Podcast transcript
Introduction
Hi, and welcome to Marketplace Masters, the podcast where we go beyond the headlines to uncover the real strategies driving success on the Amazon vendor platform.
Paul Sonneveld
I'm your host, Paul Sonneveld, and today we're exploring a fascinating intersection. how Amazon fits within the broader world of traditional retail and offline sales. To help me unpack this topic, I need to remove that. To help me unpack this very interesting topic, I am joined by Christoph Krauss, Associate Partner at Prof. & Roll Pastuch, a leading management consultancy specializing in pricing, sales, and strategy with offices across Berlin, Cologne, Munich, Osnabrück and Zurich. Recognized four years in a row by Capital Magazine for excellence in its field, Roll Pastuch is known for delivering a long-term results-driven solution to complex commercial challenges.
Christoph brings more than two decades of experience in marketing and sales, both as a senior executive with top consumer goods companies and as a trusted advisor to B2C brands navigating strategy, pricing and commercial growth. Christoph, welcome to the show. It's an absolute pleasure to have you with us today.
Christoph Krauss
Thank you, Paul. Thanks, everybody. I'm really happy. Thanks for having me.
Paul Sonneveld
So Christoph and I met in Germany in Marburg, I think a couple of months ago, and it gave a great lecture, great talk about this particular topic. So I was very keen to bring this topic to our audience and to an English-speaking audience, actually. So thank you so much, Christoph.
And before we get into it, just a reminder to our audience that this is a live show, which gives us the opportunity to make lots of mistakes. It gives you the opportunity to ask real questions, and we will do our best to answer them in real time. So if you're on LinkedIn or YouTube, just use the comment section, and we'll do our best to answer your questions throughout the show. OK, Christoph, let's jump right in there. Why, particularly at this time, is balancing online and offline channels such a big challenge for vendors right now?
Christoph Krauss
I think as most of you personally as well as in the audience might have noticed and this is also the let's say general communication which we received as we both were in Marburg that times have changed. So Amazon commercial is getting tougher in the last couple of months and years. This is most likely due to, let's say, limited dynamics in the special retail case or most likely also for other marketplaces and e-commerce retailers. And this, of course, if growth is slowing down, provides more pressure on everybody involved.
So Amazon is feeling pressure and is, let's say, putting this pressure on the vendors in this case. And this again, let's say, is a new situation or a situation which has intensified in the last couple of months. And this puts most vendors in a situation where they say that we have to balance our sales channels, we have to balance our classical traditional sales channels where we have been around before Amazon was even invented together with Amazon and other e-commerce channels. And this is a new situation because growth is lacking on Amazon in the last couple of quarters.
Paul Sonneveld
Yeah. No, I think that was a really big theme that we're hearing. And all of a sudden, it's like Amazon is the largest channel and their fastest-growing channel. All of a sudden, there's a much, much greater balance required. I mean, what are some of the common mistakes that you see vendors make as they approach multi-channel distribution with Amazon in the mix?
Christoph Krauss
Yeah, I mean, Amazon is and has always been though, this is not new, as we're talking about the new situation with Amazon in, let's say, commercial negotiations. But Amazon has been a magnifier, basically. So they shade light or into things which have already been there. So they put emphasis on mistakes which have happened before. However, before Amazon or without Amazon, nobody noticed, right? And this is the case when it comes to pricing issues.
So there are new players popping up in the buy box, for example. The question is, on a short notice, short term, how to cope with those buy box Pirates, let's call them that way, A. But B, on a midterm, you must ask yourself, actually, as a vendor, why are there retailers or players in the market who can offer you products in the buy box? And oftentimes, the answer to that question, just as an example, is easy because, actually, there are goods sold where they should not be sold. There are goods sold at prices at which they should not be sold. And this is something which pops up on Amazon. And this is, again, something where most in all cases, to be honest with you, and the reason and the root causes lie in the vendor company rather than in Amazon, because Amazon is just, as I said, the magnifier makes everything transparent, which used to be not visible before Amazon.
Paul Sonneveld
That is such an interesting and I think also helpful perspective because it's so easy just to blame Amazon. You know, it's all Amazon's fault. But actually, I think what they're doing is just raising the bar and creating a lot more transparency and visibility around, you know, inherent broader issues, particularly in the area of multi-channel distribution.
Christoph Krauss
Yeah.
Paul Sonneveld
Before we, I want to go back to the buy box and some of those deeper questions that really come to play here. But I want to sort of cover a broader question before we dive there, which is really around as a vendor and let's assume an established brand within, say Germany or somewhere else in Europe, what is the right way? And it's a bit of a trap because there's probably no necessarily right way for everyone. But what is a good way to think about channel prioritisation? Online versus retail, offline, Amazon, DTC. What are some useful questions here?
Christoph Krauss
Yeah, I think actually that's the right setup, because it makes sense to talk about those heritage channels which have been in place for decades. And new channels have been added. Old ones might have been switched off, but not necessarily. So the questions to be asked when you set up or rearrange your channel setup and your channel prioritization need to start with the shopper slash the consumer, right? You must or brands should ask themselves, who is my consumer, number one, to actually prioritize the segment you want to address. That's, let's say, first class marketing school lesson you need to learn.
But this is not only marketing. You must not only address your marketing audience. You must also be aware about where do I actually sell to the target segments, target audiences I want to sell to. So where would I find those? And then you must actually most likely run some research about, what does the consumer journey look like? This gives answers to your marketing as well as to your sales.
Because at the end of the day, If you say, my consumers, my customers, my target audience, they shop everything everywhere. You don't have a strategy, to be honest with you, because a strategy always leads to a prioritisation. A prioritization means you know what to do and you at the same time also know what not to do. And this is actually giving the answer to also the question or the starting point for a prioritisation of the channels. Where do I find my target audience?
Then, the next thing is about the commercials actually. Do I have or how far am I able to actually sell in those channels where I would find my customers, right? So is it something where I'm already active? Yes or no. If I'm not active yet, I have to think about the go-to-market approach. I have to ask myself, do I have the organization set up? Do I have the the fit, also the culture to sell there if it's a brand new channel or a brand new initiative.
And of course, I have also to check the commercials of the channels because they are different and they come at a price. So for example, if I decide as a brand to internationalize and I want to cope with distributors. That's a different way of doing business than selling into local markets to retailers because a distributor needs a different price level, of course, definitely for sure. And to provide you with different services and therefore it is as I said also a question of what are what will the commercials per channel look like and then this adds up to the ideal setup.
At the end of the day, it is something which starts with the consumer, as I said, and it has to reflect or it has then to go and bounce into your organization. And you have to have the fit. You have to earn the money. Otherwise, this doesn't make any sense. And then you have to simulate if this is going to be a setup where you have the right capabilities and the right know-how to be successful in the next couple of years.
Paul Sonneveld
Yeah, it's great. I was taking notes vividly. Consumers, capability, commercials. You know, that's sort of the three Cs I wrote down. Absolutely makes sense. By the way, I love your insight as well. That's a great question. You know, if your strategy doesn't lead to prioritisation, you don't have a strategy. I think that is so true. You have to be able to say yes to certain things and no to say others, otherwise you don't have one.
Christoph Krauss
Yes, definitely. And this sounds stupid, but I mean, we experienced that millions of times in our projects that they say, yeah, well, here's our strategy. At the end, it's we sell everything to everybody. That's the strategy and the story. And but, you know, it's not too much.
Paul Sonneveld
Absolutely. It's a great refresher. I mean, I think we all know it from I don't know, from from university days. But, you know, it's good to be reminded. Okay. So let's, let's go a little deeper into the pricing piece. I mean, cause pricing is such a big topic within the broader context of omni-channel strategy distribution. Hypothetically, right. Let's say I'm starting from a blank sheet and we'll talk about like reality in a second, what you can do about it and all the issues.
But you know, if you, if you were starting from a blank sheet and you said, look, I am, I have, I have a range of an assortment. I'm going to set my pricing strategy. I'm going to, you know, for Amazon and for my offline retails and some others, you know, how should vendors think about designing a pricing strategy? You know, if they had total freedom and a blank sheet, where would you start?
Christoph Krauss
Um, yeah, I would start actually, um, at two points. Number one is. It's never going to be a totally blank sheet. So I must just mention that. So there are regulations, especially in the European Union, which have, of course, to be respected. So it's almost blank sheet. And then I would start for the pricing again with the end of the story, which is the last price in the markets, the highest price in the market. And that's the retail price in the market.
So I would start with coming from a brand perspective. What is the value which I actually provide with my products, with my offerings? The answer to what's the value is, again, I'm sorry to repeat myself, given by the consumer. So I have to be sure about where are my USPs, my unique selling propositions. That can be the brand, that can be specific technical features, that can be services around your products, that can be services alone whatsoever, but it should be something where people are actually willing to pay for. So in this willingness to pay, defined at the end of the day, the retail price you want to start with and you want to be successful in the market with, and it has also to be in balance with other price points in the market. So you must also know your competitors and the niche you want to address in terms of the category, subcategory, or whatsoever.
And from that starting point, so where do I want to have the retailer sell my product for what price point? So the recommended retail prices. I must do the math and I must understand what would the retailer need in terms of margin, how much of that is going to be part of my trade terms system. So it's a pay for performance system. The more the retailer, for example, sales, the better the price is going to be. And this defines at the end of the day, my net net or triple net price.
And this last price or the lowest price in this price we call it price waterfall so highest price in the market is the retail price lowest price internally is this triple net price and the triple net price needs to pay everything so this is basically the price i have to check my my costs against and this defines my margin so and of course the minimum margin needs to be high enough to be let's say successful and to be able to exist in the next couple of decades and there you have to find the balance again, right? Of course, you went to you want to sell your goods as high as possible in the market if you overdo it you're not gonna sell a single piece then that's a hypothetical margin which is nice but nobody buys
{encountered technical error}
Christoph Krauss
Yeah, actually, again, where to start with the pricing? It should be the consumer price, so the highest prices in the market, the shelf prices. Then you have to calculate the price waterfall. How much would the retailer earn? How much do you need to earn? And this defines your internal pricing and your minimum margins you need to earn. And this gives you the balance to steer your prices in the market and then again you have to define or think about the sales channels you want to address.
Is it gonna be you sell into retail that gives you indication about your internal sell-in prices or you sell into wholesale and say they sell to retail different story for the sell-in price they wholesalers also need to survive somehow Or you sell into the distributors in a different country. They sell to wholesale. Wholesale sells to retail. This again gives you an indication that your internal selling price to distribution is going to be pretty low, right? And this is basically then the next exercise which you have to do in order to avoid which we mentioned when we talked about the buy box earlier that your goods pop up in a buy box coming from whatever channel, whatever country, whatever. You firstly don't know, but this needs to be avoided by setting the prices right.
Paul Sonneveld
Yeah, no, I think that's a good segue to try and get into this topic because I think this is one of the big, big pieces here. So a lot of vendors, they have their pricing strategy, you know, it looks pretty on a slide. They're selling on Amazon and things don't go so well, right? Either there's a lot of price erosion, that's a lot of buy box competitors, far more they ever anticipated in trying to work out where these people come from.
Let me split that into two questions. Question one is really around, what really happens? Paint a picture of some of the clients you work with, where do they find themselves? Far from the kind of probably theoretical and then obviously we'll get into, okay, what can you do about this?
Christoph Krauss
Yeah. Okay. What happens actually in the real world is you say, look, I have this trouble situation, which you just described. So products pop up where they shouldn't pop up. I have this downward price spiral going on. There's too much pressure on the buy box and so on and so on. If you say, OK, you either can, you know, wipe up the floor or you repair the roof, either or.
So let's talk about repairing. And this repair work requires that you adjust your strategy, which means you must, as we said, also say no to certain things, you must identify, that's not easy, where do goods come from, and then you must try to get those players out of the market, which at the end of the day might lead to a short term, at least dip in your sales and your volumes, right?
For example, if you say, and that's a real project example, look, we sell to this distributor in Eastern Europe, and they are our biggest volume provider. So they, you know, we sell a lot of volume into this distributor. Why is that? Because this distributor sells back the goods into the German market, for example, because he can, right? Because the margin is large enough for this distributor to do this.
And this distributor also decided to sell the goods on the marketplace, Amazon marketplace as a seller. And this leads, of course, to huge trouble because of course local retailers in the German market are freaking out and so on and so on and at the end of the day this as I said puts pressure on your pricing and the pressure on your pricing puts pressure on the brand. And pressure on the brand in the long run, if you're in the brand business, is going to be risking your life, to be honest. So this is what happens.
And then to stop this, you must say, look, I take this. I can identify where the problem starts and I need to take this starting point out of the market. I have to switch it off. And this requires also the willingness to say, I'm not going to have this volume, I'm not going to sell this or going to have this revenue for a certain period until I build up in parallel most likely another situation, another infrastructure for the Polish market. But this requires, as I said, a management decision, which is we will have less volume in the next couple of quarters at least. And that's not so easy. So this leads to this situation.
Another classic which is also not has not been invented by Amazon is you have two retailers in the same channel. Let's say drugstore in Germany or wherever. The one is everyday low price strategy and the other retailer is a up and low, high and low pricing strategy. So they have regular discounts on your products. What happens? You start at this. You're doing a great job. Key account management is super happy.
They sell your products at the recommended retail prices. Great. This guy starts with a price off. He follows at this exact pricing. He goes up again. He will not go up again because everyday low prices. So he has to, again, next round of discount is going to be lower than this one. And this is something where we say, OK, this is not going to end happily for nobody involved.
So therefore, you have to think about that. This requires that you understand also the strategy of your customers, of your retail partners, and that you then think about, possibilities to get out of this comparison and basically it's the same thing as we see when you talk about crawlers in the online world where you also say look this is a pricing out in the market I have to beat this price and then they go down and so on and so on.
And you only get out of this comparability, or you can get out of this comparability, when you think about, for example, channel or customer-specific GTINs, so identification numbers, which require most of the time variations of the product. And then, you know, there's nothing to match anymore. But this comes also at a certain price because the price is complexity, definitely at least. But this is something which puts a final end to this price comparison and downward movement of the prices.
Paul Sonneveld
Yeah, it's sort of the interplay of, you know, assortment strategy and pricing strategy and exclusivity for channels. It's always a hard one, right? Because you're right, you can't have an exclusive offer for every single retailer in the market.
Christoph Krauss
This is going to kill you.
Paul Sonneveld
You'll die of complexity.
Christoph Krauss
Yeah, you die of complexity, so therefore you have to find, let's say, the largest possible chunks or clusters where it makes sense, for example, online assortment versus offline or whatsoever, in order to balance complexity. But at the end of the day, when we think about, let's say, this nightmare situation where you have heritage products in the markets as well as heritage or existing sales channels and those problems pop up which we just discussed.
You need to adjust your pricing and you also need to at least consider adjusting your assortment because otherwise you will not, let's say, limit the problems to zero. You will limit them, of course. But if you say, look, I want to have a clear deck in the future, you can only start with a clear deck for new products which you launch, maybe, when it comes to pricing. But this is not going to be sufficient if you, as I said, if you have, you know, great evergreen products, you don't want to, you know, switch them off for the sake of a clear pricing. So therefore you have to find also solutions or identify strategies on top of pricing.
Paul Sonneveld
Yeah. Yeah. Yeah. So this particular challenge is, or at least the solution to this challenge and the leaves you can pull is, is quite influenced by the regulatory environment as well. Right. How, how often, you know, how far can you force, for example, some countries you can very, just go to your customers and say, sign a new piece of trading term saying that you will never sell online or you'll never sell on Amazon and we're done. Right. In other countries, that's much, much harder to force that. And it's in some, it's illegal. How do you, where do you, obviously your main focus is in the European market, but where do you see some of the major differences around the regulatory framework and how that impacts handling that challenge, that distribution conflict challenge, particularly on Amazon?
Christoph Krauss
Yeah, I mean, as you say, we have the regulatory setup in the European Union, which is quite comprehensive i would call it and again, to be honest we all also benefit from it so it's not that i would say look the regulatory thing is limiting our commercial approaches or whatsoever, we all benefit from it.
When thinking about especially Amazon being a vendor, Amazon tends to be in some categories, in some countries, a monopoly. And therefore, they have regulatory limitations also when negotiating with smaller brands, for example. So this also protects smaller brands and the vendor side. But then we have also, again, things like that you cannot define retail prices, you cannot define or you must not even define minimum prices. And there are also limitations when it comes to you as a retailer.
Most of the retailers nowadays are hybrid, right? They have, since Corona, everybody has some sort of online shop. So the question, it's always easy to say, look, I am, when it comes to the annual negotiations, they say, look, I'm a brick and mortar store. I do the consulting, I have the staff, I have blah, blah, blah, all the high costs. So therefore I need low selling prices to just finance the service I provide for you and your brand. But at the same time, they sell online, right? And there they do not have, of course, the same cost structure like they have in the brick-and-mortar scene.
So therefore, it is also something where you as a vendor have limited possibilities to say, I don't sell to you anymore. or I want you to not sell my products online. This is limited. You have new possibilities in Europe to go for selective distribution, which could include, this is not allowed, but you have to sign this contract with me. And this contract is a limitation, of course. And yes, of course, that's possible.
A lot of brands do it, but it requires super strong brands because if the retailer says, oh, I don't want to check this contract. I don't want to pay a lawyer. Forget about it. You are, I don't know, supplier number seven in the category. I don't need supplier number seven in the category anymore. You're going to be out. So this has to be considered, of course.
And there are different possibilities in the US. For example, there are different possibilities in other regions definitely, so of course it has to be checked what's possible and what's not possible. Again, it is something where we have the regulatories and this is in the European Union most likely more strict than in the US definitely.
Paul Sonneveld
Yeah, very valid point though, that it does bring benefits as well.
Christoph Krauss
Yeah, sure.
Paul Sonneveld
I think a lot of times you go, oh, everything is so hard here in Europe, if only we're in the US, but I think it goes both ways. It's a really good reminder.
Christoph Krauss
Yeah. I mean, it's just like I hear so many brands who say, look, negotiating with Amazon slash all huge accounts, key accounts, it's all, it's all the same, right? I mean, if you go to Edeka, to Rewe, to, I don't know, to the huge accounts or to Walmart in the United States, nobody is going to be a nice guy when it comes to negotiating because it's either you earn the money or I earn the money. That's as easy as it is.
So therefore, it is basically a zero sum game. And therefore, let's say it can get tough. It does get tough. But let's say the toughness has also not been invented by Amazon. It has been around before. Now, Amazon is, as we discussed in the very beginning of our discussion here, is getting more tough or tougher. And this, of course, hurts everybody.
Paul Sonneveld
Yeah. Unfortunately, we're almost out of time, actually. Time's flown. But I wanted to finish up on kind of more of a forward-looking question, which is, you know, there's a lot of things happening in the industry right now, particularly if you're a vendor in North America. But, you know, from where you're sitting and as you're talking to your clients, you know, in day-to-day business, what are your predictions? I mean, how do you see the role of the Amazon vendor evolve over the next two to three years? Put it in a different way. What are the things that you feel vendors should have on their agenda and on their priority list?
Christoph Krauss
Without, let's say, the special US situation, I think that's rather a crystal ball right now than let's say something which you could really predict sitting me sitting here at least I cannot so therefore I think as a vendor, I think Amazon will keep the the dominant situation in the e-commerce market channel in most of the countries for the next couple of years definitely. We know and everybody knows that that of course new players pop up we also learned that let's say the players from China will also feel some limitations, possibly in the next couple of years.
So therefore, I'm positive that Amazon will keep its leading role, which at the end leads to also a leading role of the vendors and the key accountants in the companies who sit there. Learning from this event where the two of us met a couple of months ago, was that within the companies there should be more exchange in the sales teams. So as I just said, there is stuff happening on Amazon which is day-to-day business and has been day-to-day business in other channels in the last decades, so therefore there needs to be exchange, there needs to be more best practice sharing, there needs to be also just learning from each other in a regular rounds. My experience also from the vendor side in the companies is that it has been considered a special breed within the sales organization without being personal, but that's my observation.
Paul Sonneveld
It's a good way of summing it up.
Christoph Krauss
Yeah, it's very, very rarely a key account manager coming from a brick and mortar business. It's more some roles who evolved or developed into leading the entire Amazon business, coming maybe from marketing, from online marketing and even. So therefore, I think they have a different history. And but there are more in common. There's more in common right now between regular retail or classic retail and Amazon than in the last couple of years. And therefore, you know, the know-how is in the companies. It just has to be a systematic size by talking to each other and having, you know, an exchange between the old key account management guys and the new ones.
Paul Sonneveld
Thank you for that, to wrap up. Unfortunately, we are out of time. I feel like we're just getting started there. But a lot of the things you've said really resonate with me, particularly around, you know, sort of the Amazon function within the organization being quite isolated. There's not a lot of organizational conversation going on and teaming. And, yeah, even the person that's running the Amazon account is sort of off to the side a little bit, you know, he's not part of the the offline retailer, sales executive almost. It's not everywhere, of course, but yeah.
But Christoph, thank you so much. We are out of time, but I just want to really thank you for joining me today and sharing your expertise with us and with the audience today. I think your insights have really helped clarify the complexities of traditional offline sales through Amazon Vendor Central. So really, thank you for that. And on a personal level, I wrote a number of quotes for you. The other one I already mentioned, the other one that I absolutely loved was, I sort of paraphrase it, you know, you can either choose to mop up the floor or you can repair the leak in the roof. I think that is a great, I'm definitely going to use that within my business as well. So thank you for that. Okay.
Christoph Krauss
Thanks a lot, Paul. It was a pleasure.
Paul Sonneveld
Thanks. Before you head off, just if there's anyone that's tuning in today and say, right, I could really do with a longer conversation with Christoph to really tease this out, or maybe they need some help or assistance. What is the best way to get in touch with you?
Christoph Krauss
I guess the easiest way is through LinkedIn, basically. I don't know if you can share my, or you will find me on LinkedIn, or we can share also, let's say some contact details here in the stream, but I think LinkedIn, I should be easy to find.
Paul Sonneveld
Yes. Yes, you are. I do actually. I have your email address here. I'm going to flash up your email address here. Hopefully, this video is not indexable so that you won't be hit by spam machines. But for those of you who are interested, you may have to change your email address after this. All right. Thank you so much, Christoph. Really appreciate it.
Christoph Krauss
Thank you, Paul. Bye-bye.
Paul Sonneveld
All right, everyone, that is a wrap for today's live episode of Marketplace Masters. Thank you so much for tuning in today. Now, if you're a vendor and you're looking for more vendor insights, please ensure to check out our video on demand library at merchantspring.io for a wealth of Amazon vendor-specific content.
And of course, if you're looking for analytics, whether it be kind of selling analytics or sellout analytics or profitability for vendors, feel free to reach out to me. I'd love to show you what Merchant Spring is all about. Last but not least, I'm always on the lookout for new topics, new content, and things that you'd like me to tackle next. So if there's an interesting idea or concept that you'd like me to explore and perhaps find the right speaker or expert for, please drop me a note on LinkedIn. I will do the research and recruitment for you, and we'll get an episode going. Until next time, take care.
