By Martin Heubel, Founder and Director of Consulterce, a strategy consultancy for B2C Household & CPG brands.
Yet, many suppliers are relentlessly focused on cost increases (CPIs). So let’s take a closer look at why that’s a problem and better ways to engage with Amazon.
It’s no secret that raising cost prices is one of the biggest challenges for Amazon vendors these days.
But even brands that get their CPI accepted aren’t happy. That’s because most CPIs are doing more harm than good:
- Amazon CRAPs products with low margins
- Advertising options get blocked on affected listings
- Promotions and born-to-run campaigns get deactivated
- Sales are racing to zero as a result
- Amazon doesn’t place any new orders
How could that happen?
In these cases, Vendor Managers agreed to a cost increase that wasn’t competitive. Often because the brand threatened to stop shipping orders if the CPI wasn’t accepted.
But what most brands forget is that Amazon is a price follower.
In other words, Amazon will never pass higher cost prices on to the customer, unless:
- Other retailers are increasing customer prices
- The Recommended Retail Price increases with your CPI
- Your new cost base translates into the market segment
This means that cost increases won’t lead Amazon to change its pricing strategy.
It will still follow the market.
So unless you also focus on increasing the item’s Average Selling Price, Amazon will stop placing POs for products that have become unprofitable following a cost increase.
Which raises the question: Do you want a decent margin on a top-selling item OR a high margin on a listing with no sales?
For further insight and support, contact Martin Heubel here
