Vendor Negotiations: How to Negotiate Successfully with Amazon

Many vendors approach a wholesale relationship with Amazon with the same assumptions they’d have when relating to a brick-and-mortar retailer. They expect some personal connections to be made on both sides, some relationships to be built, some interest to be shown by the retailer in reviewing the vendor’s products, and so on. In approaching Amazon this way, though, vendors have got it all wrong.

Amazon’s customer-centric focus carries over to how it deals with vendors. The company sees itself as being in the business of helping customers buy things, not helping vendors sell things. Therefore, building relationships with vendors is just not a top priority. Amazon has goals for certain core metrics, which means its primary job is to motivate vendors to reach those goals.

For example, the particular items being sold matter less than vendors may first think. Imagine that Amazon is running a grocery store; its priority would not be to know the details of every brand of food being sold in the store, but to ensure that a wide selection is available and that items sell quickly and profitably. Amazon will also want first pick of a brand’s entire product assortment. Vendor managers and buyers at Amazon have no need to look through an entire catalog of products or have a long working lunch to build rapport. With their focus on offering customers as many choices as possible, vendor managers will probably advise putting all of a brand’s products on Amazon so they can quickly move on to the many other accounts they manage.

With such out-of-sync expectations and goals, it’s easy to see how vendors can become frustrated, prepare inadequately, or otherwise fall short when it comes to negotiating with Amazon, whether it’s their first time going through the process or one in a long history of annual renegotiations.

 

Let’s discuss how vendors can negotiate with every possible advantage.

Prepare your strategy ahead of time. Lack of preparation is the most common pitfall for vendors. Don’t ever sit down to negotiate with Amazon—whether you’re a small vendor dealing with an automated process or a larger brand that gets  to actually talk to someone personally—without doing some real planning and strategizing beforehand. You should consider which metrics are particularly important to Amazon at the current time or in a particular category and what your company’s plans are with regard to these metrics.

Commit to being firm. It’s necessary to know what your fixed requirements and limits are because you’ll be pushed while negotiating your agreement to do what is best for Amazon. Just remember, Amazon is expecting you to push back, and it’s okay to do so.

Expect to negotiate with multiple people at Amazon over time. A vendor manager is typically only in that role for about 18 months, so it’s virtually guaranteed that you’ll deal with multiple individuals (another reason why building personal relationships is less important at Amazon than elsewhere). You may also have to communicate with Amazon employees who aren’t your vendor manager and who know little about your account. Just stay calm and stick to your negotiation positions.

Don’t drag your heels in addressing problems with products. For example, if many of your products get returned, if you’re getting lots of negative product reviews, if customers often have trouble understanding the instructions for using or assembling your product, or if your packaging is not good enough, you’ll probably get better terms in your negotiation if you try to tackle these issues ahead of time.

You will probably be pushed to agree to a higher Damage Allowance amount. This catch-all term basically refers to the cost incurred any time a product is returned or exchanged, whether it’s due to buyer’s remorse, damage in transit, a defective product, or any other reason. Amazon is likely to demand an increased amount for this.

Be ready for endless requests. Again, remember that Amazon is negotiating for its own benefit, not yours. From Amazon’s point of view, you absolutely need to be spending more on paid traffic, and while you’re at it, you should probably also tell the company exactly how you make each of your products and pay increased freight allowances or damage allowances with every contract renewal. The requests will just keep coming.

Be ready to defend your positions. Come prepared with solid data and logical arguments for, let’s say, why your marketing accrual shouldn’t increase or why you don’t need something Amazon wants you to pay for. You don’t have to bow to every demand Amazon makes, but you must be ready to explain why you won’t.

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Now that we’ve revised your expectations, let’s discuss solutions.

To prepare, arm yourself with data. Ponder lots of questions. How big is your business in comparison to the whole category on Amazon? What differs in terms of tactics or profits among you and your competitors? Are they doing better than you right now? If so, devote some time to figuring out why before you negotiate again with Amazon.

Be patient. As the larger party, it’s probably in Amazon’s interest for your negotiations to finish rapidly without much discussion. But that’s not in your best interest. Don’t feel pressured to agree quickly. Being patient also applies to dealing with multiple individuals at Amazon; don’t let a new face cause you to change your game plan.

With regard to details like Damage Allowance amounts, prepare for this part of negotiations by looking at return rates (if available for you) and reviews by ASIN. If any of your ASINs are being frequently returned or if they’re problematic in some other way that costs you money, this is where you can find out. If you have such problematic ASINs, develop a plan for handling them now so when Damage Allowance comes up during negotiation, you’re ready to address the issue.

Don’t be taken aback by a surprise request or a big ask. Amazon wants more every year and they’re always creating new programs, so expect this. Hold some reserves to invest in new features Amazon announces during the year of your contract. Also, leave yourself some room to maneuver and adapt. If Amazon is really pushing you to increase spending in an area where you’d rather not, then try offering to increase something else you’re more comfortable with, like A+ or AMS credit.

Realize that it’s all right to tell Amazon the reason you can’t agree to something is that it will force you to increase costs. Based on numerous vendors’ past experiences, it appears that saying this will be a convincing argument, even if you have to repeat it a few times. The company culture is built on frugality, and the thought of higher prices for consumers is anathema to Amazon. So this argument may persuade a vendor manager better than you think.

Finally, demonstrate you're committed to Amazon. Take comfort in the fact that Amazon is very unlikely to terminate your contract, which means you can be bold in pushing hard for your brand. Emphasizing factors that are mutually beneficial is key to negotiating terms with your vendor manager. When communicating with your manager, underscore your commitment to selling on Amazon and illustrate this commitment with data: increased AMS spend, investment in marketing strategies like Vine or Coupons, increased PO fulfillment, etc. Then explain your needs and identify which of their terms you can work with. Using data to highlight how Amazon benefits from your contract can be an effective method for achieving terms that work well for you.

There is a lot of ground to cover on the topic of negotiating with Amazon, so there are a few things we haven’t included here. Look for a follow-up post in the coming months focused on fees and chargebacks as they relate to vendor negotiations. In December, we’ll publish a white paper where you can see all our negotiation suggestions for vendors in one place.

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