If you want to improve your vendor margin on Amazon, it's likely that the first place where things will change is with cost prices. However, it’s a common misconception that Amazon will simply pass on any cost increases to the end customer. In fact, they have many strategies in place to manage their margins and make sure you don't see your prices go up as much as expected!
Amazon will match the lowest price of a product in its marketplace. This means that if you increase your costs, it'll be harder for Amazon to maintain their margin and they might even reject these increases right away!
Considering this, how do you get a cost-price increase approved? Negotiation! The key is to know what are they looking for and how much it would take on both sides of the equation. In this blog post, you can learn to make the process go smoothly and quickly with your Amazon vendor manager in the following 5 steps:
- Step 1: Submit A Single CPI Request For As Many Products As Possible
- Step 2: Upload New Cost Prices To Vendor Central
- Step 3: Communicate With Your Vendor Manager
- Step 4: Negotiate Margins And Dates
- Step 5: Leverage Your Alternatives
Step 1: Submit A Single CPI Request For As Many Products As Possible
Amazon's relationships with its vendors are a delicate balance that can't be taken lightly. They've perfected the game of cost price negotiations and have sophisticated playbooks to counter any requests from the suppliers related to higher prices on products.
Vendors Managers can be very obstructionist during vendor negotiations and might even demand detailed information about the cause of any price change before engaging in a discussion. They often do not go beyond your annual dealings with them, so it's important that you prepare for these discussions ahead if you want an efficient resolution!
What is the best way to increase your chances of receiving a timely review? Submitting one single CPI request for as many products as possible.
If you're negotiating a contract with Amazon, be sure to tie any cost changes in CPIs. They are unlikely to accept them for many months and will rather charge higher rates for longer periods of time instead!
Step 2: Upload New Cost Prices To Vendor Central
The second step to negotiating CPI with Amazon is uploading your new cost price for all line items to Vendor Central.
If you are trying to lower your prices on Amazon, be patient! The system is set up so that any cost increase will get rejected automatically while decreases are immediately approved by Amazon.
The process for uploading cost changes in the Vendor Central is very easy and only takes a few moments. Your manager has access to manually approve this uploaded information, which means you can also make sure it's accurate before submitting them through the system!
However, when uploading new costs, your Vendor Manager can override the system and manually approve them for you in Vendor Central.
They want you to know that they are not afraid of a battle, and will use any tactic possible to delay the process. So make sure your answer is complete before moving on!
Step 3: Communicate With Your Vendor Manager
The next step is to communicate upcoming cost changes to your Vendor Manager and sending an email is definitely an ideal option. And for that, you have to be very careful about writing down the exact cost changes for each line item. Just make sure you have provided the following information in your email:
- Reason why you want the cost change
- Effective date of the cost change
- Average percentage increase in CPI
It's important you highlight that we are experiencing rising costs due to our own increased operational burden and not just temporary fluctuations around us. That’s because Amazon might not want to accept increased pricing, since it is likely to cause an increase in the long-term cost structure.
Here are some reasons that Amazon can accept why your cost structure got changed:
- Rise in shipping costs
- Increase in raw material costs
- Changes in currency exchange rates
Lastly, make sure that the Vendor Manager understands your teams will reject any items on orders placed after this date if their price has not been adapted.
Step 4: Negotiate Margins And Dates
Your Vendor Manager might try to fight you on price. They are concerned if they allow you to increase the cost of products, your account’s margin will plummet. It’s because they plan to keep the prices steady in line with market trends.
Brands who don’t use a data-driven approach to support their claims of what they believe is “fair trade price” will often find themselves in the problem.
If you can show that the accounts margins won't be negatively impacted by this change, then it will increase your chances for success in negotiations!
You may be able to convince your vendor manager by offering them a final bulk order at the current prevailing price and then in return, ask them for accepting the price increase.
Step 5: Leverage Your Alternatives
The last resort for getting Amazon's price changes is to stop shipping affected items. This will force them into accepting the new prices.
Staying in power is key when it comes to negotiating with your vendors. Depending on how much leverage you have, stopping deliveries may cause them to reconsider their decision!
However, if you don't hear back from Amazon after two weeks then you must consider pursuing an FBA/3P strategy. And for that, you’re required to set up a 3P account so you can start selling directly to consumers.
There's no need to worry about Amazon accepting your CPIs if you go with a 3P account. The more skills you have in your team, the less dependent will be on Amazon's acceptance of CPIs. It allows for more control and ownership of the product. However, to successfully run your operations through a 3P account, you need to have an efficient and skillful team.
Final Thoughts
Sometimes, getting a price increase approved can feel like pulling teeth. However, with these tips, you'll have much better odds of succeeding!
Be sure to leverage your negotiation position and consider ceasing shipments, as these measures also increase the pressure on your VMs’ decision not to accept your cost increase and may lead them to return to the negotiating table.
The best way to avoid delaying negotiation is by leveraging your position and considering cease-shipping measures. It’s a tactic to increase the pressure on your VMs' decision-making if they’re unwilling to accept cost price increases.
