By Martin Heubel, Amazon Strategy Consultant at Consulterce
If you’re trading with Amazon, chances are your Vendor Manager has asked you to sign:
- Cost support agreements (CSA)
- Matching compensation (MCP)
- Guaranteed min. margin agreements (GMM)
The problem is:
All these compensation types improve Amazon’s Net PPM.
But leave you at risk of losing money on every sale.
Yet, ignoring these investment asks may get your portfolio delisted.
So here’s exactly how to deal with Amazon’s margin requests:
Step 1: Assess the business case
Start by understanding whether the Net PPM on your account has declined over the last 3-6 months.
If it’s unchanged, you may want to ignore the compensation request.
However, you may want to take action if there has been a decline.
Step 2: Reduce the scope
Vendor Managers are known to inflate their investment asks. So you want to make sure you reduce the investment scope.
You can do this in two ways:
First, you want to limit the investment to ASINs most affected by the margin decline. Don’t grant account-level support, as it will limit the effectiveness of your funds.
Second, you want to limit the compensation length. I don’t recommend signing these agreement types for more than one month. Instead, re-negotiate the setup if the issue persists.
Step 3: Address structural deficits
Now it’s time to address the root cause of your low Net PPM. The way you do this will depend on the individual business case.
However, here are several starting points:
- Delist structurally unprofitable selection
- Create bundles to improve their value proposition
- Onboard unprofitable items to cost-saving initiatives
Note: Margin compensation is a sensitive topic for most organisations. Always seek legal advice from a professional to ensure compliance with your local competition laws.
For further information and support, contact Martin Heubel here
