Looking for ways to protect your sales and margins in negotiations with Amazon? Explore these 5 proven defensive selling strategies.
Being an Amazon vendor isn’t easy. Whether you’re negotiating vendor terms or a cost price increase with your Vendor Manager…
Amazon’s margin demands often exceed the investment you can offer the online retailer.
But if commercial negotiations fail to reach a solution, vendors will often face Buy Box suppressions or, worse, a temporary trading pause. Both result in lost sales that weaken your position in the negotiation.
Thankfully, defensive selling strategies can restore the power balance for your vendor business.
So today, we’re going to look at:
Let’s dive right in.
What are defensive sales strategies?
Defensive sales strategies are designed to reduce the likelihood of a sudden sales decline due to manual or algorithmic Buy Box or order suppressions on your Amazon vendor account.
In other words, defensive sales strategies can protect your sales and margins, when Amazon would otherwise try and suppress the sales of some or all of your 1P listings.
Why are defensive sales strategies important?
Defensive selling strategies help restore the balance of power in negotiations with Amazon. They diversify and protect your revenue streams with the online retailer, disarming any pressure tactics of Vendor Managers during commercial negotiations.
As a result, vendors who utilise defensive strategies tend to have more productive relationships with Amazon. That’s because they have found ways to limit their order dependency on Vendor Central, which in turn leads Vendor Managers to be more proactive in managing the account.
5 defensive sales strategies for Amazon Vendors
Now that we understand their importance, let’s explore five proven strategies for protecting your sales and profits with Amazon.
Please note: All of the following strategies require close coordination with your leadership teams. This is because they may seem counterintuitive to those executives who have never worked with Amazon before.
1. Reduce your order dependency on Amazon Vendor Central
Many industry experts advise manufacturing brands to move their business from Vendor (1P) to Seller Central (3P). The underlying assumption is that brands can achieve higher profit margins on 3P.
But that’s not always true. In fact, selling via 3P comes with its own pitfalls.
For example, you may need to adjust your account management, forecasting and supply chain processes to effectively service a third-party account. At the same time, you become more dependent on sudden Amazon fee changes that you can no longer negotiate.
So while opening a Seller Central account won’t guarantee higher profit margins, it does reduce the dependency on order placements from Vendor Central.
This comes in handy whenever Amazon reduces ordering volumes or suspends orders entirely during cost price or vendor negotiations.
And effectively ensures that you can recover the otherwise lost revenue, and entices your Vendor Manager to return to the negotiating table.
Please note: Moving your business from 1P Vendor to 3P Seller Central should be done with caution. Amazon restricts US vendors from moving to 3P and it’s not a guarantee for higher margins.
2. Avoid Amazon FC backlogs with Vendor Flex / Direct Fulfilment
If you’re sending shipments to Amazon during the busy holiday season, you may have noticed that the online retailer’s fulfilment centres often get overbooked.
As a result, Amazon may not be able to accept your carrier shipments and delay the inbound of goods.
This not only causes headaches when it comes to finding a temporary storage solution for the already prepared inventory. It also increases the risk of running out of stock on your top-selling items.
Thankfully, there’s a simple way to avoid FC backlogs with Amazon: By launching a Vendor Flex or Direct Fulfilment node.
Both Vendor Flex and Direct Fulfilment describe supply chain programmes that allow vendors to avoid shipping goods to Amazon warehouses.
Instead, the brand reserves space in its own facilities to pick and pack customer orders. Amazon then collects the goods and ships them directly from your warehouse to end customers through its carrier partners.
This setup not only reduces your brand’s dependency on Amazon FC backlogs. It also reduces the number of inbound errors and can improve your demand planning as changes to Amazon’s inventory coverage no longer affect order cycles.
If you want to learn more about Vendor Flex or Direct Fulfilment, speak to your Vendor Manager or AVS contact at Amazon.
3. Increase your Subscribe and Save revenue share
This may be the most underrated tip in this list of defensive sales strategies with Amazon: Focus on increasing your SnS revenue.
The reason for this is that Amazon will prioritise the fulfilment of SnS orders even in times when you’re in a trade dispute with the online retailer.
Yes, you read that right:
Amazon prioritises the shopping experience of SnS shoppers and will continue to place orders to fulfil SnS customer demand.
This means that increasing your SnS sales share offers you an almost guaranteed revenue baseline, even in times of order suspensions on your account.
So instead of only investing in impulse-driven price promotions, make sure you allocate investments to increasing your Subscribe and Save revenue share ahead of your vendor negotiations.
4. Limit order confirmation rates in Q4 with Amazon
It’s not just you: Amazon has reduced its inventory holding to an absolute minimum in recent years. This allows the online retailer to operate with great efficiency.
However, towards the end of each year, Amazon stocks up on goods from vendors. While it can be tempting to accept these orders to meet your sales targets, this usually turns into a disadvantage in negotiations.
That’s because a high inventory position reduces Amazon’s need to place new orders to fulfil customer demand.
And since most vendor negotiations take place in the first quarter, the online retailer can sit out order suspensions from brands without jeopardising its sell-out to end customers.
Want to avoid Amazon holding the upper hand in negotiations?
Then simply limit your order confirmation rates in the fourth quarter. This ensures negotiations can progress swiftly, as your Vendor Manager will need to secure fresh stock from you in the following first quarter.
5. Increase your advertising spend during order suspensions
Now, let’s get a bit more controversial. The following may seem counterintuitive, but hear me out. This tactic (as well as all the others) has proven successful in many real-life scenarios.
Whenever you’re faced with a trade stop with Amazon, resist the urge to pause your media spend.
Accelerate it instead!
Stopping your media investments during a trade suspension extends Amazon’s inventory coverage. This means that Vendor Managers have no urgency to proceed with the negotiation.
By accelerating your sell-out, you deplete Amazon’s inventory. This brings your Vendor Manager back to the negotiating table to avoid out-of-stock situations and secure fresh inventory.
Remember: Amazon cares deeply about customer experience. Therefore, running out of stock is a scenario most Vendor Managers want to avoid.
Please note: This tactic only works for vendors who send goods directly to Amazon FCs and where 3P Sellers have limited inventory.
Final thoughts
In times when Amazon focuses on profitability, vendors are well-advised to take steps to protect their business. Defensive sales strategies can help limit the impact of Buy Box suppressions and trade suspensions, but they also require close coordination with your leadership teams.
Need help protecting your profit margins from Amazon?
If you want to restore the power balance in your trade relationship with Amazon, get in touch. I offer tailored consulting services to help improve your profit margins with the online retailer.