Sep 20, 2023 12:00AM
Amazon's eyeing your costs. Amazon's tightening its fiscal focus, pressuring 1P vendors for cost cuts. As holidays are near, Net PPM is the metric to watch. Don't expect leniency for rising costs; prep for hard negotiations. Thanks, Martin.
#Amazon is in money collection mode right now. Here's what that means for your upcoming negotiations 👇💸.
If you're a 1P vendor, you'll likely have faced cost support requests and threats from your Vendor Manager to remove selection over the past few weeks.
As Amazon prepares for the peak holiday season, its buyers want to ensure their bottom line is in good shape.
But their rationale for demanding cost reductions, margin support, and increased trade investment gives us a great insight into their upcoming AVN strategy.
Here are 3 key takeaways vendors should take note of:
1. Net PPM remains Amazon's NorthStar metric in 2024
As brands feel more pressure to maintain sales in the face of high inflation rates, price promotions have picked up again.
This puts Amazon's Net PPM under pressure, especially in CPG categories. This leads Vendor Managers to focus on addressing the Net PPM decline across many of their accounts year-over-year.
2. Amazon will push for cost reductions
Rising raw material and logistics costs have led many suppliers to increase their cost prices with Amazon. In fact, most suppliers have increased their prices several times over the last 12-24 months.
But make no mistake: Amazon is well aware of the now falling exchange rates, commodity prices and logistics costs.
What's worse, most brands are struggling to translate their higher costs into the prices for consumers.
So expect Amazon to push for cost reductions in your upcoming negotiation. Especially if your recent cost increases exceed your ASP performance year-over-year.
3. Vendors must find ways to bridge the profitability gap
The current economic dynamics are, unfortunately, in favour of Amazon. The online retailer still attracts tons of traffic, with suppliers scrambling to secure their top and bottom line.
So as you prepare your AVN strategy for 2024, make sure you have a solid plan to close the profitability gap for the online retailer.
The best way to do this is to ignore Amazon's tunnel focus on cost prices and trade terms.
Instead, consider how investing in retail media can positively impact your portfolio mix. And combine this with other cost-saving initiatives, such as logistics and fulfilment programmes.