Viewpoint - Asha Bhalsod

Amazon 2023; are YOU ready?

Asha Bhalsod of Etopia Consultancy looks at how companies should be making preparations now for their imminent annual Amazon terms negotiations.

It’s Q4 and I’m sure you’re all buried in heaps of data analysis about how to hit your budget goals for 2022. As 2022 draws to a close, now is the time to start planning for those dreaded annual terms negotiations with Amazon. There are two phases to this annual negotiation and the first phase is preparation. The earlier you create your Joint Business Plan, which considers how to manage the constant economic challenges we’re all facing currently, the better prepared you will be for Phase 2, which is the negotiation part. Make sure you know your revenue, margin, and operational figures for the last 12 months before entering the annual terms discussions.

The impact of the economic climate on Amazon

With factors that are beyond your control, such as rising raw material prices, constant currency fluctuations and ongoing logistics pricing challenges, manufacturers will inevitably want to implement a Cost Price Increase (CPI) with Amazon. Those that have successfully managed to implement this already will know that you need to inform your Vendor Manager, giving them 30 days’ notice. Even with this forward notice, don’t expect Amazon to start buying stock at your new price. A CPI is widely known to be a long-winded experience; often tied to trading term negotiations. Amazon will request that you input your new CPI into Vendor Central, however, expect the “system” to reject it. This means you’ll have to wrap CPI into your terms. Managing internal expectations on how Amazon processes CPI is crucial – it’s time consuming and won’t happen without a series of negotiations.

Pan-EU model/ Vendor Success Programme (VSP)

Amazon has recently concentrated its efforts on harmonising trading terms throughout all of Europe. This allows it to pool resources and assess terms in several marketplaces simultaneously. If your business has seen significant growth on Amazon over the past 12 months, expect pressure from Amazon to move to a Pan-EU model, unless you’re already part of it. There are multiple benefits to moving to this model, but preparation is key. Your retail model will differ across EU markets, so don’t expect Amazon to ask for the same terms across individual markets. Understanding what drives Amazon’s Net Pure Product Margin (PPM) will lead you to make decisions around which terms will drive a win-win solution for both parties.

This new method can lead to challenges, however. Even though the lead market is managing the relationship with Amazon, it’s important to internally align on strategies to drive growth across individual territories. When different strategies are applied across markets, setting KPI’s will ensure that none of the markets are treated as an afterthought.

If you’ve received an email asking you to modify your trading terms, your account is probably part of the Vendor Success Programme or VSP. Without the benefit of direct interaction with a vendor manager, VSP vendors will have to follow a distinct procedure and negotiations will be hard to conduct. Reject agreements in time (as they often auto renew) and set time aside to counter Amazon’s demands.

Supply Chain – it’s time to do a full review

Operations in Amazon is an area that is often overlooked. Whilst ensuring your content, advertising and pricing is managed optimally, it’s crucial that Amazon’s operations are managed correctly and with limited penalties. Before negotiations begin, do a deep dive into your supply chain with Amazon, as this could result in reducing the cost to serve Amazon by up to 70%. This will aid annual negotiations with Amazon, where investing in Operational Programmes could benefit both businesses in cost savings and bottom-line improvement.

PICS, Pallet Ordering, and Vendor Flex are some of the programmes available to Vendors. You’ll of course need to have a relationship with a Vendor Manager to further discuss these programmes. Be sure to conduct an analysis of your current methods to understand what’s working and what isn’t. Identify any chargebacks you’ve seen throughout the year as well as the common causes. This will arm you with information to identify which programmes could be most beneficial.

Part of your Joint Business Plan with Amazon should be to drive incremental growth, as well as focusing on how to improve the supply chain. This will result in profitability and hold your business in high regard with Amazon.

Final thoughts…

When kicking off planning for 2023, make sure your teams understand the true root causes which led to the profit performance of your product listings. Armed with this knowledge and data, your business will be optimally positioned to manage the annual terms negotiations. Amazon doesn’t expect you to accept its first proposal as is, but you are expected to provide feedback promptly. Spending the closing months of 2022 being extra savvy and embracing the opportunities Amazon has to offer will create an ideal segue into 2023 and those dreaded terms negotiations with Amazon.

For more information, Asha can be contacted on asha@etopiaconsultancy.com.

Asha Bhalsod Asha has 10 years eCommerce account management experience, including at Amazon and managing the Amazon/ eCommerce businesses at Tomy UK and Melissa & Doug. She now runs Etopia Consultancy, to help brands create their eCommerce strategy and grow their Amazon business, and can be contacted on asha@etopiaconsultancy.co.uk for guidance with trading on Amazon.