It’s the end of the year, and Amazon’s 1P vendors are preparing for their annual negotiations. Beginning in January, Amazon meets with its retailers to request a performance review and outline trade terms and regulations for the coming year. While these negotiations are lengthy, they’re crucial for establishing an Amazon partnership that can maximize brand performance on the platform.
There are a few key areas vendors should focus on to prepare for these conversations and ensure a favorable outcome. Here’s what you need to know to achieve success in 2023…
Since Amazon requires an aggregation of performance data at the start of each negotiation, brands need to assemble this data three to four weeks in advance. The most relevant information to have available is prior investments and the previous year's negotiation terms and agreements. Investments may include marketing and freight allowances or any advertising programs utilized in the past, such as Amazon Vine for exclusive buyers or subscribe and save initiatives.
So, how can you gather and evaluate these metrics?
Brands can utilize the sales, retail analytics, and operations reporting portals in their Amazon Vendor Central accounts to view internal data. To help you determine how the funds were utilized, it’s useful to consult with your vendor, finance, or strategic account managers and any additional team members to collect more comprehensive information, like damage allowances, ROI, and ad spend. These professionals often have insights into Amazon’s precise requirements, so you should remain transparent in your communication.
Once you’ve gathered the appropriate criteria, you can leverage them to prioritize your needs and determine the necessary investments for next year’s objectives.
As part of the planning process, Client Management Lead at Media.Monks, Megan Boyko, recommends adopting a holistic approach to optimize your budget effectively for the ensuing year. She notes, “we’re in an environment where inflation is on the rise and fuel costs are on the rise. So how does that play into your budget?” This means that your budget should incorporate both your brand and Amazon’s needs and priorities, market conditions, and competition.
The dynamic market environment directly impacts Amazon’s priorities and motivations. For instance, to offset shipping costs, Amazon may increase freight allowances. So, if you’re planning to launch new products in 2023, it’s beneficial to invest in that category accordingly. By considering how each factor affects the other, you can structure your budget to reflect the negotiating environment.
Negotiations are often difficult to navigate, as both parties face frequent disagreements and confusion. Aligning your internal leadership with Amazon’s management is essential to mitigate conflict. Each team member must collaborate with the corresponding role on Amazon’s team; for example — two senior account managers — one for each party. This ensures that both partners recognize and understand one another’s goals. By coordinating these partnerships in advance, you can foster a transparent and productive dialogue.
Effective preparations and strategic alignments cultivate mutually beneficial business partnerships and expedite the negotiation process, clearing a path for your brand to flourish in the coming year.