By Martin Heubel, Amazon Strategy Consultant at Consulterce
Most retailers will prioritise unit growth in 2024. And most Amazon vendors aren’t prepared for it.
That’s because CPG brands relied on cost increases to drive revenue over the past two years.
But in light of rising competition among retailers and shoppers that have become more price sensitive, increasing prices is no longer an option.
So major retailers will require brands to participate in more promotions in 2024
Which creates more price pressure and margin compensation requests for unfunded promotions on Amazon.
So here’s what you should do to protect your 1P margins:
1. Restructure your promotional budgets
Chances are you have allocated budgets for promotions in 2024. And since many price promotions that impact Amazon’s matching algorithm are run by retailers, you’ll want to make sure you allocate enough funds to support Amazon’s margins.
This may mean that you participate in fewer deal events with Amazon itself. However, you will still see an increase in volume because Amazon matches other retailers’ promotions.
2. Accept short-term disruptions
Prepare for Amazon’s margin compensation requests. Review cost support where necessary. But I don’t recommend signing any guaranteed margin agreements, even if that means Amazon suppresses the Buy Box temporarily.
3. Update your assortment strategy
There’s no point in keeping listings alive on Amazon that cannot realise a profit for either party. But it’s vital to identify and address the root causes for low-profit margins and reflect them in your future NPD and product launch strategies.
For further information and support, contact Martin Heubel here
