Podcast transcript
Introduction
Welcome to Marketplace Masters, the show where we go beyond the surface and dive deep into the strategies that drive performance on Amazon's platforms.
Paul Sonneveld
I'm your host, Paul Sonneveld, and today we're talking about a topic that every Amazon vendor knows, but few truly master, negotiating trading terms and conditions with Amazon. But before we get into that, I just wanted to share something I'm really excited about here at MerchantSpring. We've just launched our new AMC Insights module, built specifically for agencies and vendors looking to get more out of Amazon Marketing Cloud. No SQL required, no infrastructure headaches. We've pre-built the five most popular reports, added AI-generated commentary, and even made it possible to compare performance over time. And the best part? It's free on all agency plans. You can check it out at our website after the episode.
Now, back to today's topic. Joining me today is Dirk Brederecke. He's the founder of Hello Brands, a specialist vendor consultancy based in Munich, and someone who knows Amazon from the inside out. Dirk spent over eight years at Amazon, including several years as the head of vendor management for the Pets category in Europe, where he led negotiations with some of the world's top consumer brands. In today's session, we're going to unpick all the key trading terms from co-op to freight to AVS and explore how brands can strategically negotiate and trade them off to align with their broader business objectives. Dirk, welcome to the show. It's absolutely great to have you today.
Dirk Brederecke
Thank you, Paul. And welcome, everybody. And I hope I will share some nice insights and bring some value to the table for you.
Paul Sonneveld
Thank you very much in advance. And I know he means what he says, because I saw him talk, Albeit in German, at the Ask conference in Marburg. So I'm sure we're going to get the same quality of insights for our English-speaking audience here. But before we get into all of that, Dirk, let's just start off with your background. Tell us a little bit about your time at Amazon and perhaps why you started Hello Brands. Great name, by the way.
Dirk Brederecke
Thank you. And yeah, I love that name too. So as you just stated, I spent eight years at Amazon, or more than eight years, actually, almost eight and a half years, most recently as category leader for pets. So I was leading the category and the full banner management for pets in Germany. And I negotiated terms with top global brands, and I also saw firsthand how many vendors left money on the table.
So I founded Hello Brands in the first step to help brands succeed on Amazon and to maximise their business. This also includes to have the best possible condition framework, because looking at the framework, we always find something. And we are always aiming for a win-win solution. We help vendors to better understand Amazon, and at the end of the day, both sides should negotiate smarter in order to grow profitable. And vendors should stop treating Amazon as a mystery because it's not. And that's what we are here for. And we take away blockers and prejudices some vendors might have against Amazon. And yeah, from my point of view, it's a classical win-win situation.
Paul Sonneveld
Fantastic. That is a great starting point for this conversation. So let's jump right in. What do you think vendors most often misunderstand about Amazon's trading terms?
Dirk Brederecke
That's a very good question. So I think most of the vendors or most of the clients who come to us They think that many terms are fixed and they're actually strategic levers. If you know what's important to Amazon, you can negotiate flexibility. So, of course, Amazon wants profitable growth, not just terms. And many vendors underestimate the negotiation power. So having said that, I've seen a lot of cases where vendors just say, hey, Amazon is asking for X and I have to find a way in order to give them X. Most of them don't clearly identify their return and invest on each term. They lack a strategy of Amazon and ask themselves, what do I want from Amazon? Short and long term, of course.
So what is my specific goal for the next, let's say, 12 to 18 or maybe even 36 months? What's my return on invest that I'm putting into this? Is this condition really the most valuable for my business that Amazon is offering me? I don't know. Let's say a co-op for 8%. Define your business goals clearly for the next 12, 18, maybe 36 months and structure terms around these goals. For example, if your aim is EU expansion, prioritize better logistic terms like super PICs and regional support or quarterly VIR agreements on key agents in order to grow in these locals. Always remember, it's about a strategic give and take. It's not only a one-sided negotiation.
Paul Sonneveld
Yeah, so before we get into some of them, you also already mentioned different types of terms there, co-op and PICs or freight allowance and the like. Can you just walk us through the most common trading terms that vendors deal with the pack of cards, just make sure that we're not missing anything, you know, walk us through it and maybe just highlight which ones are actually negotiable. A bit like your point earlier, sometimes we feel we just automatically assume some of them are fixed, can't negotiate. But yeah, let's go through the list and which ones are actually negotiable.
Dirk Brederecke
Yeah, sure. So to take it off, typical terms include, as I said, co-op, freight, AVS, so the Amazon Vendor Service, damage allowance, you have payment terms, you have SnS, so subscribe and save. Every term has some degree of flexibility. For instance, Damage allowance, let's start with this one. Request a damage allowance report and then ask yourself, does that, let's say, standard 5% still make sense? Or can you negotiate down gradually to, let's say, 3% over 12 months with a specific plan The plan you have to come up with, dig into the data to understand why returns or damages happen. Perhaps packaging or, I don't know, content needs optimisation. And then you will have a plan in order to reduce the cost on Amazon's side. And then you will also be able to reduce the damage alarms.
Then another term is SnS, subscribe and save. Explore switching to flex instead of fixed costs if you calculated the impact based on your SnS share. So ask your vendor manager, what is my SnS share, and then do the math. There are several supply chain programs, as you mentioned, such as PICS, SuperPICS, Full Truckload, VendorFlex, GPE, DirectImport, WePay. I think there are a couple of more but you need to understand which one is the best for your specific situation and and your goal and then you need to do the math including the internal teams on your side after that you can certainly negotiate on these terms. So all of these logistical terms or supply chain terms they are usually negotiable. So you can go in there and say, hey, you asked for, I don't know, 8% PICS, but we calculated it, and it will be a win for us only if it is 5%.
But on the other hand, don't just go in there and try to negotiate the terms down. Try to give something in return, which does not matter that much for you, but matters more for Amazon. Or set up a plan on where and what you will do the next six months to help, for example, lowering costs on Amazon's side. For example, looking into your labelling or delivery speed to avoid chargebacks.
A very classic one is also the return for co-op investments, so MDF or how you want to call it. Is there any kind of reporting or is it actually an empty term for you? You have to ask yourself. Usually, you get better returns and reports by investing in Amazon advertising. Thus, try to shift co-op investments into more valuable terms for you that Amazon accepts. So you can negotiate, for example, the co-op investments. If you have a 8% automated marketing, usually, Amazon will not say, OK, then we do just 2%. You have to put in the 6%, the difference, into some other terms. But that's what I'm saying.
Try to shift these investments into more valuable terms for you. Where do you want to go? Where do you see your company in the next 12 to 18 months? And on a side note, Amazon usually do not accept a shift from retail marketing to advertising because these are different business units or even companies on paper and having said that it's not impossible. I've seen cases rare cases where this is possible but usually it's not. And then last but not least, the AVS, it's not set in stone. Try to negotiate. Although it, I mean, it's sometimes I've seen companies, they're doing millions and they have a percentage of, I don't know, 3% for several countries. And then if you calculate it, you pay for a service or for a person, 600, 700, 800K, which is way too high. And usually you can negotiate it down, but then on the other hand, you have to give Amazon some things in return. And I have some ideas. Maybe we can dive into these at a later point.
Paul Sonneveld
Yeah, yeah, no, I think I'd love to get around some of those trade-offs. But really, I think what you're saying is do the numbers work out where you're getting some good ROI. And then it's not necessarily trying to take money off the table, but try and put the money into buckets that are going to drive your business in a better way, either to help your strategy or drive a better return on investment. Not just like, you know, hand over a bucket of money, right?
Maybe you can agree with Amazon that paying for AVS is worth 200K because he's wonderful, or he or she is wonderful, but let's take the 400K and let's get some incremental return on that. Because I'm sure, you know, Amazon is not going to give you a team of 20 AVS people, right? It's still only one. So absolutely. Very, very clear. Before we go on, I just wanted to sort of go back on the, I think it's the subscribe and save where you mentioned sort of changing from a fixed to a flexible or the other way around. I just wanted to sort of clarify if you can go over that point again, because I think subscribe and save is obviously very widely used by most vendors.
Dirk Brederecke
Yeah, sure. No problem. So usually what Amazon does or the vendor manager should ask is they ask you for let's say a 3% agreement and then they will cover the SnS cost for you. So the SnS costs are usually it's let's let's use the 515. You know, you all know what it is. That means if you put a certain amount of products which are eligible for SnS in your basket, then the customer gets 5% and the 5% are paid by the vendor, right? Or even if they put more products in their basket and buy, it's 15% off, right?
So what you need to calculate is, how big is my SnS share on the total revenue? Let's say you're doing, to make it easy, 100k and your SnS share is 40%. So 40k is coming from SnS. 40k revenue is coming from SnS. So you have a quite high SnS share. You might be in grocery or pet food or something. So in this case, you have to calculate, OK, what is my ASP? And what on average is the percentage I'm giving out?
So let's say we have 515. So on average, maybe it's 7%. 7% on 40% of the sales. And that's how you calculate it and say, OK, I have a roughly total number. Does it make sense to go with this 3% Amazon offering, or does it make sense to really pay what really came up? So they will come up with, OK, we have, I don't know, so many vendors where so many customers were actually using SnS. And you have to pay the actual cost versus just a 3% flat. And then all SnS costs will be covered.
Paul Sonneveld
That makes sense. Yeah. So you can either go with Amazon's estimate or you can get the true redemption value or the cost.
Dirk Brederecke
Yeah. Makes sense. Okay. And also here, Paul, you can also negotiate on the flat term, right? So if you say, okay, 3% is what Amazon is offering, maybe I get them down to 2.5%, then it makes sense for me to go with the 2.5%. So try to negotiate on these terms.
Paul Sonneveld
Yeah, that makes sense. Well, presumably there's some administrative saving. What about the funding of SnS, right? So even the percentage discount, sometimes, certainly what we're seeing in some of our data, sometimes Amazon funds some of that discount, sometimes the vendor does. Surely there must be an area of negotiation too, right?
Dirk Brederecke
Absolutely. And that's what I'm saying. So if Amazon funds it, it's just because they want to be attractive for the customer, of course. And in the background, they are certainly negotiating with the vendor to not have it funded by themselves. Or they have a 3% flex agreement and they fund it themselves. But in the background, they have an agreement against it to cover the cost.
Great. Before I ask you another question, I just want to remind our audience that this is live. One of the great things about doing this live is you get to ask questions and we get to answer them. So yeah, if you do have a question for Dirk, make sure you put it in the comment section on LinkedIn or on YouTube. It will flow into our broadcast software here and we will try and answer it on the spot or towards the end of the episode. So don't hold back.
Okay, the next or related sticking to the same point here is I'd love to go a little bit deeper around those trade-offs, right? Sacrificing one margin element in favor of another. Are you able to share some examples, you know, things that you've seen in your time at Amazon or even now that you're on the other side? What are some of the things that you feel have been great things to do or maybe surprised you or scenarios that others should think about?
Dirk Brederecke
Yeah, of course, of course. So, trading off always means giving Amazon something it values highly in exchange for something you value more. For instance, let me think. I've seen brands successfully trade higher co-op rates, for example, as I mentioned earlier, for significantly better payment terms. Cash flow matters more for their business than a slightly higher marketing spend. That's a great example. Or another vendor gave Amazon exclusivity for a new product for three to six months. In return, Amazon boosted their visibility with additional marketing placements. And the positive side effect, especially this example, was that there was no price matching for this period. And by that, it was easy to calculate the expected margin for Amazon cross-funding net PPM gaps of other agents. So this is a really great example where we see, OK, this is a trade-off which works.
So other trade-offs are usually, let's move some margin from automated marketing. Let's say I've seen vendors, they had, I don't know, 8, 10 or even more percent on automated marketing. And I always ask them, so what do you get in return? Do you get a report on that? Do you know where your products are shown? Yeah, I get some placements on the subcategory page. Well, great. How many How many impressions do you get there? I don't know. I didn't get anything. So OK, but you're paying 10 percent and you're doing 20 million. So you're paying two million euros for that. You should know what you get for it.
And if Amazon is not able to answer this and they are fair here, they might say, OK, I still need the 10 percent, but then I'm OK to shift it in other terms and which might be a good tactic is for example if you it always depends on where do you stand and if you want to expand in other locals, put up an a put up an ASINS set and say okay these ASINS I want them to grow in I don't know France Italy wherever you know and I put a VIR on it. So volume incentive rebate and say, let's use the 8% on top. You will get it if I get in quarter one, 1 million and quarter two, 2 million and so on. So you put goals on it and then shift these terms.
Paul Sonneveld
Yeah. Yeah. Growth incentive of some sort. Makes sense. Makes sense. And if as a vendor, you have not that much leverage, are there areas where you, they should really focus their negotiation efforts? I guess I'm thinking particularly around, where does Amazon, like there's all these terms and all these things, but at certain points in time, Amazon may care more about some terms and some types of rebates than others.
I, you know, having worked for a retailer myself for many years, some, some years, like it's all about payment terms, it's all about cash. Next year, it's something else. Might be about margin, might be about growth. Where is the wind blowing? Going back to my question, if a vendor only has leverage in a few areas, where should they focus their negotiation efforts?
Dirk Brederecke
Very, very interesting question. I would say you should focus on where you add the most value to Amazon, like growth opportunities, innovation, or operational efficiencies. This is a really great area. Amazon responds usually to clear stories, and they should be backed by data. Amazon loves data. Don't dilute or power. Double down where you're strong. Prioritise areas which are crucial to Amazon's customer-centric goals, such as I mentioned earlier, exclusive products, launches or increased retail media investments.
And then also what I always tell our clients is use there's, I don't know if you heard of Chris Voss. So use Chris Voss negotiation technique. Ask calibrated questions to reveal flexibility. And what I also like is mirror Amazon statements to clarify intentions, you know? So once you figured out which areas you should focus on, and again, focus on areas which are most valuable for Amazon.
To give you an example, I remember that during one tough negotiation at Amazon, the vendor manager said firmly, we absolutely can't reduce your damage allowance from 5%. I calmly mirrored back, you absolutely can't reduce the damage allowance, question mark, and paused. Then he was slightly thrown off and clarified, well, we have targets to meet and on returns and costs and so on. Then I asked a calibrated question, what would you need? or what would need to happen for you to comfortably lower it.
Suddenly, instead of arguing, we were solving problems together. So pull them to your side. And within minutes, we were discussing specific packaging improvements because he has the data to tell us what's running wrong. And in the end, we agreed on a clear step-by-step reduction plan down to 3%, all by just mirroring his words and asking the right questions. And it's a really great way.
Paul Sonneveld
That is a great negotiating technique to discover and reset, I guess, the angle of the conversation.
Dirk Brederecke
Absolutely.
Paul Sonneveld
Very nice. I just wanted to follow up on one thing there. You mentioned that Amazon cares a lot about operational improvements and all of that. Conceptually, I completely understand that. Obviously, if you can drive efficiencies in their supply chain, it's a benefit to them, reduces their cost. My question is, are the actual vendor managers, do they see the benefit of that? Are they incentivised for that? And therefore, do they actually care about that during the negotiation? You know, what I mean is there might be a benefit to Amazon overall, but does the benefit flow back to the vendor managers such that it may influence their behaviour during the negotiation?
Dirk Brederecke
Well, yeah, there are certain points. So it's really important. But remember, for example, advertising spend doesn't count towards net PPM since it belongs to another Amazon business. So, however, what is important for the vendor manager? Of course, the vendor manager has goals and targets, and so he wants to close, or he wants to gain more profitability, right? And this usually is mirrored back in the net PPM.
So he has, let's say, I don't know, maybe he has a goal on net PPM on a vendor level, but he's working, he's looking at the full category. So if you try to take away some terms on one hand of course we talked about you can give him some terms back or something in return on other hands which he can sell internally. Because he needs the approval saying going back internally and saying hey i asked for i don't know 200 basis points more i will only get 50 or 60 but on top of that, I will get I don't know six months exclusive launch and I calculated the impact this will end up giving us another 50 base points. And also we talked about a new supply chain program which we calculated also and this will give us another 20 or 30 base points.
So help the vendor measure to help him. And also a classic goal he has usually is on deals. And there's a deals goal. So you might have heard of vendor managers asking for deals budget per year. And this is actually a good thing, which you also can calculate it with. But put it always on, you might have heard of SLA service level agreements. Tell them, OK, we have, let's say, 200,000 euros in our pockets for deals. We are ready to invest it. In order to invest it, you will get it on a quarterly basis. If XY that will happen in our favor, whatever you need, you know, look into your pain points and then you can talk to them.
Paul Sonneveld
Yeah, makes sense. I want to go back to the advertising piece. I mean, you've already touched on multiple times and you've made it really clear that You know, it's a different business, different pot of money. You know, it doesn't flow back into the vendors, the vendor managers, P&L, I sort of got that. But the dichotomy of that is that obviously Amazon is pushing advertising spend very heavily, right? AMC, paid data sets, DSP, they're clearly going after more and more of the budget there.
So on one hand, Amazon as a corporate entity is asking vendors to spend a lot more on that side and giving them all the tools to do that. On the other hand, it's not directly part of the Amazon vendor P&L. There's the dilemma, right? So do you have further advice for vendors around that? How do you practically even have that conversation and discussion? You know, how do you start to create flexibility around those two things that are seemingly don't seem to gel together very well?
Dirk Brederecke
Yeah, absolutely. Great question. And we have that basically with all our clients. So this is Amazon's negotiation power, right? Only Amazon can provide Amazon advertising. Either you engage or you don't. So consider this carefully in your strategic planning. However, what we advise it's always a good way to see your total investment to drive sales towards Amazon and tell them that your total investments also include a specific amount of advertising investment.
The retail VM won't discuss advertising investments, but you need to make it your negotiation by demanding it to be included because it is important to you, and you have to show that it is important to you, and you only have one total budget to invest. By that, you might even bring a shift to the table from retail to advertising. I've seen rare cases where this works, thus it's not impossible.
Use the negotiation tactics, which I came up with earlier from Chris Voss, mirror and ask the right questions. So if the vendor manager, for example, says, hey, we are not looking into or we can't shift retail media investments into Amazon advertising because it's different companies then say, okay so you're saying that I cannot invest more because it's different companies and then he will open himself and say yeah but because it's different business units doesn't count it with my goal.
Okay, it doesn't count into your goal but as looking at it from a whole Amazon point of view doesn't make sense, right? And then, of course, what shall we say? You can't say no, because it will help Amazon. It also helps your customers, but it also helps Amazon if you are growing at a great margin.
So ask them, so what needs to happen from your side or maybe from our side in order to increase the Amazon advertising budget by lowering some things on the retail side. What do we need to do? Pull him on your side and, as I said earlier with the damage allowance, make a plan together instead of arguing why this is not possible. Try to get him on your side and find solutions that will also help him, you know.
Paul Sonneveld
Absolutely. What was the name of that negotiation methodology? I'm not familiar with it, so I just want to make sure I write it down properly.
Dirk Brederecke
So you should look up the book from Chris Voss. It's Never Split the Difference, very good book. And the negotiation tactic is, well, it's just ask calibrated questions to reveal flexibility and then mirror Amazon statements to clarify intentions. These two points are very valuable. Got it.
Paul Sonneveld
I've just written it down. Thank you for that. OK, great. Look, as we close out, what advice do you have for vendors that are preparing for their negotiation cycles right now or later this year? I mean, what is the practical advice for 2025 as we go through another round of AVN?
Dirk Brederecke
Okay, so if you are negotiating right now, my advice would be to start earlier. But joke aside, if you start now, you might be too late.
Paul Sonneveld
Very good point. Preparation is everything. Many have already concluded. Yes, I know kind of most of them have wrapped up.
Dirk Brederecke
Absolutely. The prep begins one year ahead. I always say, analyse your numbers, sharpen your growth narrative, and get clear on trade-offs. So, what am I able to give you or give Amazon? What are my pain points? And then Amazon loves data-driven discussions. So go in with, in the best case, you have three clear asks supported by data, and be prepared to trade proactively.
Confidence and preparation beat reactive negotiation every time. I tell that sentence to my clients or to our clients every time. So our customers learned that and saw how quickly AVNs could actually go. We have a big worldwide client where we supported the preparation and they were able to, I'm not joking, close the AVN in one single meeting. I've never seen that. That was in January. And why was that possible? Because both sides were very well prepared. They knew what each of them wanted and offered a fair investment with a good return for our client. They negotiated a little bit, but agreed on the terms quite quickly. The same client had an AVN last year that went on over for more than four months.
So, what do you need to prepare? Create a detailed 18 to, I would say, 36 months plan with clear return on investments calculations on each investment. So in our case, we have an Excel. You have each month, January, February, and so on. If you start now, you might start with May and go until end of year.
And on the other side, you have all the input KPIs. You have cost prices, you have deals, you have advertising, you have the net PPM, and so on. You have all the improvements on your site where your company wants to go in this time period. So for example, if you want to extend your sales on other locals, or you want to change the supply chain, what's most important to you and what are actually empty terms specifically for you?
So look at your terms framework, I would call it, and look at it and say, okay, does it really, what do I get in return? Go into your framework and say, okay, 10% automated marketing, what do I get for it? 5% damage allowance, is that still, really accurate? Identify issues proactively.
That's why I'm saying one year ahead starts the preparation. Maybe you have PQB errors or not fulfilled agreements where you still paid for. You have missing reports which you agreed on. You have high return rates and you plan to address root causes with targeted expert teams. Amazon has expert teams which can help you. So try to go in there and negotiate these things.
Identify your issues and always question your position. Do you understand Amazon's internal escalation path? It's also very, very crucial. Junior VMs often play hardball because they fear mistakes. So they follow the playbook and know when and know how to escalate effectively, thinking outside of the box. In the best cases, your VM's role is a consultant. And his job is to balance Amazon's interests with yours, always ensuring customer satisfaction, right?
So think about it, go into the preparation, go into your framework and think about what pain points did we have in the last 12 months and what do we want to have in the next 12 months? And what do we not want to have in the next 12 months in terms of pain points? And then try to put a price tag on it. How much impact was that or will that be? And what's my trade-off here? That's what I would do.
Paul Sonneveld
Fantastic. That is a great summary. Everyone's tuning in. Start preparing now for 2026. Build a longer-term horizon beyond 12 months and really start modelling things out and work on those pain points. And hopefully, that puts you into a really strong position. You might be able to close the AVN in one week. Imagine that, right? First week of January, whenever it might be, you close it and then you're wondering, gee, what am I going to do with the other four months that I was planning to go for? Maybe have a holiday.
Dirk Brederecke
You can focus on growth.
Paul Sonneveld
Yeah, that's it. That's it. Well, look, that's all we have time for in today's episode of Marketplace Masters. Dirk, thank you so much for sharing your insights and really pulling back that curtain on what it really takes to negotiate effectively with Amazon. I love all your tips, tricks, negotiation, kind of styles, your perspective, both as a former Amazon insider and as an agency that has been incredibly valuable.
For those of you watching live or catching the replay, if you'd like to connect with Dirk or learn more about Hello Brands, we're going to include here his details in the episode description on our website, which will come out in the next 24 hours or so. I'm sure you can hit him up on LinkedIn as well.
Dirk Brederecke
Perfect.
Paul Sonneveld
Perfect. Thank you so much, Dirk.
Dirk Brederecke
Thank you.
Paul Sonneveld
Until next time.
Dirk Brederecke
Thank you so much, everyone.
Paul Sonneveld
All right, that's it. Don't forget, if you are looking for actionable insights to support your vendor negotiations, in addition to this episode, feel free to visit merchantspring.io to browse our full podcast library, or reach out to me for a conversation about how Merchantspring helps vendors up their Amazon Analytics in preparation for their AVN. I'm Paul Sonneveld. Thank you so much for tuning in. Until next time, take care.
