By Martin Heubel, Amazon Strategy Consultant at Consulterce
Amazon waves goodbye to low Average Selling Price (ASP) listings, with drastic implications for 1P vendors.
It’s a complete U-turn in Amazon’s retail strategy:
After launching millions of single items during the pandemic, Amazon appears to be starting to ask brands across several categories to stop listing new products under $10.
Some EU Vendor Managers have started to ask manufacturers to list the next bigger pack size.
This shift isn’t a major surprise:
Selling items as low as $1 comes at significant variable costs for the online retailer.
While this fitted Amazon’s growth and expansion strategy during the pandemic, the retailer must now focus on margins.
Yet, Amazon’s complete turnaround comes with major implications for brands:
1. Negative impact on sales performance
Brands that sell in categories with a high share of low ASP items will likely see sales growth flatten. And this is a best-case scenario.
With some vendors having a low ASP share of as high as 70%, the sales impact of this change can be dramatic.
And means that affected suppliers must make the return to growth a central part of their AVNs for 2024.
2. Higher complexity to customer acquisition
There’s another major problem with Amazon’s sudden selection shift:
Products priced under $10 are a major gateway to attracting first-time buyers. That’s because the low price also lowers the risk of a bad purchase for customers.
Now that Amazon is changing that dynamic, vendors must find new ways to lower that risk barrier. This means creating offers that meet the needs of both Amazon and shoppers:
Cheap enough to be as close to the $10 barrier as possible. But still offer enough value for shoppers to risk the purchase.
So keep your eyes peeled for assortment packs and value bundles coming to Amazon in the near future, as they are probably the only low ASP alternatives that brands will use to lower their CAC.
3. Margin headwinds for brands
Last but not least, brands will face the resulting margin headwinds. If Amazon delists products that do not deliver the right Net PPM, vendors must review their current investment base.
Many will have granted trade terms in exchange for Amazon selling lower priced items.
But if the retailer now focuses on larger pack sizes, brands must review cost increases or investment cuts.
Otherwise, they risk over-investing as revenues fall while footing the bill for reworking their catalogue.
For further information and support, contact Martin Heubel here
