will need to define the clear service level agreements with Amazon upfront and need to get them also confirmed in writing. So what you want to get is a vendor Improvement Plan by the beginning of the year to define all of the service pillars targets based on concise KPIs, if your AVS doesn't give you that and if they do not pitch that as part of the investment proposal, then I would probably retract from investing in It and not entertain a time until they do.
You want probably also at least, five weekly so twice a month and touch bases with them and a quarterly strategy review. So, quarterly business reviews, where your Vendor Managers attending as well to give you the best chance of really getting most of the value out of the AVS. If Amazon Vendor Managers are proposing and also offering all three pillars to you, then by all means, definitely try to invest into it. Just remember, it doesn't have to be always incremental. You can also often at least partly move investments out of buckets, where you do not feel that the investment is returned such as an automated marketing.
Paul Sonneveld
Thank you so much, Martin. You did wonderful there, in terms of those rapid fire questions. I quite like that format and I just have a couple of webinars like that little just sort of, you know, roast Martin Heubel just fire everything else. That was really good.
Thank you so much. We are almost there, that's three-quarters of an hour. So we're going to have to wrap it up before I do, Martin. Thank you so much for coming on today, you know, super engaging. I've learned a lot and I love how you make it practical you break it down and you really help vendors prepare for the coming season of negotiations.
Now I always ask you know how people get in touch with you and I will ask you and allow to say, probably a lot of our listeners are already subscribers to your wonderful newsletter and a lot of your other blog articles but for those of you who are not familiar with your content, what is the best way to get in touch with you?
Martin Heubel
Best players always through Linkedin. I mean just search, Martin Heubel or Consulterce both will lead you to that my company page for my personal profile. I mean, feel free to add me here, there's also a link to my newsletter where I send out weekly tips and insights for vendors that are negotiating with Amazon right now.
So make sure to use subscribe to that if you found today's session helpful and then you also get these weekly insights directly into your inbox going forward.
Paul Sonneveld
That's great. Thanks again, Martin.
Martin Heubel
Thanks Paul for having me.
Paul Sonneveld
And thank you all for watching today's live episode. Thank you for sending us all of your questions and having a great and engaging conversation. I hope you found it useful. Don't forget to check out, merchantspring.io and I look forward to joining you at the next Marketplace Masters coming up shortly. Thank you and take care. Bye bye!
