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“We cannot expect Amazon to develop or innovate in our category because that is not necessarily their desire.”
— Martin Heubel, Founder of Consulterce
As more brands search for ways to boost their profit margins both holistically and on specific retail channels, Amazon is undergoing its own transformation that could make it even harder for brands to be profitable on the platform.
Martin Heubel, founder of Consulterce, an Amazon consultancy, says the online retail giant has become laser-focused on automation and process optimization and less focused on building collaborative relationships with its suppliers.
This means brands must assume even more responsibility — and dedicate even more resources — to drive top- and bottom-line growth on Amazon.
Heubel joined a recent episode of the “Unpacking the Digital Shelf” podcast, “Amazon is Shifting Ownership for Growth Entirely to You - What Do You Do?,” to discuss the strategic shifts brands must make to increase profitability on the channel and optimize their Amazon growth strategy.
To better understand the current selling environment for brands on Amazon, Heubel surveyed 500 1P sellers. Heubel discovered shifting economic dynamics are reshaping how sellers view their relationship with Amazon and their ability to grow on the channel.
More than 35% of respondents said they were focused on process improvements, particularly automation. About 20% of sellers said launching exclusive products on Amazon was a strategic focus over the next 12 months, while one-third of respondents planned to explore a hybrid selling approach or third-party relationships as part of their Amazon growth strategy.
Brands also face several challenges on Amazon, the survey found. Thirty percent of sellers said communication with Amazon has become a huge headache — so much so that it’s become a bigger issue than Amazon’s pricing strategy or competition from other sellers on the platform. Heubel says this is a direct result of contraction in Amazon’s workforce.
“We are now actually confronted with a reality where Amazon employs roughly 15% less vendor managers and retail managers in its retail division, which of course triggers down to the level of engagement that Amazon and its stakeholders can even have with especially smaller- and medium-sized brands,” Heubel says.
As a result of these changes, many brands say they plan to focus on their portfolio mix and/or de-list unprofitable products — all of which will impact not just profitability but their customer experience on Amazon.
Brands are feeling the squeeze on Amazon because the online behemoth is more focused than ever before on its own bottom line. This shift has materialized in several ways in Amazon’s relationship with sellers.
First, it’s apparent in Amazon’s trade negotiations. In the Consulterce survey, 65% of vendors said their trade negotiations with Amazon were challenging, time-consuming, and inefficient.
“It's a staggering result to have the majority of brands saying that they don't really have a partnership-oriented relationship.” — Martin Heubel, Founder of Consulterce
He says the relationship is so fraught because there’s a fundamental misunderstanding of what Amazon is to brands. Unlike other retailers, it isn’t trying to be a true strategic partner. Instead, it is more akin to a social media site like Facebook, which offers its platform to brands to advertise and reach consumers.
“If you think about Amazon, it's really coming down to being a marketplace that does nothing else than simply to connect the existing demand for a brand in the market with the supply of you as the manufacturer,” Heubel says.
The implication here is clear: Brands can’t expect Amazon to innovate in their category. Rather, they need to own this end-to-end process themselves.
Along with difficult trade negotiations, Amazon has focused on automation, which has led to a huge transfer of process ownership to brands.
“What is really happening here is that there's a silent transfer of process ownership and resource requirements away from Amazon towards the vendors who all of a sudden have to own commercial processes, such as they need to manage their portfolio and their catalog more holistically,” Heubel says.
He adds that brands must assume ownership for activities such as managing advertising retail media activations, operational supply chain processes, forecasting, and financial processes related to chargebacks and unpaid invoices, among other activities.
Balancing all these considerations is causing brands to realign their resources, but they must accomplish this by leaning into automation rather than overstaffing or adding more headcount. Heubel says all of these changes have the potential to inflate hidden costs for brands as they relate to their Amazon profit and loss (P&L) statement.
So, how can brands rethink their Amazon growth strategy to drive greater profitability?
Heubel says the best place to start is to audit the work of your internal teams, identify where there’s too much manual effort, and implement automation or outsourcing to reduce these Amazon-specific operating costs.
More cross-functional collaboration and alignment are also crucial. Brands need to engage not just their sales department but also their logistics department, media, marketing and activation teams, and shopper insight teams in discussions around profitability.
This will allow brands to develop “integrated profitability strategies,” Heubeul says, look at their business more holistically, pinpoint where they need to have proactive conversations with their buyers at Amazon, and how they need to adjust their approach to joint business planning.
Heubel admits that forging this level of collaboration won’t be easy because the current incentive structure places accountability for growth with individual P&L owners rather than cross-functional teams.
However, this is why C-suite leaders must be more engaged in this process and develop a mutually integrated Amazon growth strategy from the top down.
Heubel also says it’s important for brands to start small. This will look different for every organization, but brands could start by examining trading terms and determining which ones don’t offer the best return on investment.
They also could work with their logistics department to assess shipping and handling costs and identify opportunities for cost efficiencies in this area of their business.
Brands need to develop a real-time view of their Amazon P&L so they can forge a more proactive growth strategy. Process improvements will be an important part of this effort, but so will cross-functional collaboration and asking the right questions across the organization.
Making these strategic shifts will position brands to eke out more profitability on Amazon.
“It can make sense to have that conversation internally in order to understand where you can tap into cost efficiencies and where you can also fix certain originating root causes that drive these hidden P&L centers,” Heubel says. “There's not necessarily a one fix for all, but asking these questions is a very good start.”
To hear more of Heubel’s insights on how brands can drive profitable growth on Amazon, listen to the full episode.
