Managing Key Challenges Being a Brand in Amazon’s Vendor Central Program
July 30, 2020
Meet The Speakers
Listen to the podcast
Here’s a glimpse of what you’ll learn:
- Gabriella Neske’s advice to brands that are invited to sign up with Amazon as first-party sellers
- Scott Ohsman explains how working with Amazon compares to working with other big-box retailers
- How Amazon vets the brands they intend to work with
- The costs and expenses brands incur by doing business with Amazon
- What brands need to know about advertising on Amazon in order to avoid making costly mistakes
- How Gabriella helps brands estimate what they will get paid by Amazon
- The best ways to avoid stockout problems caused by Amazon’s forecasting algorithms and seasonal purchases
- What does the Amazon Born to Run program help brands accomplish?
- How brands should prepare themselves for Amazon’s sophisticated price-matching capabilities
- Gabriella and Scott discuss how brands can manage their sales on different online channels
- Why brands should not be entirely reliant on Amazon for their business
In this episode…
Many brands are thrilled to receive a call from one of Amazon’s vendor managers inviting them to sign up as a first-party seller. While the Vendor Central program is a great place for brands to sell their products, it does come with its own unique set of challenges.
For instance, there are many costs and expenses incurred throughout the program, as well as an increased demand for marketing and advertising. Because of this, it’s imperative that brands know what they are getting themselves into before signing up.
In this week’s episode of the Buy Box Experts podcast, host James Thomson interviews Gabriella Neske and Scott Ohsman, both from Buy Box Experts, about some of the major challenges that brands face in the Amazon Vendor Central program. They discuss the common costs associated with being a first-party seller, the importance of increased advertising on the marketplace, and the best ways to avoid stockout problems as your popularity grows. Stay tuned.
Resources Mentioned in this episode
- Buy Box Experts
- The Prosper Show
- Controlling Your Brand in the Age of Amazon by James Thomson
- Disruptive Advertising
- Gabriella Neske on LinkedIn
- Scott Ohsman on LinkedIn
- Amazon’s Vendor Central Program
- Kenshoo
Sponsor for this episode
Buy Box Experts applies decades of e-commerce experience to successfully manage their clients’ marketplace accounts. The Buy Box account managers specialize in combining an understanding of their clients’ business fundamentals and their in-depth expertise in the Amazon Marketplace.
The team works with marketplace technicians using a system of processes, proprietary software, and extensive channel experience to ensure your Amazon presence captures the opportunity in the marketplace–not only producing greater revenue and profits but also reducing or eliminating your business’ workload.
Buy Box Experts prides itself on being one of the few agencies with an SMB (small to medium-sized business) division and an Enterprise division. Buy Box does not commingle clients among divisions as each has unique needs and requirements for proper account management.
Learn more about Buy Box Experts at BuyBoxExperts.com.
Episode Transcript
Intro 0:09
Welcome to the Buy Box Experts podcast we bring to light the unique opportunities brands face in today’s e commerce world.
James Thomson 0:18
Hi, I’m James Thomson, one of the hosts of the Buy Box Experts podcast. I’m a partner with Buy Box Experts and the former business head of the selling on Amazon team at Amazon, as well as the first account manager for the Fulfillment by Amazon program. I’m co author of the book Controlling Your Brand in the Age of Amazon, as well as co founder of the Prosper Show, one of the largest continuing education conferences for sellers on Amazon in North America. Today’s episode is brought to you by Buy Box Experts. Buy Box Experts takes ambitious brands and makes them unbeatable. When you hire Buy Box Experts you receive the strategy optimization and marketing performance to succeed on Amazon. Buy Box Experts combined executive level advisory services with expert performance management and execution of your Amazon channel strategy. Go to buyboxexperts.com to learn more. Before I introduce our guests today, I’d like to do a big send out to our partners at Disruptive Media. For off Amazon advertising Disruptive Advertising offers the highest level of service in the digital marketing industry, focusing on driving traffic, converting traffic and enterprise analytics. Disruptive helps their clients to increase their bottom line, month to month.
Alright, our guests today are Gabrielle Neske and Scott Ohsman, both of Buy Box Experts. Gabriella Neske is a senior account manager at Buy Box Experts supporting large brands on first party and third party Amazon Marketplace issues. Gabriella previously spent more than five years at Amazon as a vendor manager and buyer and has also worked at Nordstrom Direct and Groupon. Scott Ohsman is a partner at Buy Box Experts. Prior to Buy Box Experts, Scott founded the Cairn Company and the Frontier Group where he was a manufacturer rep for dozens of outdoor brands helping them with their Amazon 1P relationships. I’ve invited Gabriella and Scott today to join me on the Buy Box Experts podcast so we can discuss many of the confusing aspects that some brands face with the Amazon vendor central or 1P program. Gabriella and Scott, welcome and thank you for joining us today on the Buy Box Experts podcast.
Unknown Speaker 2:35
Thank you for having us. So
James Thomson 2:37
I want to I want to start with a situation I often run into where you both worked with dozens of brands that have sold on the Amazon 1P portal. For many brands. Their first interaction with Amazon is they get a call from a vendor manager. The vendor manager says we love your brand. We want to do business with you. Why don’t you sign up with us For many brands, that’s an exciting call because Gosh, Amazon’s a big channel. And sure enough, you know, the brand to like to sell a lot of product through that channel. We’re going to talk about some of the issues that brands face when they sell as a first party brand. But what would be your words of advice to that brand person who’s getting that call from Amazon for the first time asking them about potentially wholesaling to the 1P 1P side of the house?
Unknown Speaker 3:29
Scott, you want to take that one?
Scott Ohsman 3:30
No, I was just pointing to you.
Gabriella Neske 3:32
To me. Oh, that’s there we go. Well, I would first say that you’re absolutely right, James. This is an exciting time for brands to be invited to Amazon. It sounds great. Everyone wants to get on the platform because they believe that means automatic sales and automatic dollars coming into into their business. The greatest advice is really to get to know what you’re getting into understand the terms of what you’re getting into relative to that can be anything from Co Op agreements. To how you’re going to work with your vendor manager, you know, these are all things that you know people learn in hindsight, you know, you as you mentioned before vendor managers change seats very often, the agreement you may have made verbally with a vendor manager three months ago may not be valid, come review and switch out. So it’s really important to understand what you’re getting into relative to your co op agreements, some of the basics, and then how you think you are as a brand equipped to manage things like inventory, just all of the Self Service components of the vendor central side, and it really is self service, even with the best vendor manager behind you, if you are able, if you’re big enough, and you’re able to get that audience with your vendor manager and you have a great relationship, you’ll probably continue to have that and you’ll probably have continued to have contact with them. The biggest thing is having that inside contact with a vendor manager to help you with some real day to day things. I mean, outside of hiring experts that manage with Amazon, it’s really, really important to understand that this is a self service type of arrangement, you’re going to understand how to ship into Amazon, all the protocols, everything from labeling your boxes, and you need to get it right the first time. So it’s, you can create a, you can create a big mess for yourself. If you don’t have the right data. You aren’t clean about it. It’s not just content piece, but the catalog and the back end. So some of the real you know, basic legs and stool if you will,
James Thomson 5:28
Scott, let’s say I’m a brand and I already sell to other brick and mortar retailers, including big box, Amazon comes along and says we want to do business with you. What can a brand expect to find that’s very different about that Amazon relationship relative to other big-box retailers?
Scott Ohsman 5:46
Yeah, in concept it’s very similar. It’s a retail relationship. Like you just said what is very different with Gabriella kind of spoke to is the terminology that they use is very different than any other national retailer. How they count the money. As far as your discounts, the product counts all the all the intricacies their freight allowance or damage is somewhat alike now to most retailers, so in you need that’s why you need a translator to basically take Amazon internal acronyms and things that they come up with that nobody else uses. Yeah, and an ability to translate to Oh yes, that’s actually just a product discount, or that’s MDF, or that’s this and the other part of the world, this is how it works. And then to the Self Service. The routing guides are basically very similar, but the the intricacies and the complexities of their distribution and fulfillment center and how they send purchase orders in and how they’re processed, is different than many national retailers or any retailers, for that matter. So and then the bigger picture too, just to add on one thing as far as the Gabriella spoke about was when they call you and you can About you are selling you have other sales channels, you have to understand product segmentation like what what is going to be there? Because what we talk about all the time with our clients is price and brand integrity. Yes, they rule everything. So when you set up the Amazon channel, you have to be very careful and thoughtful of what effects that’s going to have on your other channels.
James Thomson 7:22
So often, when that call comes from the vendor manager, there, there may already be some of your product being sold on Amazon by various third party sellers, be them authorized or unauthorized sellers. How does Amazon vet a brand to get to the point that they’re ready to potentially do business with that brand?
Scott Ohsman 7:42
Well, Gabriella had to do this. So she would be vested, didn’t you? Right? Oh, yeah. Yeah, this is this is not you. Gabriella actually did.
Gabriella Neske 7:52
So yeah, it’s you know, we’re obviously I mean, hypothetically, if you’re looking for Amazon has data In the background that will tell you based on unknown glance views which products to go after and who which brands to go after. Like they calculate that and they will say, Hey, you know, we’ve you know, we’ve received 100,000 glance you know, unknown glance views meaning there’s no retail offer no Amazon ships and sold by Amazon offer. That’s a brand we might be looking at and you’re a vendor manager in your space, you’re going to be looking at the brand. Based on top brands in that category, you’re going to know which brands to a degree you want to go after, and that that data is going to help guide some of that decision. And then when you get to the stage where you’re actually getting the brand, and the brand is coming on the platform, that’s where, you know, Brand Registry comes into play. That’s where a big discussion with a brand about channel governance comes like how are they going to manage their you know, now they’ve got all the, you know, sellers out there that are selling their products, good, bad or indifferent. How are they going to clean that up? Do they want to clean that up? Do they have authorize destroyed bidders that are allowed to sell on Amazon etc so there’s a big cleanup process that can really ensue when you have a maybe a top brand that is already has their products being sold there
Scott Ohsman 9:10
now here’s one thing though James I want to add what happens when when they come to the brands and Gabriella never did this i’m sure but what happens is large enough brands enough profit and enough demand as she said what they do it and this is every retailer and every brand every sales manager every loves as they come to and say I’m gonna write you a big big purchase order. I mean it’s gonna be big. Nope, that is what the reality of brands senior lead management investment comm that is what is so difficult to, to garden in to kind of walk away from or to say, yeah, we’re not going to start with a million dollar Pio. Let’s start with this because the catalog and everything else the bigger onto that is we want everything you make. And the important thing in hindsight, which got real I spoke to is the brand’s like, I wish I would do a sold of everything. I wish I wouldn’t have set up 8000 skews and and the lore and the the sexiness of that huge purchase order is what brands it’s a difficult difficult decision.
James Thomson 10:16
So you can make you make that short term decision to take the big Po, what do you give up potentially a medium and longer term as a result of jumping headfirst into into vendor central
Gabriella Neske 10:30
control. Honestly, you I mean as you know, Amazon is a price follower, they don’t adhere to that pricing. This goes back to that whole channel governance discussion if you are not controlling your channel. If you haven’t segmented your products appropriately or if you have other distributors selling your products on Amazon. You know that’s fine. You may join Amazon and get that p o and you may be on Amazon’s platform, but your products will not sell if you’re not winning the buy box and if you’re not winning the buy box, your products going to be sitting there and that hundred million dollar p o or whatever that is, turns into dead stored inventory that Amazon is soon and very quickly returning to you.
James Thomson 11:10
So let’s let’s talk about how Amazon aggressively negotiates. So there are many different types of charges that a brand can expect to pay Amazon. And Amazon has data within each category around return rates and shipping costs and what I’ll call slotting fees. Amazon doesn’t call it that. No, take me through the types of expenses that are basically the cost of doing business with Amazon versus costs that are tied back to some specific aspect of the product catalog that you’re actually offering Amazon.
Gabriella Neske 11:47
Right so Amazon, standard deductions come in the form of an MDF, so that’s marketing fund, returns of damage allowance and freight and those are typically the big three Also have quick paid discounts at the accounting level. So for instance, if you’d like to get paid in 30 days, they will take 2% 2% 30. net 60. Yep, most people are familiar with that one because that’s kind of a standard. Otherwise, your net 90, I’m sure some of that’s probably changed but, so you’ll have those standard discounts. Those discounts can range, the MDF, free damage, those can range anywhere. I’ve seen them as high as 24%. Category dependent, a little bit of negotiation on the front end. Depending on how important the brand is to Amazon, you may have a little more wiggle room when you first join. And your greatest opportunity with Amazon to do well you know is the day you sign on. So strike while the iron is hot. The day you sign on. If you’re meaningful enough of a brand. You might have some negotiation room, you’re going to have other ancillary costs if you’re if you are really strong at fulfillment out of your own warehouse to Amazon, labeling, all of those things, you’ll minimize chargebacks, which can be large and come as a huge surprise to a brand who just made a small misstep wasn’t their intent. All of a sudden, you’ve got $100,000 chargeback you’re trying to negotiate with Amazon to get rid of. And that can be a huge impact to a brand. So you’ll also have another marketing fee. People think, Oh, well marketing free, great, I’m going to be on Amazon and they’re going to market my products. That doesn’t mean that advertising is a separate fee advertising is something you have to do. In order to build your brands on Amazon. It’s an absolute must, you cannot do it. Gone are the days where you can throw a product on Amazon and just see itself. So advertising is a must that can be you know, 10% you know, 10% of your total, you know, UPS revenue. And then again, that advertising helps build your products and it’s an investment right? And then you’re going to have other things like holiday rate cards. Don’t you want to participate in this event, Prime Day discounts that you’re going to offer Amazon on particular days holiday Is coupon you might run all of these other little ancillary things that you need to think through, it’s really important that brands take a look at their margin structure prior to going into this relationship with Amazon. Do you have your fees covered? Are you I mean, you can’t account for everything on every single product, of course, but you need to think through your margin structure and how you’re going to cover your costs. When you’re when you actually come when you get the bill at the end of the month.
James Thomson 14:26
You talked about the difference between marketing and advertising for for many brands selling into other big-box retailers. They’re used to having slotting fees, but they’re also used to selling to the channel and then the channel decides to promote the product as they see fit because, gosh, you know, these other retailers, they control pricing and so if they want to promote it, they promoted Yes, yes, the brand may decide to fund promotion. But this this issue around, hey, just because we have your product doesn’t mean that you can avoid having to Get your hands dirty in the actual marketing of your products by way of driving traffic to your particular product listings. How do brands make that transition when they’re not used to having to do day to day advertising campaign management, and now they’re having to do that on Amazon.
Gabriella Neske 15:16
that’s a that’s a tough one for brands that aren’t used to that. So if you’re a wholesaler who’s never dipped your toe into this environment before this is going to come as a big shock, especially when you’re used to dealing in cogs dollars, you know, not at retail or revenue dollars. advertising is all at that retail level. So it skews things a little bit and it’s hard for brands to appreciate that this investment that you’re making in your brand you know, if you have a good return on adspend you’re going to continue to I mean for lack of a better term money I hate to use that makes it sound so guaranteed. But you are going to continue to make money for your brand and continue to build your brand so you are lifting your search rank and relevancy. So you are always Up at the top of the page, and that is core like a sponsored product ads sponsored brand ads, those are the bread and butter of Amazon. And you have to do it, it is a tough sell for a lot of brands, though they don’t understand it, it’s not sort of that same mental end cap type of arrangement or to your point where, you know, once the, the company has the product, they’re going to market it in ways they see fit in different events, and it’s not going to cost the brand. So there is there they have to know, you know, on top of all of the co op fees, you’re looking at some investment in advertising, it’s a must.
James Thomson 16:34
Sometimes Amazon will manage that advertising for you. Sometimes a brand may have talent in house that figures out how to manage advertising. Sometimes they’ll hire a third party agency to do this. Obviously, we’re an agency and you know, we like to manage advertising for others. But if you’re in a brand’s position, what what do you need to know at a minimum around how to manage advertising and drive traffic to your Amazon listings, but what do you need to know is In order to avoid making very expensive mistakes, I think of I think of so many of the big fat checks that are written, where there’s not necessarily a cause and effect of I spent this money and I actually got something that I can explain and show to my fellow executives. How do you think about those types of issues? Scott?
Scott Ohsman 17:22
Well, yeah, it is. It’s difficult because they’re not used to it. So typically, they go to a retailer, just kind of, you know, drawing upon the last question here. Pay I pay 2% 3% Co Op. Yeah, that means right, I have a 2% off the product cost. And so Amazon originally and vendor central in the UK called the 1P right, they use that same term Co Op, but it was like 10% they’ve now you see Co Op or you see a cruel as part of that. So they say 10% What am I paying you? 10%. Then Amazon comes back and says, Well, hey, if you if you search your brand on Google We have this we pay for the three top spots, and we also have all these other costs incurred. In addition to that, then the brand to answer your question has to look at advertising. And there’s two ways to look at this. First of all, you have to, we always talk about the bucket, right, I have a bucket of product discount that I give my other big-box retailers, it’s this amount. So Amazon, if you want to put that in freight accrual, however you want to do it, here’s the luck, that bucket has to stay alone. And then on top of that, you have to think about the advertising cost. And there’s two ways First of all, there’s transactional so Amazon, you can approach Amazon these brands as a transactional account, or and then you drive that into I want to actually look at it as a brand awareness and brand builder platform
James Thomson 18:50
that is giving example of what you’re talking about.
Scott Ohsman 18:54
So transactionally I want if I if it’s a count, there’s two different things brand always is This is a challenge. It’s an account okay? So if I attribute my budget Well, you have 10% of total purchase orders net invoice for your advertising on that account. Okay, great. But that’s just your account that’s transactional. That means if I sell $100,000 on Amazon POS I get that. Okay, I’ve 10% of that is I can spend on advertising over and above the co op, a cruel, freight effective all those things. That is, is great. But what happens is once you build that up, then you have to go as a brand and look it as a marketing and advertising so I can actually use Amazon to grow my brand and all my other channels. That should be a company brand advertising marketing budget, not a single account budget. And that is very tough for brands and brands are struggling to figure that out.
James Thomson 19:59
So it’s Find a brand that selling to other retailers that also have an online presence. What I’m hearing is Amazon is making sure that you fund them enough money that they can basically dominate Google if they’re so inclined. And do that potentially at the harm of other retailers that are also selling your products online. In other channels.
Scott Ohsman 20:21
Yes, but then you’re getting into whole channel distribution and product segmentation, which I think I don’t know if we’re going to cover or not, but that’s you’re absolutely right. It now they will tell you and this they don’t do this anymore. Gabriella can probably refer to this. They used to say, hey, for every dollar you spend on Amazon, we’re actually it’s could return $3 off Amazon or $5 off Amazon it It changed. Yeah. And people and brands were like what? Or they were like, really, that’s great. And that is true, because we understand where the customer journey is. Amazon takes a huge part of that and product searches. All those things. So the transactional part is let’s build an account business that’s actually profitable and drives business. Then also, once you get to that level, and Gabriella can speak to this with a lot of her current clients and past, then you start seeing it actually, you do see that off Amazon return.
Gabriella Neske 21:21
Right. I think the other thing that’s tough for brands to, you know, holistically buy off on is that if you think about, so Amazon gets what 200 and 6 million unique visitors a year. Right now, give or take, I’m sure it’s probably higher. Who knows? They say based on data I’ve seen recently that 62% of those folks are prime prime customers. Okay. Now, if you think about a brand’s traffic per month, hypothetically you have Brand X say they get, you know, 4000 unique visitors a month if you think about the size of Amazon And the size of the traffic of your brand that’s not zero. It’s just meant to be a circle. Yes. And you intersect that at approximately the 62% range, you might find just based on a visual that most all of your customers are probably prime shoppers. And it’s that trust that gets customers coming back to Amazon and buying the product. So it’s important to be channelized and understand what you’re selling to each one. But it’s also important to know that customers a lot of times will make the choice to come back to Amazon and buy the product and that off site conversion so that traffic that comes from Google or Target or wherever it’s coming from or Instagram or Facebook or however you doing your marketing. If that converting traffic that’s what’s that’s one of the highest rewards to a product Amazon can give in terms of search rank and relevance. It gives it a nice boost. can’t quantify it exactly, no, but we know that there is an offside offside boost in that reward traffic. So it’s helpful to help the brands understand to to Scott’s point that this is an ecosystem. It’s not just these individual little fingers on a hand. It’s a one shopping experience for a customer because a customer has a can go anywhere on the internet, pick out wherever they want, they got a product, decide that they want to go look for it on Amazon and buy it.
James Thomson 23:21
So I want to go back to the the issue of these various types of fees. One of the complaints that I have heard firsthand from various CFOs of brands that sell first party, the CFO is that they never know what they’re going to get paid by Amazon, because there’s going to be various discounts and accruals that show up. Some of them are mysterious to the CFOs. And just being able to know how much should we expect to be paid for this, you know, this truckload of product that we shipped into Amazon. The CFO is never quite sure what they’re going to get paid. How do you help brands to wrap their head around this uncertainty around what they’re going Get paid for what they’re delivering tammuz on.
Gabriella Neske 24:04
Scott, you want to take this one? I feel like you have a good well, I feel like you have a good deal. This is a tough conversation for brands and definitely tough for leadership. Because you know, $1 in does not equal $1 out, you know that po that gets cut to you for that, you know, we’ll just use the million dollar example. No, no, your million dollar example is now being deducted by upwards of 24%. If you have chargebacks, or whatever else it is you’re doing, whatever advertising you’re doing, any any of those ancillary costs are going to affect the total value of that value of those goods and the value of that pm. So that’s, it’s, it’s a tough one to figure out how to. It’s not tough to quantify. You can certainly provide data. It’s It’s not difficult math to share, but it is that front for me. It’s a front end discussion with brands on Hey, let’s understand what your charges are going to be. At least the ones you know We can be 100% certain that we are getting the value of this million dollar IPO and then understanding. Also understanding there’s a lot of setup on the front end that a lot of discussion that needs to be had around Hey, this million dollar IPO is exciting. So good. I’m so excited to finally get this video in the Amazon game. And then it is quite literally all the deductions come. And if that’s not it is literally about setting the table in front of letting your brand know and then understanding like to Scott’s point earlier, let’s not sell everything to them. Let’s give them a few of the top sellers to test it. Make sure what we’re doing is proof proof of concept. Let’s make sure we have proof of concept before we are just saying hey, let’s give them everything because they do you know as you know like even on the small, small retail as in small ASPCA since you know the crap as everyone loves, if it’s crap in their channel, it’s going to be cropping your channel so they’ll and they’ll have no problem shipping that right back to you
James Thomson 25:59
for those Have you ever heard this term crap is actually a proper term used? Sorry, it’s not it’s not a bad word. Let’s Let’s talk for a minute about the issue of forecasting and staying in stock. Now, one of the one of the double edged swords about selling on Amazon, at least getting started on Amazon is, you may find that there’s a lot more demand on Amazon than you ever expected. And so, you’re getting started with Amazon, you’ve done the first few IPOs with Amazon. They’re ramping up inventory. But in fact, for external reasons, your products selling faster than anybody expected Amazon’s forecasting algorithms aren’t necessarily keeping up. And there are stock out problems not not driven by you the brand not having inventory to send in but rather Amazon’s not forecasting fast enough to make sure they replenish so they don’t have a stock out. How do you fix this problem? Because you’re not the one cutting the pios How do you get Amazon to make sure they stay in stock. I
Unknown Speaker 26:58
got my favorite topics of all I’m
Gabriella Neske 27:00
well and we both have very different opinions about this.
James Thomson 27:03
We’re not different but we’re gonna hear from both of you. Great.
Gabriella Neske 27:05
Exactly. So
I go back to the it’s all about relationship with the vendor manager you need to have this vendor manager relationship in order to make sure you understand the day to day in day out all of that but relative to forecasting and stock. So we’ve I’ve had experiences with brands recently that are experiencing stockouts, some due to Coronavirus, some due to mismanagement, some do you know, to various things, you need to be really good in your own backyard about managing inventory. You need to understand what your flow is now forecasting it. There’s lots of software out there. There’s lots of different programs that will help you forecast I recommend it um, Amazon has the forecast inside of vender Central. They do do it at a p 90 confidence rate, which basically says you don’t want to be out of stock if at all possible. I don’t know.
Unknown Speaker 27:56
What is this P 90 mean? We’re talking
Gabriella Neske 27:59
99 These are they do a p 70 p 80 p 90 i believe it goes as high p p 90. I might might be wrong on that. But um, they go. So those are the the different levels of inventory that will give you a confidence level like a 70% confidence level and 80% confidence level that you are going to stay in stock based on current conditions. It does not account for blips, Prime Day Off price strategies, any of that stuff. Sure. And it does get. I’ve seen it get fairly squirrely at the 26 week mark, you know, as you get farther and farther out, it gets more and more difficult to predict exactly what that’s going to look like. So even if you had your magic eight ball, and you could really predict this, you’d probably be gambling in Vegas by now. But But anyway, so the the forecasting piece of this is also having that I go back to this relationship piece. I think it’s really, really important. You can ask vendor managers if you have a good relationship to stage pios you know, our Are you able to stage pios to control potential stock outs, that’s something if you have a good relationship with them, it’s something they will do. You can also work with them on things like direct import, that obviously if they’re looking at direct import from China right into Amazon’s fulfillment centers, that represents a discount to Amazon so they want to take that into consideration. It is a way for high volume product, it benefits Amazon to definitely benefits amazon customer. These are very much for high volume products that you know you are going to sell.
I know we the other piece too is having.
Having a hybrid model between vendor Central and seller is a great way also to protect from stock outs. So for instance, if you’re waiting for pios to get received in Amazon’s warehouse and it’s taking an extra long time because it’s holiday, you can put in if you are fulfilled by merchant and you can handle that handle that that type of product. That’s a great way to hedge for stock outs. The other, we recently had a brand or I recently had a brand that was invited to the Born to Run program. And
James Thomson 30:10
let’s actually, let’s, let’s hold off a board run for a moment. I want to hear from Scott, we’re gonna come back down in a sec. Scott, tell me your thoughts on forecasting and what else we can do to help Amazon stay in stock on our products as as demand accelerates for our products.
Scott Ohsman 30:29
Yes. So what happens to a lot of brands is they’re used to major box retailers have very sophisticated forecasting. p 90 is a probability metric that is based on glance views and what they feel and it’s done in a weekly basis. It’s hard to manipulate it’s just hard to manage. It’s very different from most other retailers. Because again, it’s all based on algorithms and all these other things and they don’t account for real life things promotional activities, anniversary, all the things we just talked about competitive price issues. Are you go off price or a competitor does they match? So I I am very critical and have been since 2006 of Amazon’s forecast inventory management. And I’ve made my voice clear. So what brands need to do is a few things. Number one, they got to really take itself they have to look at sales. You have to go old school on this. And I’m telling you this will work. You have to go old school by UPC by month and you have to figure out what your sales are. And then you have to layer in Am I doing promotional activity? Do I have other aspects that’s going to affect me. And the biggest challenge for Amazon. And a lot of retailers have this is high volume seasonal goods, the forecast demand system or the forecast inventory. It’s not built for seasonal goods. It doesn’t it doesn’t the machine doesn’t like seasonal goods. It’s very difficult for it. So you have to front load and what Gabriella suggested as far as if you have enough volume to fill containers, direct import, there’s pallet ordering, and then we’ll get into the other programs both by these things. If you’re a mid sized larger brand that Amazon really wants and the vendor manager comes to you then you need to press say I want a meeting and I want to discuss with the in stock manager, I want to pull in the in stock manager so the in stock manager for most retailers and Gabriella has this experience or they call them planners. These are this is the bank. So you want if you’re a major brand and you on a category, they really want you you should fight to try and get a conversation with the banker, which is basically stock manager and and describe why they need to frontload and why you need to manage your forecasting. So you take you download your sales, you lay in a forecast and actual of what you think they’re going to do. And then you force as well as you can through relationship which Gabriella spoke to in stock all these factors, and you try and front load them. And that’s how you manage and you stay in stock and you can utilize these other programs. So part
James Thomson 32:59
part What I’m hearing is, don’t let Amazon be the only one with the data in hand, if you have data that you can bring to bear to these conversations to show that you understand seasonality better than Amazon’s algorithms might, then potentially getting some exceptions made to the way the forecasting model issues pios. You might you might be in a position to get Amazon to buy a little bit more than they’re otherwise comfortable buying. But in fact, you know your products better than they
Scott Ohsman 33:28
do. Absolutely. So we take that we download that I’m not saying don’t take it, we download that and that is one input. But I’m telling you if you know, the sales report by month and you know exactly what the skews do and you know your brand and business better than they do and you also have visibility of for of promotional activities, advertising any other aspects. Then Then you forecast that and you try and get them and work with your vendor managed to do that. A lot of brands the reality though today is they don’t have vendor managers to talk to Do they have to do this themselves. So now you have to manipulate in the best way. And it’s best as yours to the brand with Born to Run in bulk buys and pallet ordering and direct import and all these other programs that you do self self help with to try and make sure that you’re in stock and you maximize the demand.
James Thomson 34:18
Okay, Gabriella, let’s talk about board run. Now, tell me about the program. What does it do? What does it actually help the brand accomplish? What does it help Amazon accomplish?
Gabriella Neske 34:28
So Born to Run is an invite only program it it’s in theory designed for newer that maybe haven’t been on the platform platform before where a vendor will tell submit, recommend recommended buys for a 10 week period. That 10 week starts it commences 20 days from the submission date. So once you submit it, and you know if everyone’s in agreement, and you think the estimate is the 10 week estimate is good they’ll accept it, and then you guys will, they’ll bring that inventory in. And hopefully all things being equal, sales will go well. The tricky part is that obviously this really moves pushes in a good way. I think this works both ways, in a good way in a bad way. This if you’re really good at understanding your business to Scott’s point, this gives the vendor more control over what they think they’re going to sell for a particular job. And it’s that’s a great thing. The flip side of this is that this works for great hot products that you know are probably going to sell it also does work for existing nations, where you might have some demand activity around it. You know, that might be out of out of season or seasonal in nature, like holiday, excuse me in Prime Day. And if it’s not a seller, guaranteed, this product is going to come back to you. So Amazon will return the unsold units they take an account, weeks of cover, sell through and then all of your stamp Shipping and handling fees, all that stuff applies, you’ll get your product cost back plus your standard standard shipping handling handling fees, excuse me. But they will return it and they will keep they will keep if they decide to keep the unsold units, like if it turned out to be a good seller, they’re going to charge you 25% of the cost of the unsold goods. So that’s and then defective and damaged. rate, right? Yeah, so that’s, that’s a chunk of change, right. So you need to think through that. Obviously, if your costs are already in Amazon, on an older product, you’re not going to be able to have a ton of wiggle room with that. So you’re hopefully you’re hoping for 100% sell through, or you’re going to be getting those goods back. And if you get them back, they will take a 10% fee handling fee to get those back to you plus any damaged or defective. So you talked about
James Thomson 36:54
this being a program for new products, but I’m definitely seeing being used for existing products.
Gabriella Neske 36:58
Correct? Correct. Yes. I started off with a yellow. Yeah, yeah, so this is definitely we’ve seen it. I’ve seen it used mostly for new products. However, I’m starting to see this with one other partner currently, where they’re using it to using it to forecast for existing product. And these are products have been on Amazon for a really long time, but they are top sellers. Again, I think this is a just a shift in mentality for the instock managers to say, hey, vendor, you do know your business better than me, you know, when your goods are coming from China, you know, when your things are, you know, when things are going to land stateside, and you tell me how much you think you’re going to sell. And so it’s actually nice if you are a brand that can leverage that type of inventory management, and to the discussion earlier around software’s and different things like that. Those are all you know, like Scott said, these are all baseline numbers that you need. There’s some art and science you need to take a look at the data, throw some art around it relative to what you know, and then do the best job you can coming to Amazon With what your proposal is, whether that be born to run a container by bulk buys, I think this Born to Run is actually kind of replacing some of the some of the bulk buy. But with a good relationship, the vendor manager will work with you in some ways, but keep in mind these discussions around pios, if they’re large enough, also come with commitments to holiday rate card advertising. It is all part of a larger umbrella of conversation. So always keep that in the back of your head if you’re a brand. And make sure that you understand that I’m doing these things. Right now, how does it affect all of these other components? And oh, by the way, when it comes time to renegotiate for Co Op and damage allowance, what does that look like for me?
Scott Ohsman 38:44
If you’re a brand, I just want to be really clear with Born to Run. It is a guaranteed sale program which a lot of brands are very used to comfortable it’s actually becoming more prevalent and national retailers then than ever. So when you go into it cautiously, because This kind of get broad use in 2019. And we had great experiences. Like you said, if it’s a new product, make sure that that product is attached as a variant on a very popular one. What happens is, they’re all excited they get POS for for it, and then the new product doesn’t have reviews doesn’t have relevance as long as so all of a sudden, they get a 25% mark down basically and the talking so it really is a technique and we’ve talked to people about how they use it on existing decent very well selling so that they can actually control because the other thing that happens with brands over the last four years when Amazon decided they want to make money was real quickly. They used to go from a four to six week inventory weeks on hand. Now they’re down to on what depending on the category subcategory GL, they want like a week or two at most, they want to turn it fast. And so as a brand was Born to Run does, again on seasonal goods. It’s a device that you can use to kind of protect your your cell through and not be so lean.
Gabriella Neske 40:01
back. Oh, sorry, go ahead. Well,
James Thomson 40:02
I mean, one of the things that when a brand is working with Amazon, and they’re trying to figure out not just what the total cost of doing business is going to be from a unit perspective, one of the things that’s often not understood well enough is if you have a stockout on Amazon, what is the impact of your organic search placement? What is your impact on your return on investment from advertising? If If you end up not factoring in some of those types of costs, into the cost of having extra inventory and possibly paying Amazon fees for having to return product, versus the cost of having to continue to re ramp up because you had out of stocks for too long? These are not the sorts of things most sales teams have brands have that much experience with and so I’d love your thoughts on how do you help brands wrap their head around some of these additional dynamics. are in play.
Gabriella Neske 41:03
So additional. So I love this. I love this conversation because there are so many things that a brand can be doing in the background, with their managing their business thinking they’re doing a great job. And it really does affect their site placement, how you know how high up there on the page, everything. If you think about how you’re managing appeal on a day to day basis, if you’re constantly flagging items on your POS is out of stock or temporarily out of stock, back ordering them. Same thing but you know, if you’re constantly doing that, that actually affects your sight message over time. And slowly it’s not a huge it doesn’t categorically drop. But it does impact not the same way a complete stockout does. But you know, you’re telling Amazon that we don’t have the product. And so in order to protect customer promise, Amazon will protect its customer by changing the sight messaging available. In one to two days available in three to four weeks or three to five weeks, whatever that timeframe is, it will automatically adjust that. So there there are, again, this is these types of things, it’s really important for the brand to have its hands fully in control of what they’re doing with their inventory, so they know what’s coming, they can prevent those stock outs, whether it be with with all of these other components, but they need to be able to manage inventory into Amazon, understand lead times into Amazon’s fulfillment centers plan for that as a backup. Think through you know, you know, obviously, if they’re doing this level of planning right now, to get POS, they have to back into that all the way to China or wherever they’re getting there. Right, you know, and that’s probably that was the year the year before discussion. So to the best of a brand’s ability, they’re looking, you know, a year in advance or six months in advance and saying, Hey, I’m going to need this much inventory. I’m 99% sure. I’m going to need this much and then how do I plan for the balance
James Thomson 43:00
Let me let me change gears here a little bit. I want to talk about retail pricing. For brands that don’t have a lot of experience with Amazon, they may not realize just how aggressive Amazon is in going out and finding out the retail prices that everybody else is charging for these for the same products. How do brands need to prepare themselves for Amazon’s sophisticated price-matching capabilities?
Unknown Speaker 43:29
Well, yeah,
Scott Ohsman 43:31
I mean, this is a classic and this is something that brands struggle with and it’s it’s understandably they think the value of their product is x. And what Amazon has taught us all and now they’re they’re matching technologies actually, just even recently, we’re seeing this with a lot of our our brands is actually getting more expansive, to be honest. They think their brand is worth x, and it probably is I’m not no one saying that but the reality is the now The consumers actually choosing what your product is actually really worth. And that is when you look at Amazon and you’re trying to sell them probably you have to think about that you have to think through that you have to think through all the different ways with your other sales channels if you’re saying selling the same product, how is that going to affect it when we do a promo at Target or other XYZ company right or there’s a a kind of end of sales you know, in the cart, kind of promo deal or if there’s any other things they’re starting to pick up on this and so they used to always say it’s the mirror right it’s the mirror. So if your brand this just gets into where we’ve been saying for a long time, in the years of manufacturing retail, you chose channels, okay, this is my department store channel, this is my sporting goods channel, this is my math channel. Well brands Hello, I have to decide an Amazon channel. Therefore I have to build product segmentation, channel segmentation, marketing segmentation. From day one of inception, and I have to treat it acted, you know, as as its own channel, and that will mitigate all the different price matching issues and all the things which has been going on for forever.
James Thomson 45:15
So, with COVID, came a lot of attention to online channels. Some brands, either have already been on walmart.com, or they’ve started to ask the question, why are we not on walmart.com? If brands get themselves on walmart.com? Certainly that’s one of the main competitors that Amazon’s bots are tracking multiple times an hour to make sure that prices in fact aren’t cheaper on Walmart calm. How do you manage different channels that each want the best deal for themselves, when quite frankly, at the end of the day, it kind of feels like everybody has to be treated the same. Otherwise, the channels are going to take it into their own hands to make sure they’re treated the same way.
Unknown Speaker 46:02
Another tough one for brands
Unknown Speaker 46:04
This is the these are these are tough.
Gabriella Neske 46:07
These are the good These are great conversations because it is it is because of Amazon has broad reach we had a situation recently where I won’t mention the product but offsite pricing for a particular product was lower on a small website a tiny website that you know is a legitimate website that was purchased you know, they purchased the product, they’re approved distributor of the product and Amazon’s price matching and it was pushing our brands offer into the other sellers bucket. Now that might not seem like a huge deal but your conversion goes way down on a page when you are in that blue other sellers bucket and Amazon has that rejuvenating layer to your point ability to do it. You know, I don’t think they’re, I don’t know if they do it every 15 minutes I’m not exactly sure anymore. But yeah, the the from my lens, at least my opinion about this is that you need to have a very good Channel strategy, you need to have good channel governance. We talked about James, you talked about this all the time, I think about this relative to Who are you selling? What are you selling to target? What are you selling to Walmart? What is your channel ization strategy there so that either you have that and you’re selling separate products and you can manage that effectively, effectively across those channels. And you have to be good, you have to be strong and the inventory, place inventory and management to do that. Or you’re selling the same product across all of them expecting the same result. And because they’re different entities, you know, we all know, I know Walmart is having a reputation of being very frugal and being very conservative with their costing, so they come to the different brands and different vendors with very low, low offers relative to taking on the product. We want this cost in exchange for this to so it’s really tough for brands to manage a single process. To cross all the channels equally, especially when Amazon can see that. And you also need to know what you’re doing from a, you know, a seasonal markdown structure. So that that if you think about the fingers on a hand and all the channels that might be available to that can be really tough to manage if you have lots of different products, but if you’re selling a small segmentation of different products, each one, you may be able to manage that successfully and not have grumpy, grumpy retailers at your door.
James Thomson 48:29
So let me throw a situation that I’ve recently encountered. company sells bulk product in Costco, and sells lesser bulk quantities on Amazon, vendor manager on Amazon. It says we can see what your unit cost is for a different pack size on Costco. We want the same unit cost for our products here on Amazon. Even though the economics are completely different selling into these two channels. Amazon is pushing for that lower unit economics and in fact Is suppressing the buy box periodically, just to mess with the brand. How do you? Oh, sorry. Yeah. How do you how do you have that conversation with the vendor manager to walk through these? You know, different different products, different channels, you can’t compare apples to oranges?
Gabriella Neske 49:18
Scott, I’d love for you to answer this one because you’ve been on this side of the table a lot.
Unknown Speaker 49:23
You say dough? First of all you
Scott Ohsman 49:26
say Unfortunately, no, but here’s what we’d like to do. We’d like to come up with a product mix of a bulk variety that might fit these needs and and actually is a good business decision in case and financially for us and also meets your needs. So that we don’t have to do that. This gets back to the thing James, you talked about for years and your advisories in this is what the brands are doing more now as COVID is accelerated this. They have to get everybody in the room we have to break down internal silos. Because the reality is if you control supply, you can create The channel, period. But the problem is the marketplace people and executive teams, the DDC people, the Amazon people, they all knew. I’m speaking to the choir, James, because this is what you know, we all have been trying to teach people how to do this. You have to get in the room and go, who’s selling what to who? How much, and what does it cost and what’s the retail thing, and you have to get the big board up and make sure that all of it is aligned. And then think through one year, two years, three years of how you’re going to basically create sustainable channel and channels that aren’t just taking money from one bucket to another bucket, which Amazon’s honestly doing in COVID is shine a bright light on that.
Unknown Speaker 50:41
Yep.
James Thomson 50:43
We’ve talked about forecasting. We’ve talked about inventory levels, we’ve talked about pricing, what are some of the big issues that 1P creates for brands that we haven’t talked about that we should be talking about.
Unknown Speaker 50:59
Alliance
Unknown Speaker 51:01
Talk to me about that.
Gabriella Neske 51:02
So reliance on
if you are not, if you don’t have a diverse channel, and you become 100% reliant on Amazon for 100% of your business, you are going to have a lot less negotiating power with them when you’re coming to that table to talk about cost structures, everything all your entire program, your co op, you know, discounts when they come to you in whatever it is February, March and ask for a co op increase. If you’re only reliant on Amazon for your business, if it’s going to be difficult for you to go in and hardball without that feeling of risk or losing that business. So my recommendation to brands is to always have some sort of diversification. It’s I mean, that’s a lesson in finance in general but also just from for the sake of being able to say okay, we’re not the house has not been Burning, we are able to take, take a moment to breathe, figure out what our actual costs are, come to the table and negotiate with Amazon because it they can feel it to some brands depending on your size. And if you are really relevant to Amazon or Amazon wants you it can feel very scary to go, you know, do go go to it with the 850 pound gorilla, you know, it doesn’t feel that way. Sometimes they aren’t necessarily. It’s just that they’re looking for the best possible thing for their customers.
James Thomson 52:31
Scott, other issues, critical things we need to talk about. The just a couple things margin margin margin. What? Oh, that just that little issue? Yeah, that’s a little bit.
Gabriella Neske 52:41
Yes.
Scott Ohsman 52:41
Yeah, that has jumped up and ramped up over the last several years. And you’re seeing it in CPG. And grocery You know, there really haven’t figured out how to sell heavy oversized stuff on 1P actually our third party for that matter. But because of the acceleration of digital grocery and how they have been struggling and pet in these just these huge industries home decor, margins, margin margins, they are going to continue to push and drive manufacturers and brands and vendors to give more money on a unit economic basis because remember, still in vendor Central, everything is looked at the UPC level, right off the metric. So their internal they call country contribution margin. They’re constantly finance teams are constantly going. We’re not making enough money on that product when you add it all up. So margin is big. The second thing is their commoditization of huge, huge sellers, with their private label. And really, Amazon we’ve talked a lot about that as an agency for years. You have to be cognizant, because what happened is you have an item that’s been on there forever and vendor Central. All of a sudden, the sales aren’t high, the margin getting lower and you have a massive impact. petitive that that you didn’t even dream of
James Thomson 54:04
Gabriella and Scott, I want to thank you both for joining us today. For those of you interested learning more about vendor central management issues and solutions, come and see us at buyboxexperts.com. To finish today’s podcast, I want to share some final thoughts. For brands to be successful on Amazon. A critical lever will be launching and managing Amazon advertising campaigns. We at Buy Box Experts are really big fans of the team at Kenshoo. This sophisticated software helps brands to manage ad campaigns, and gather further data intelligence across Amazon, Google and Facebook platforms. To learn more, go to Ken shoe.com. And with that, I thank you all for joining and look forward to talking with you next time.
Outro 54:48
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