Transcript
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Speaker 1 (00:00):
Welcome to unpacking the Digital Shelf where we explore brand manufacturing in the digital age.
(00:16):
Hey everyone. Peter Crosby here from the Digital Shelf Institute. Amazon is on an at all cost transformation to drive costs out of their business, squeeze the most out of marketplaces, and automate as much of their relationships with their suppliers as possible. According to Martin Hobel founder of Amazon Consultancy Consultants, that means they are leaving the pesky details of growing your category and your top line and bottom line growth to you, and that requires strategic shifts on your part over the next few years if you were to achieve profitable growth with Amazon, armed with the results of a survey of 500 Amazon one p Sellers, Martin joined Lauren Livak Gilbert, and me to chart that course of strategic rethinking that must happen for success in this next decade of the digital shelf. Martin, thank you so much for coming back on the podcast. We're delighted to reconnect with you.
Speaker 2 (01:10):
Hi Peter. Hi everyone. Thanks so much for having me. Hi, Lauren. It's a pleasure to be back and yeah, I hope you're doing well and these are certainly dynamic times and very much looking forward to our session today.
Speaker 1 (01:22):
Yes, speaking of which, so you recently conducted a survey of more than 501st party Amazon vendors and a lot of insights came out of that. We live in this environment where we want to be achieving top line and bottom line growth at the same time towards profitable omnichannel businesses and there's a lot of pressure on doing that and Amazon is one of those really difficult channels to make that work, particularly as they keep moving the goalposts of what they expect from suppliers in terms of investments and the algorithms running the show over there. And so we're delighted to kind of dig into, you dig in with you the data that you've gotten back and sort of what recommendations you have coming out of that. So what are some of the key takeaways that you've got, first of all, out of that research?
Speaker 2 (02:13):
Yeah, sure. So overall the survey was conducted and targeted particularly for vendor representatives. So those brands that have a direct first party relationship with Amazon in order to temperature check really, okay, where do we stand? What has the kind of economic impact had also for an influence over the decisions and the trade relationship with the online retailer. And interestingly of course the dynamics of the wider economy that we're seeing. So high inflation rates, but also more value oriented, value oriented shoppers were clearly coming through, and I think I'm not saying a big secret here when we're looking at the fact that of course a large proportion of those survey participants were highlighting their concerns around economic uncertainty, but also focusing a lot from a strategic angle on improving their process automation. So really focusing on operational improvements. More than 35% of stakeholders actually said that this is their top priority.
(03:20):
Launching exclusive products on the channel was also something that was really top of mind. Roughly fifth of brands were saying that this is really the priority for the next 12 months, whereas a lot of another third almost of participants said, but they're looking to also set up a hybrid or a wider channel selection approach next to the first party vendor relationship also through, for example, a third party seller central approach as well. And now the motivations behind that are quite interesting to dig into because what the survey also asked the participants was to really understand their primary challenges encountered when they were trading with Amazon. And over 30% of participants actually said that the communication with Amazon is such a big headache for them nowadays, even before the Amazon's pricing strategy and the competition that they may face on the marketplace itself. Simply because when you're looking at the broader set of the economic dynamics that we've gone through and also the rounds and rounds of layoffs that Amazon has executed over the last year, we are now actually confronted with a reality where Amazon employs roughly 15% less of vendor managers and retail managers in its retail division, which of course triggers down to the level of engagement that Amazon and its kind of stakeholders can even have with especially smaller and medium sized brands.
(04:52):
But make no mistake, even large brands obviously struggle with the kind of stakeholder management on the other side of the also of negotiation table with vendor managers being really, really time constrained nowadays. So what are we doing with that? Well, in terms of these strategies also to improve vendor margins going forward? A lot of survey participants actually said that they're focusing more on their portfolio mix. Over 20% said that this is top of their mind, whereas interestingly, almost an equal proportion of vendors participants we're saying that they are going to also unlist products that are not really profitable either because they're not profitable for Amazon or also because they're just not profitable for them to maintain in their overall portfolio. And of course this has implications for our end shoppers are going to find and shop the digital shelf on Amazon because if brands are front right and center delisting products that customers are looking for seeing and getting and purchasing in other channels and they're no longer available on Amazon, then of course this also waters down the customer experience and the customer trust that Amazon has built over so many years by sometimes not even having adequate comparable products available.
(06:14):
So we are really going into a time where the choices, the economic choices of brands are becoming much more stringent and much more tough in the way that they're being executed. Whereas of course operational process improvements we're cited among survey participants as well, but I think we are really seeing a shift towards mechanisms that improve the bottom line of brands as well as with Amazon now affecting more and more also the end customer.
Speaker 3 (06:44):
Can we revisit the exclusive piece of it? So I feel like that's a strategy that more and more brands are adopting because then there's price protection across any of the other retailers if they're launching an exclusive on Amazon, do you see that primarily as the driver to launch an exclusive on Amazon or is there another reason why that would be a big priority for a brand?
Speaker 2 (07:07):
I think we need to take a look at the macroeconomic factors here because if you're looking also at Nielsen data, so Nielsen IQ is sending these out quite on a regular basis. They're looking at the actual consumer packaged goods unit price changes year over year. And if you compare that to for example, the US consumer price index, so a good proxy for the inflation rate and shoppers are actually seeing, what you'll be seeing is that the CCP G unit price increase over a year has outpaced most of the inflation rates over the last consecutive 12 to 24 months. And that really implies that a lot of the cost increases that a lot of brands have pushed through have certainly also translated into the market segments. And with Amazon being a price follower are very likely also shown in the overall average selling price uplift for and across a lot of categories.
(08:04):
But what it also shows is really that these increases in terms of end shopper prices have significantly exceeded the general inflation rate from a consumer price index point of view. So in general, what we are seeing is that it becomes more and more expensive for end shoppers to purchase their beloved products. At the same time, we are also entering seasons the peak quarter where we are facing more and more competition in the online space, right? I mean Shane has launched recently across multiple markets. We see new players like team who entering the field as well as TikTok shop, and we are actually seeing that of course this impacts the overall price dynamics that we are seeing reflected also in the overall pricing landscape going forward and that we can expect going forward. So the challenge really becomes that if you are a brand that only carries products that are very comparable across different retailers and across different channels, of course when you are working with new and emerging retailers as well as Amazon who adopt more of a price following approach and price follower strategy, you are very dependent on their choices and their requests for you to kind of increase their margin and thereby having to invest more on your behalf in order to ensure that you stay relevant in your category.
(09:30):
You're getting the kind of visible shelf space that is equivalent to in-store placements on Amazon and Coke. So I would say the exclusivity of products and the launch of exclusive items allows brands to escape this trap almost where they have selection that is very much catered to all of their offline and online retailers. And if you're really thinking about it, most products that we sell today and that we are seeing on Amazon today and on other online platforms were originally designed for the physical shelf with a physical shopper in mind. So we inflated a lot of the packaging, we made it larger, more colorful in order to appeal to the end shopper so that if a shopper goes into a store, he can kind of grab that product that appeals to them even though the content of the package may be actually much smaller than this.
(10:28):
Now this is great in the offline world, not so great when you're shopping online because you're just increasing the cost in terms of the variable handling storage and shipping costs that it takes for you to get the product to the end shopper store. Step exclusive products can attack that from two sides on the one end from a pricing point of view because you are not as comparable with other retailers, which allows you to offer products at a maybe more relevant price point to end shoppers without having this constant high low dynamic in the market segment. On the other end, you are attacking also the kind of variable handling and shipping costs that are often not in the favor of the online channel by launching products in more online tailored packaging, which reduces the overall cost for you to get that to the end shopper as well.
Speaker 1 (11:25):
So Martin, we're really talking about a difficult economic environment with shifting strategies in order to get closer to those goals of achieving better top line and bottom line growth out of this. And Amazon being at the center of that. I think, and correct me if I'm wrong on this data point, but I think your survey found that almost 65% of vendors that responded said their trade negotiations with Amazon were challenging, time consuming and inefficient. Now I would think Amazon would want to do something in terms of having good relationships with their suppliers. Is it at the point where Amazon really doesn't care that they're not? Do you see any hope on the horizon that Amazon is investing either through automation or through simplification or anything to make that relationship with their suppliers and negotiating is always going to be difficult, it's always going to be somewhat adversarial, but this sounds extraordinary and is that just the cost of doing business with Amazon?
Speaker 2 (12:34):
Yeah, I hundred percent relate to that question because I think everyone who sees this result is first and foremost stunned and cannot really believe why that relationship is perceived like this, right? I mean, it's staggering result to have the majority of brands saying that they don't really have a partnership oriented relationship. But if you look at the actual root causes, I think you are quickly also realizing that it's not necessarily only Amazon that is driving this perception, but it is also oftentimes the misunderstanding that we still have in our industry what Amazon actually is, and that we need to work with the online retailer as a result of that slightly differently than we do with our offline retail partners, for example, and other strategic partners that really want to elevate the relationship. The kind of symbolism or meta that are always used when describing Amazon is that we must stop thinking of it as the classical retail partner and instead think of it similar to a social media giant like Facebook who also has, or meta who owns Facebook and Instagram, who gives you their platform in order to advertise and publish content in a certain predefined way.
(13:46):
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 U S E manufacturer. And it elevates basically the connection between both ends. That also means that we cannot expect Amazon to develop or innovate in our category really because that is not necessarily their desire because they're really going after the low hanging fruit of just connecting the demand that is already out there ordering products respectively from U S C manufacturer, which is also why Amazon and annual trade negotiations will never commit to growth targets. They will only commit to growth ambitions if you as the brands are willing to invest enough into retail media, into price promotions, into onboarding new products, all of the things that are entirely in your ownership as the manufacturer or as the brand selling on Amazon and have little to do with what your buyer at Amazon can actually do for you.
(14:48):
Because when you're looking at the current economics climate, we've seen that Amazon puts an enhanced emphasis on process automation. We've seen that they're laying off people also in their retail division, which means that a reduced number of buyers are now having to deal with a similar or even higher number of brands on the other end, which can only mean and a logical consequence that they will have less and less time to cater to the needs and demands to those brands. Now, I would argue that a lot of these survey results reflect exactly this trend that we've been seeing over the last 12 to 24 months where Amazon has really honed in on its profitability targets, squeezing out the margin of brands that are not very effective, and also translating higher cost prices into the market segment and thereby just not reordering certain products because Amazon says that is not sustainable for us.
(15:41):
And on the flip side, doesn't give brands any other way out to kind of promise more growth in exchange for their higher investments and instead just kind of acts as the typical marketplace retailer who says, look, if you are investing more and you're driving growth, then we are happy to facilitate that with more orders. But right now we are kind of focusing on the very lean inventory management because the pandemic times are over, you have more inventory. Now, global supply chains are not under as vast of a pressure as they were before. So thereby we are also transferring the risk of inventory ownership away from us again and towards U Ss C brand, and we will only order for two or four weeks time weeks of coverage in order to cater to the existing customer demand. But we are not going to place any large betts.
(16:31):
And I think this is really what brands mean when they're also highlighting this challenging partnership. Because oftentimes we are very, from a brand's perspective, we are very creative and strategic partnership oriented, and we want our vendor manager to partner with us and to reach their hands in order to kind of find solutions together. But that also completely ignores the reality in which Amazon operates and where they kind of say, we have it figured out, we use machine learning, we use automation, we use AI if you want to add this term into the mix as well. So this is why we are not necessarily willing to go above and beyond because we're streamlining our business and we're going to continue that over the foreseeable future.
Speaker 3 (17:15):
So Martin, what did that mean for brands? I mean to your point about they want to have strategic partners, they want to work with Amazon, like they work with other retailers and work together. What do these trends mean for brands working on Amazon? How should they be treating them? What tactics should they be thinking about or strategies they should be thinking about to really be profitable on Amazon and have a working relationship? I'm going to air quote that rather than strategic so that they can be successful
Speaker 2 (17:46):
A hundred percent. Look, when we look at Amazon as the classical retailer, but as a marketplace retailer and online platform as it actually is, and we are looking at the recent trends, I mean just think about it. Amazon has gone undergone so many changes. It has conducted a corporate restructuring where in Europe it has consolidated its vendor management at the European level. So you don't have individual buyers in the markets anymore. In the US it has localized its warehousing system, so it stores products now much closer to the end shopper, which also means that the operational processes as part of the corporate restructure have quite been impacted. We see a higher automation focus when it comes to forecasting order management, the catalog management where Amazon doesn't do much manually anymore. And we also see that Amazon continues its organizational cost reduction, meaning the headcount reductions that we are seeing, they are offshoring a lot of these support functions such as the Amazon vendor service now towards Eastern Europe or India, where labor costs are generally lower than in North America or also in Europe.
(18:52):
And that really means that 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, their catalog more holistically. They need to also manage advertising retail media activations. They need to own the operational processes when it comes to their supply chain. They would need to be proactive if they want to create cost reductions here and automate through, for example, an E D I order processing setup and they need to do the forecasting themselves. And then I haven't even talked about the financial processes in order to stay on top of all of these chargebacks shortages, unpaid invoices and so on. And that means that we as brands really need to realign our resources in order to avoid overstaffing ourselves and the under utilization of automation because if you are just adding more headcount in order to stay on top of all of these processes, that also inflates your hidden cost centers that come all below your Cox in the p and l when you look like for at Amazon versus other retailers.
(20:07):
So to really answer your question, I think it is first and foremost to become really aware that this process ownership transfer is happening, that it is silent, and that you need to really audit your teams internally to understand what are they doing today compared to what are they doing or what have they done a year or two years ago to really capture where the biggest amount of manual effort sits currently in your organization. And then to either create internal mechanisms to automate these as much as possible or to outsource and offshore these functions to a certain extent yourself through, for example, external service providers so that you keep your operating costs to serving this online retailer that more complex by the day as low as possible.
Speaker 1 (20:51):
Gosh, I think that this conversation we're having right now is so important that mind shift and identifying that a shift has in fact happened sort of as always with Amazon, it just seems like they keep moving the chains, but in fact when you stand back it sounds like, and look at what they've been doing over the past several months, it does have a thematic thing which is we're making our business as turnkey as possible to achieve the best results at the lowest cost more than we ever have in our past. And they're getting serious about their profitability. And so that ownership shift that you talked about is putting largely the burden on suppliers to sort of, okay, you figure out your business, just we'll send you orders and you send us stuff.
(21:48):
I don't know, that's sort of to me it's what we talk often about the first decade of the digital shelf where everyone's sort of figuring out, alright, how are we going to do this? Let's get some people in here, let's try some stuff, let's keep going. And then Amazon in some ways was doing a lot of the same, maybe a bit of a generation earlier, but now we're in this next decade where so much of this is going to be squeezing all of the air out of process, not hiring more people and getting better performance with every exposure to a consumer on the digital shelf and getting more at bats as a sum up. Does that resonate with you? Does that make sense?
Speaker 2 (22:35):
Yeah, absolutely. And it's exactly that, and it really calls us as brands and manufacturers to rethink how we engage with such a complex customer. Because if all of the growth levers really sit on our side and we no longer ask our vendor managers for advice on how we can grow more, but realize that we have all of the tools at our disposal already, and even if Amazon doesn't offer them us, we can certainly use tools that are out there to kind of achieve exactly that analyzes or to achieve that desired outcome and to manage the business more effectively. Then this also gives us a good understanding of whether we should actually invest more into that retailer or whether we need to start shifting the discussions away from the traditional annual vendor negotiations that Amazon still wants to impose on us to invest more in automated marketing or certain other investments where we may not see any dedicated and revenue attributable growth impact from them or any return on invest in general.
(23:34):
And once you're starting to go into that direction, you quickly realize that if you are zooming out a little bit and you look at your profit margins today that you have with Amazon and the ones that you're planning to have in 2028 or 2030, depending on how long your financial planning horizon is, you very quickly will not get to the desired outcome. You're just involving your sales department because you can only bridge so much. So your margin ambitions when you are launching new products, when you're negotiating better terms, and when you're increasing your cost prices, you also very quickly need to bring in your media and marketing and activation teams, your shopper insight teams, but also your logistics department in order to really create the plans that in a sophisticated way, in almost a 360 degree angle, look at the business and see and evaluate where are actually the cost savings that we will have to engage in and what are the discussions that we proactively need to put on the table when we are engaging with our buyers at Amazon or when we have top to top or three year joint business plannings with this online retailer.
(24:45):
And I still see this not being exploited as much as we need to in today's age because there's still the notion, especially in multinational organizations, but also in small to medium sized vendor brands that the sales department is solely responsible for achieving the set profitability targets. And media and marketing are just the functions that drive a little bit of incremental growth on top of what can be achieved through price promotions. And I think this is really the old way of thinking, the new way of thinking that we need to shift slowly but surely towards two is to really bring on board sales media and logistics departments, ideally also your finance department all to one room and to really create integrated profitability strategies that bring us towards our ambitions over the next five to 10 years.
Speaker 1 (25:38):
And to me, that shouts out for C-suite leadership when you're talking about bringing all of those people into a room to figure out an overall set of adjustments that can be made to lower costs and increase production that can't be done between sort of peers at the mid-level, it requires C-suite attention. And I think that feels like the shift that needs to happen. And as so often it falls to our listeners to be the ones to try and poke for that C-suite level involvement to make it happen because they are at the leading edge of understanding thanks to people like you and their own experience what's coming down the pike over the next several years.
Speaker 2 (26:25):
Absolutely, and look, I mean if you're not changing it, then you will get growing more frustrated over the years, and this is already coming through very well in these survey results. And of course I'll conduct it next year again to see, okay, is the temperature check still at this level or has it improved slightly? But I think the biggest challenge and the biggest mistake I still see is that at a functional level, at senior management level, these discussions are, they're trying to obviously elevate them. But what you will quickly see is of course, that as soon as you're talking about the complexities of the individual p and l owners that have the sales part or the media part as an ownership attributed to them, it's very hard to convince these stakeholders to give up their responsibility or to integrate that into other functions. So you're absolutely right, Peter, you need to kind of go up the levels and to ensure that there's also joint commitment from all of these senior decision makers to kind of drive forward a plan and a strategy that is really mutually integrated.
(27:29):
And it really comes down to showcasing how online will and Amazon in particular will kind of continue to grow and what contribution these online retailers will have in your overall growth and profitability trajectory. Because let's face it, we are in the maturing stage. We are not maturing yet, but most csuite decision makers of course also realize that if they want to achieve their 2030 targets, they cannot longer ignore the online channel and they need to integrate it into a certain extent into their overall planning. And that then also means that you need to zoom out a little bit and think about the individual steps you need to take on how to get that to a reality, which may mean as we discussed earlier with Lauren as well, that you need to start thinking differently about your portfolio strategy, different price pack architecture in order to cater to these channels a little bit better. And to also ensure that you're cracking the code of how you serve a customer that is very profitability oriented and has no problem in delisting these items that are no longer returning a profit with you, as Amazon calls it. They're famously crap, so they cannot realize the profit. And I guarantee you, I think 80% of your listeners are currently in or shortly will have discussions around this topic ahead of their annual vendor negotiation cycle because Amazon's really honing in on that also head of the fourth quarter.
Speaker 1 (28:56):
So Lauren, I want to put you back in your brand seat and this is what you're hearing. What are you feeling? What would you do?
Speaker 3 (29:08):
I mean, the first reaction I have is that the way that brands are operating today, you can't just make some tweaks and make this all better. This is a fundamental change in how business is being done, cross-functional alignment. I feel like I talk about that on every podcast. Basically that's what you're talking about, Martin, getting everyone in the room working together. You can't do that in the structures that exist today in large manufacturers
Speaker 1 (29:35):
And the incentive structure that
Speaker 3 (29:37):
Exists exactly. Each function is not metric to be able to be cross-functional. You are in your bucket and your metric on what you need to think about in your small bucket, and it doesn't go across the business. So I just think we've been talking about needing to change the way you operate, being omnichannel, having shared goals, but it is more critical than ever, and I think money is left on the table if you do not change the way you operate because of the way that Amazon and other retailers are changing the way they're operating as well. So I think this takes at a C-suite level looking at how do we hold each function accountable to being cross-functional, being omnichannel, thinking of the bigger picture and how do we enable collaboration between functions where sales focuses on sales and marketing focuses on marketing and r and d focuses on r and d and that it just can't be like that anymore. And instead of just slightly tweaking organizational structures, you need to think about hybrid roles, agile methodologies, squad thinking, where you have different functions all in one group working together. So I just think it's such a fundamental change in how business needs to happen, and I'm not sure if that conversation is occurring at the C-suite level, so I'm glad we're talking about it because you can't just bolt onto what you're doing now.
Speaker 2 (31:06):
Absolutely, and look, you can also start with incremental steps, right? Nobody wants to disrupt the business and the way that the p and l is structured, for example, or the way how teams are incentivized. You see it also in Europe. Amazon has moved from a localized vendor management structure to a regionalized one or regional one. So you're seeing that there's a European vendor manager now that kind of negotiates on behalf of all of the countries. There's one European p and l that they're orienting themselves on primarily, even though each market has still a local market p and l. Now, does that mean that brands need to create different p and l structures on their side? That's a question I often get. Often the answer is no, because then you also don't get the commitment any longer from the individual markets if you centralize it at a European level to kind of help you on the operating pieces when it comes to activating your portfolio in certain markets.
(31:55):
But of course, also the knowledge of the end shopper sets, it's more about really thinking about the incremental steps that you can take as a leader of today in order to raise awareness of this issue and also to ensure that the typical kind of rejections and arguments against that are disabled in your organization over time. So when we're talking about that, the online channel and Amazon often in particular because it often forms the largest retailer in the set of online retailers for brands, requires different price back architecture. The biggest kind of objection I hear from executives is that they're saying that the upfront costs to develop those items is often too high or too high, and they don't believe that it is a good opportunity for them to get their return investment back, but what they really often don't consider is the opportunity costs in the form of those hidden p and l centers that accumulate when not launching designated price bags for the online channel.
(32:53):
I just think about prepping chargeback margin compensation investments to avoid Amazon to deal list other parts of the portfolio, and especially tougher and lengthier annual vendor negotiations that also bind a lot of resources from your teams when you are not addressing these underlying issues. These are all costs that can very quickly amount to millions and millions of hidden investments that could have been avoided if a designated price pick architecture would've been made part of an integrated strategy for the online channel in the first place. And in light of the current consumer value orientation here, it's really about finding the sweet spot between meeting the contemporary value orientation of those shoppers, as we said, but also looking to differentiate your assortment through pack sizes that meet the profitability demands of the online channel. And it doesn't have to be a zero sum game because it can actually unfold quite profitably for you as a vendor, especially when you are in the C P G space, I think looking to differentiate your portfolio, make it less comparable, but really keep the shopper in mind then driving also unique selling proposition and maybe even innovating only for this channel first and then rolling it out in other channels.
(34:08):
Second can be a very profitable business model, but I don't think we are there yet, but we need to change the awareness and the perception of how those investments unfold because there are a lot of brands that have hundreds of millions in revenue with Amazon, yet they're still negotiating between four and six months. They're interrupting their sales because they have profitability issues and are reluctant to change their portfolio setup. And if you are summing up all of these costs that are the opportunity costs, you'll probably arrive at a different calculation of the overall equation
Speaker 3 (34:41):
That's
Speaker 2 (34:42):
Partnering.
Speaker 3 (34:44):
Oh, go ahead, Peter. No, you go ahead. I was just going to say I really liked talking about baby steps, and I know I made this grand conversation around if things need to change, it takes time. But what I'm hearing from you, Martin, and I'd love to get your sense of if you agree with this, is for any brand listening that's like, wow, I need to change. I would say the first thing you should focus on is prioritizing your portfolio and really taking a look at it like, is 20% of your portfolio driving the majority of your sales? Great. Where should we focus our time? Let's look at what's most profitable online, what's most profitable in store, and really do that exercise first. Then from there, look across your organization and see who's involved in this decision making process all the way from supply chain to sales. And then figure out from there, how can you everyone accountable across that cross-functional team to make sure everybody's marching towards the same goal. And then from there, you can think about changing an org structure, but if I listen to what we're talking about and think about on my brand side, well, you can actually action right now. Those are the two areas that I think are the best to start with. Would you agree, Martin?
Speaker 2 (35:58):
Yeah, a hundred percent. And look, I mean, you can also start, as you say, with baby steps by influencing the way that the accounts are getting handled. You don't need to get permission through a different org structure that takes years and years to develop and implement and to go through all of that change management, I think to make it really practical for all of the listeners, what I would do if I were a commercial leader is to really partner up first and foremost with the finance p o c, and to get a really good and granular understanding of the p and l structures and also these hidden costs. Have a mini project with them where you just look at that and get an overview because this quickly gives you an oversight around where those hidden cost centers are, where they originate, and how you can address them.
(36:43):
If you're seeing that you're investing currently in trading terms that don't drive any growth or don't drive any return on investment and you would like to reduce them, then it's often a good idea to look at variable handling and shipping cost savings that typically come from your logistics department. And I can guarantee you, if you go to your logistics leaders and supply chain leaders in your business, they will probably have their own opinion about how the operational efficiency is currently working with Amazon and how they would like to improve that in order to have a more lean setup. And this is where I would start. I would just go there and say, look, we have an opportunity to shift investments. How can we partner with you to tap into the opportunities that Amazon can offer us as part of an annual vendor negotiation? Whether it is a direct fulfillment, direct import, cross dock set up, whatever it may be, and whatever has actually also a value for your logistics teams.
(37:36):
And from there, you have already two kind of partners from your finance and your logistics department. And if you're now going out to your media teams and say, look, they can actually elevate your return investment by becoming more smart around how we activate products, by looking at a more balanced view of how we can also bring maybe a profitability picture into the mind, then I think you're having a good chance to kind of create these dynamics between those functions to get them on board, not maybe formulate key targets with them that are very hard for them to commit on because it's out of their realms of ownership, but still you get some kind of commitment in order to facilitate things that otherwise would only happen in three or five years if you mature further.
Speaker 1 (38:27):
Wow. So this conversation went in wonderful places that I was not expecting when we started this idea of the shifting responsibility from Amazon to suppliers, the importance of understanding the true costs of this and that the conversation that we're having should start now because in five years, if it hasn't, you just won't be. There is I think, a clarion call. We may have to ask you to come back and have a podcast episode on the hidden costs of doing business with Amazon, unless you tell me someone only gets that if they pay you, but if we can get it, we would take it because that, to me, helping people sort of flesh out that thinking to have that conversation with their C F O in a really clear way, I think is maybe another added skill we could provide to the community. But I'm not holding you to that, but I'll be back.
Speaker 2 (39:24):
No, absolutely. I'm happy to dive into it because there are always these mean, there are different challenges that brands currently have, right? They're commercially relevant, but there are also a lot of times rooted deeply in the operational setup they have with other retailers where Amazon has always only been an add-on. So I think changing that perception and also recognizing that the requirements of certain retailers such as an online player as Amazon are different is something where you do not need to set up entirely different processes all the time, but it can make sense to have that conversation internally in order to understand where you can tap into cost efficiencies, where you can also fix certain originating root causes that drive these hidden p and l centers. There's not necessarily a one fix fall, but asking these questions is a very good start. And I can only encourage you if you're not looking as a sales leader weekly or at least biweekly into your p and l at Amazon and you only get a very delayed picture, then it's probably a good start to investing into solutions that get you a more real time overview about how your p and l looks like with this online retailer.
(40:34):
And also takes into consideration the cashflow perspective. So has Amazon paid actually your invoices, or have they only paid 80% of them? Because you read that real time view in order to ensure that you are on top of things, you can also react in a timely manner, but you can also drive the right discussions with the resources that are left from an Amazon point of view in the form of buyers, strategic vendor account specialists, and so on. And again, the ownership sits on your side. If you take anything away from this podcast today, then really that most of the levers are already available to you and that we need to start this shift in our mindset rather sooner than later.
Speaker 1 (41:18):
So Martin, thank you so much for bringing this knowledge to it. This kind of conversation is why we created the D S I in the first place and how Lauren has grown it over the past years, and we're just grateful that you're willing to lend us this knowledge to share with our community and to anybody that is sparked by this as well. Martin Hobel, H E U B E L on LinkedIn. Is that okay, Martin, if people reach out to you? Yeah,
Speaker 2 (41:48):
Absolutely.
Speaker 1 (41:49):
Of course. Okay. All right, great. I just want to make sure they had a path until your return on the hidden costs of Amazon and others in the p and l. So Martin, thank you. Very grateful.
Speaker 2 (42:01):
Thank you so much for having me, Peter and Lauren. Appreciate it. Thank you,
Speaker 1 (42:04):
Martin. Thanks again to Martin for his data-driven and experience driven prognostication. Always more insights on tap@digitalshelfinstitute.org. So become a member on our website. Thanks for being part of our community.
