Learn how to effectively negotiate cost price increases (CPIs) with your Amazon Vendor Manager.
If you’re looking to improve your vendor margins on Amazon, chances are you plan to increase your cost prices. After all, Amazon will simply pass the cost increase on to the end customer, right?
Amazon is a price follower, meaning it will match the lowest price of a product in the market. Cost increases make it harder for Amazon to maintain a margin, so their Vendor Managers are likely to reject your cost increase right away.
But there are ways to increase your chances of getting a CPI approved.
Here’s the process we’re going to cover:
- Bundle cost price increases
- Upload cost changes to Vendor Central
- Inform your Vendor Manager
- Negotiate margins and dates
- Leverage your alternatives
Step 1: Bundle cost price increases
As with any retailer, you can expect cost price negotiations to be a lengthy and complex matter to deal with.
Amazon has developed sophisticated playbooks to counter cost change requests of their vendors.
Vendor Manages are likely to demand detailed information about the cause of the cost change and use tactics to delay cost negotiations altogether. They also often do not engage in cost negotiations outside of your annual vendor negotiations.
So if you want to increase your chances of a timely review, I always recommend submitting a single CPI request for as many products as possible.
You should also tie CPIs to your negotiation ask during your JBP discussions, as Amazon is unlikely to accept any cost changes in the months thereafter.
Step 2: Upload new cost prices to Vendor Central
Next, upload your new cost prices for all line items to Vendor Central.
However, don’t be surprised if Amazon rejects your CPI request after just a few hours or days. Their systems are set to reject any cost increase by default, while cost decreases are approved immediately.
So why do this step in the first place?
Because your Vendor Manager can later override the system and manually approve your uploaded cost changes in Vendor Central.
They also want to see that you’ve exhausted the tools available to you and will exploit any missing upload as a delaying tactic. So make sure to complete this step before you move on to the next one.
Step 3: Inform your Vendor Manager
Now it’s time to inform your Vendor Manager about the upcoming cost changes. Make sure to send them an email with the exact cost changes for each line item and include the following information in your email:
- Average CPI increase in %
- Reason for the cost change
- Effective date of the cost change
It’s important you highlight that the cost change is driven by a sustained increase in your own cost structures and not by a short-term fluctuation in costs.
That’s because Amazon is likely to be concerned about increasing its long-term cost structure by accepting CPIs that short-term trends may cause.
Accepted reasons for changes in the cost structure include:
- Increase in shipping costs
- Rise in raw material costs
- Movements in currency exchange rates
Lastly, inform your Vendor Manager that your teams will reject any items on orders placed after the effective date of the cost change if their price has not been adapted.
Amazon is known for placing orders at the old cost price and not retroactively compensating vendors who fulfilled those orders at the lower price.
Informing your VM about the timeline and the prospect of availability issues creates a sense of urgency that will give your CPI request a higher priority.
Step 4: Negotiate margins and dates
Now that you have entered the negotiation phase, your Vendor Manager will try to fend off the cost increase. They are likely concerned that your account’s margin will plummet, as their pricing strategy will still follow the market.
Most brands get it wrong at this point because they don’t use a data-driven approach to substantiate their CPI request.
Vendors that can demonstrate that the margin of their account is unlikely to be affected by the cost change will significantly increase their chances of a successful negotiation.
Proven ways include:
- Demonstrate RRP increases in-line with CPI.
- Highlight CPI is due to permanent reasons (raw material prices) vs. short-term reasons (temporary cost increase).
- Illustrate that other retailers have already accepted the increase.
- Indicate how Amazon can maintain its margin %.
If your Vendor Manager is still concerned about the impact on their margin, consider offering them a final bulk order at the old price in exchange for accepting the cost increase.
Step 5: Leverage your alternatives
So what if Amazon does not agree to any of your cost changes? If all fails, you should immediately stop shipping affected items until Amazon accepts the CPI.
Depending on your negotiating leverage, stopping deliveries may cause your Vendor Manager to reconsider their decision.
However, if you do not get any positive response from Amazon after two weeks, consider pursuing an FBA/3P strategy. In other words, set up a 3P account and start selling directly to consumers.
While the latter requires your teams to learn the skills needed to run a 3P account, it makes you less dependent on Amazon accepting your CPIs in the future.
Raising cost prices with Amazon is anything but a piece of cake. However, following the tips from this article will significantly increase your chances of getting your Vendor Manager to approve your CPIs.
Be sure to leverage your negotiation position and consider ceasing shipments, as these measures also increase the pressure on your VMs’ decision not to accept your cost increase and may lead them to return to the negotiating table.
Need help with your cost price negotiations?
If you want to learn more about CPI negotiations with Amazon, get in touch. I offer tailored advice to help you navigate the discussions with your vendor manager.
I also run a leading negotiation training that teaches you how to secure better deals in your next JBP with Amazon.