Amazon Vendor Negotiation Q&A - Week 5 with Flying Tiger Partners

All right, let's dive in. We got some folks here and we've got a bunch of questions to get started on. As a reminder, Kara and Nick are both ex-Amazon vendor managers now working together at Flying Tiger Partners to help brands with everything from AVN to more tactical ongoing problems. Thank you again for joining us this week, Kara and Nick. I want to get us started by getting us back to a topic that I think is near and dear to your hearts, the retail formula. When we presented earlier, this year, or when you presented earlier this year, you hammered on the retail formula as being extremely important to the success as a mechanism for brands, mostly in a WBR to AVN setting. But I'm really curious to hear a little bit more from you about the relationship between— or the trade-off between profitability and sales growth in the retail formula, and especially as it pertains to AVN. Because I think we'd all love to grow really fast, really profitably. And I think we also know that in most situations you're, you're kind of forced to pick one or the other because anytime there's profit, uh, you know, investors look at you and say, well, isn't that money that could have spun the growth engine faster or vice versa? So, um, from your perspective, Kara and Nick, um, at what point does poor profitability override sales velocity in Amazon's retail formula? And at what point should people who are growing fast start to think about PPM?

Oh, I mean, Nick will probably agree, but like, you should be thinking about net PPM on a weekly basis. It's interesting to see Amazon's evolution from pure growth focus to profit focused. So when I was there back in, you know, starting back in 2014, we were all about grow, grow, grow, grow, grow, right? First Prime Day. Forget how much things cost. You know, what's, what's shipping costs? We're not even going to think about that, you know. And then in the last couple years, especially since COVID Amazon's become even more focused on, focused on net PPM, so on profitability, often at the expense of sales growth. I was just having this conversation with one of my clients who's going through a bit of a hairy, uh, AVN right now. Where they have a big growth ambition, like multipliers, right? Growth ambition. Amazon's like, that's great. Uh, we want to focus on net PPM. And if you think about it, Amazon's retail formula, for those who aren't familiar, are where you can basically quantify the impact of glance views, conversion rate, and in-stock rate on your unit sales. So very simply, it's The number of glance views multiplied by your conversion rate, multiplied by your in-stock rate equals your units. But there's a kind of secret layer to this formula that is profitability. And the reason you need to be aware of it and focus on it is because if you're low, if you're getting to a realm that's CP negative or contribution profit negative, or even just missing targets for Amazon, that can result in actions that the algorithm takes that will impact your sales growth. Everything from suppressing search suppression, uh, like PO shut off, even getting excluded from advertising placements. So Amazon has built-in mechanisms to restrict growth when profitability— when there's a risk that the profit will outweigh the lack of profit will outweigh any kind of benefits from growth. Even if you listen to the— and I think I mentioned this in the last call— the Supply Chain Operations team has a whole webinar where they talk about how the forecasting algorithm kind of chooses the forecast that it picks, right? Whether it's a P50, P60, P70, P90, part of the equation is the profitability. So if the item is less profitable, they will go towards a lower forecast because they know that Amazon will artificially artificially restrict traffic. So it, it, you know, you got to think about your own profit and P&L as a brand, but you also have to make sure you're paying attention to Amazon because all the growth in the world won't save you if your net PPM is going in the wrong direction.

Thank you, that is super clear. Um, I think that a lot of folks, you know, maybe get focused on the retail formula, which doesn't explicitly say PPM in there, uh, means sales go up, but I think you've got a great point that ultimately Amazon has built a lot of mechanisms to restrict growth when that growth isn't profitable. Really well put. Nick, anything to add before I keep us going?

Nope. Kara nailed that one. I was trying to track down the file where we had our retail formula, but couldn't find it in time to show it.

Yeah.

Well, next time be more prepared, Nick. Gosh.

We just need a virtual whiteboard and I'll just start writing stuff.

You know, I could have sworn that Zoom had that option. I'll need to— I'll need to look into it. For the future. All right. Thank you so much, Kara. While we were talking, we had a question come in live from somebody here on the call. How should we approach bulk buys as an AVN component? How does Amazon view bulk buy value? Is it at the original cost or the reduced bulk buy cost or the discount amount? And you can see the full details in Q&A here.

Kara, Chip, you've run some separate AVNs from me, so tell me if you've seen anything differently. I've not typically seen bulk buys used as a big lever in AVN because typically those will be like one-off things dependent on upcoming HVEs or inventory positions, or if you're just trying to close out your books for the year with a higher amount of sales. And those should all be negotiated pretty individually. Amazon's gonna be looking at specific ASINs and you have to figure out how much margin you can afford to give up on that. It's certainly something to talk about during AVN. You say, hey, we might be looking into some bulk buys this year, we could offer this, but it's not going to be really your biggest lever. From what I've seen, the way they'll look at the value of that is really like the discount. You know, typically we'll see like 5 to 10% dependent on quantity type of ASIN. They're gonna be looking at that savings as the value that's been delivered. So 10% of X, X being the PCOGs for the quantity we're talking about.

Yeah, I'll just chime in at the list that— sorry, Nick— the list that we got recently from the VM, the bulk buy ask was like way down at the bottom, kind of like a maybe. They would much prefer a cost down than a bulk buy.

That makes sense that they're ultimately going to use— they might use bulk buys as part of their ask, but they're always going to prioritize cost reductions or margin, other margin improvements that are more systematic and programmatic.

Perfect.

Thank you. All right. We've got more coming in. I love it. And more attendees streaming in as well. Hi, everyone. Someone is getting into Avian soon, and Amazon has already mentioned that if they don't provide more SOA, that they're going to suppress ASINs, excuse me, which they can't increase SOA on, but won't that affect them at the end of the day? Why would they suppress them?

Kind of to back to the earlier answer, they'd rather not sell a product than lose money on a product. Or the way you have to think about it is if your item is high volume enough or maybe contributes enough profit that it will skew the mix of their entire portfolio, they're gonna, they're gonna not want to run it. And truly, the suppression is the VM's only lever because the pricing, price matching, all that is run algorithmically. So all a VM can do is suppress. Um, in cases like that, if the funding is not available, um, there's a few things you can do. Kind of a long-term lever is more looking to see if you can find a 2P authorized reseller to like partner with. So when your 1P item is suppressed, you can have an active offer on 3P. Um, but it's really, you need to dig in with your VM and understand why are these suppressions happening? Like what's dragging down profitability. Most of the time what we see is price matching due to channel conflict. Interestingly enough, I have a client who doesn't have a lot of channel hygiene issues, but there was a miscommunication between the former Amazon team that was managing the business and the VM where agreements to fund promotions were not getting put into place correctly, and not then, then the funds were not getting allocated correctly. So these items look super negative, but in truth, the re— the brand was like We're funding these. So you need to dig into the why, what's driving it down before you like just agree to any funding outright.

Yeah, huge plus one to the addressing the core issue. Kara mentioned a few, you know, price matching, operational issues, etc. But really sometimes it is error and ASINs not getting loaded into the right co-op agreements and not being attributed properly, especially in net PPM calculations, is one of the absolute most common things that we see. You know, not to toot our own horn here, but we built a Net PPM validation tool that basically calls this out for people. And all of the clients that we've had use it have found errors in Amazon's calculations, even when we're recalculating that PPM using Amazon's own data. And so it is a super common issue.

Amazon won't do that work.

And yeah, there's a— just being diligent about your data, knowing what's going on in the marketplace. These are all huge because you might have the price coming down, You gotta figure, is that price match valid? I was just having this issue with a client where their scraper tool was not mapped properly. So they were picking up an offer for a completely different brand's product at Home Depot and applying that to the client's product, just killing their net PPM despite their great channel hygiene. But if you can highlight that to them too, you've done the work for them. Often they can get that turned around pretty quick. But it's part of the whole partnership with your AVS especially.

And that daily vigilance, daily walking your storefronts and walking your pages and then looking at any net PPM trends on a weekly basis like we've spoken about with the WBRs in the past.

Yep. Last thing I'll say here is to getting back to the original question in the spirit of it, you know, doesn't— won't this affect Amazon at the end of the day? Why would they suppress these products? I cannot emphasize enough that Amazon views you as one input to a portfolio in their category. They don't really care about your business individually for its own sake. Nobody at Amazon is gold that way anymore. Instead, they need to drive overall growth for their category or subcategory or overall goal improvements or metric improvements. And you are one of 500 to 1,000 possible levers that go into that. If you're a huge conglomerate, you're a bigger lever, but you're still just one. And Amazon is very willing to be extremely aggressive when it comes to putting up a wall and saying, we are no longer going to sell that product if it means that it's not strategically beneficial to us, or if it's not profitable for us, or frankly, if we just don't like you very much because you're being kind of a jerk. All of these things will absolutely stop them from selling your product. And I've seen vendors get timed out for months months, if not over a year for reasons like this. So don't assume that Amazon is ever going to be rational about these things. Amazon wants to win when it comes to that kind of negotiation.

But it also doesn't mean you just need to sign over all the dollars they're asking for either. There are different tricks. If they're going to approach it that way, there's also other kind of diversification methods like I mentioned and things that you can dig into too, because Amazon is more aggressive than I think I've ever seen in just a couple of the conversations I've been privy to with our clients because they are— they've got a huge number to claw back from last year, the impact from tariffs. So they're going to be coming in hot.

Yep. Enormous. I think we got a follow-up question from the same person. They tracked that Amazon didn't even spend the allocated SOA in prior instances. Can't get a clear answer, um, and it feels weird that they're requesting more. Uh, Kara, Nick, you want to take that one first?

I mean, they're always going to request more, um, but I think that's where the conversation has to be, like dissect every single ask they have. And one of the asks is like, you have not spent this. Now here's the thing, have they not— with spending, say if it's like marketing accrual, they may not have— you may not have told them to spend it on an event or an activity, but they have still deducted it, and they will continue to deduct it until the end of the year. So it's like spent and spent, right? Like the marketing funds, all things like that, they just go straight into their pocket. It's up to the vendor to direct where those have to go and demand results from those investments before you need to go and turn around. But yeah, the marketing— the marketing funds, I think, are— from what I've seen this year, I saw one that was like 2x last year, just— and also knowing that they don't really drive anything and Amazon needs cash.

Yep, exactly. Um, to Kara's point, just because, uh, they haven't spent it doesn't mean they haven't deducted it. But also, it's important to recognize that when you think about Amazon's net PPM formula and how they're calculating margin they don't care whether those dollars have ever been deployed productively or not. They care about the dollars coming into their, into their bank accounts and into their P&L. Once you've signed over that money, it goes into that net PPM agreement. It goes into the contribution margin that your vendor managers use, and they've got some credit for it, period. So they're asking for more because they want to continue to get credit for it, whether or not it's actually benefited your business. All right, and then, um, oh, one more follow-up. What is SOA? Anybody want to take that one?

I think it's just the— is that just like the marketing funds?

I'm not familiar with that specific abbreviation, um, but it sounds like they're talking about a general co-op or, uh, merchandising accrual.

Yeah.

All right, one more to answer live here. We recently had an ASIN suppressed by quote unquote central. That's a fun one. Our VM told us that when ASINs are suppressed this way, there's nothing we can do that they can do and that we may need to accept that the ASINs are dead. What does that mean?

Nick, you want to go?

Yeah, I mean, the first thing I'd be thinking to ask them is ask them what details they can provide. Why was it suppressed? Sometimes when there's like some serious catalog defects and they're recurrent, an ASIN will just be basically tombstoned. It's just that it's dead, retired like a star player's football jersey. They're never putting that back on. So finding what the root cause of it was, maybe there was a data entry error, transposition, maybe some other attribute of it was wrong. Figure out if you can just recreate this ASIN. You might even need a new GTIN if it's really that bad, but bring it back without having those flaws. But if they're not going to even point you in the general direction of what was wrong, that would be something to consider escalating. But this is also a pick your battles thing. If this is a tail end ASIN that's not really contributing a ton to your overall sales, you know, maybe just try and recreate it. If this is one of your flagship products, that would definitely be the time to escalate that and find out more, because that would also mean the rest of your business might be at risk of the same outage. They even at the VM sometimes some of these things are a bit opaque and they have to do some digging through some of the dustier internal systems within Amazon that I can't even remember the name of.

Yeah, and I'd also dig in with like Reason Automation or in Vendor Central and understand like what were the net PPM trends? Like, did you get crazy poor reviews, high returns? Like what? Because usually Amazon has been hounding you for a while before something happens like that. You also have the option to load it on 3P. Through like an authorized seller, or if they're really not paying attention to you, maybe direct under a different name. But yeah, you need to push them not necessarily to like reverse it, but to get the reasons behind it. Because to Nick's point, there might be more coming if those reasons are shared with others.

Yeah, just to put a bow on that, I don't think any of us has any idea what central is, quote unquote, because I don't think that's a real term. It sounds made up, which is something that Amazon vendor managers are going to do. Not to be like deceptive, but because to Kara's point, they don't necessarily know. They're talking about a system or a tool or a group that they don't necessarily understand. They were just told by somebody else, probably a dev that said like, oh, that ASIN got like shut down by some central business unit or blah, blah, blah, blah, blah. And they're trying to basically pass on that message probably imperfectly. There's a number of reasons why that might occur systematically by some central organizing team, but we can't ultimately bridge that for you. It's going to be any of the things that Kara and Nick just suggested. And I can't emphasize enough Nick's great point. Just ask for evidence and some kind of documentation and explanation. That's all you can do is understand it. And that frankly, AVN is a great time to escalate these things to Nick's point, because you're potentially getting into a room and getting attention from a wider and higher level audience. And so if this is a hill that you want to fight on, then that's a great time to do it. All right, one more coming in hot. Uh, what is the calculation for net PPM and how should we be making sure new ASINs build net PPM before we launch them?

Andrew, I don't know if you have your tool queued, but you've got that great, um, trying to remember which thing it is, but it's like, it's a great overview showing what it is.

Yeah, I'm gonna pull it up right now. Just to get us a formula.

I'm trying to get the PowerPoint slide really quick on the fly to share.

Okay. I don't think I have those handy.

But I think Andrew's will present a little better.

Yeah.

All right. To kind of back up, like the first ingredient of your net PPM is going to be your PPM. So that's looking at the list price, minus the cost price in parentheses divided by the list price. That's going to be your PPM. So what's that pure margin between what Amazon pays and what they're charging customers? Net PPM is where you layer in your allowances. That's your commercial terms, also known as contra COGS. So your MDF, freight, damage, ABS, payment terms, those all get subtracted as well. So then you get that net money that Amazon's getting. Here we go, this is much better. Didn't want that here.

Yeah, no worries. Um, so the net PPM formula, Amazon shares it, so this is exactly what it is. We know exactly what it is, um, and Amazon is okay with us knowing it. Um, it is your revenue minus COGS, to Nick's point. So pretty straightforward to get to that gross margin. Then you're adding in contra COGS, that is all of your co-op investments, whether that is accruals like freight allowance, damage allowance, co-op, etc. But it also includes any other promotional funding. So instant rebates, VPC funding, deals, straight payments, et cetera, anything else minus sales discount, which is any price reduction passed to the customer. Now, if you're funding a price promotion, contra COGS and sales discount usually net out so that, you know, you're saying, I want to lower price by $3 per unit for customers. Here, Amazon, here's $3 per unit. So that's not actually negatively impacting your PPM. And then all of that divided by shipped revenue. So you can see that the goal is for NetPPM to be a formula that looks at— not to overuse their own terminology, but the purest view of your, your margin with the main components. What it doesn't include is things like Amazon's variable costs, your payment terms, other sorts of things like shortage claims and reclamations, recovery, chargebacks, etc. But it is still there to help you understand in the aggregate level how your business is performing and roughly what the margin is.

Yeah, so to your question, when you bring on a new SKU, if you have a net PPM target, make sure you know what the VM's net PPM target is. Um, get to that or better. Their only variability there is, you know, net PPM is what Amazon uses to talk to vendors about profitability because they don't share their bottom line profitability. So the difference is, say if you're a heavy bulky item, you might need to have a higher net PPM to offset Amazon's outbound shipping costs. But if you say, hey, I'm bringing this product and we expect to do like 60% direct fulfillment, which means we'll offset your, your shipping cost, which you can kind of estimate in the FBA shipment calculator— Amazon says it's not the same, but close enough, right? So you might be able to get away with like showing maybe an equal net PPM, but it's actually going to be improved to Amazon because you're offsetting their outbound shipping load with DF. So that's like net PPM is good to start, but you also need to think about those kind of crucial variables that might, you know, also factor into the final number. But, um, make sure you're really clear on what Amazon needs because they might say like, hey, we want 48% net PPM, but we're having a lot of issues with heavy products or high returns or whatever. So like make sure you're clear from them anytime you're bringing a new item because you want it to— you want them to accept it and not be dead in the water.

Great callout. Taking a bunch of notes because I'm learning as we, as we talk here. The main thing—

May I just expand on that too, Brooke?

Please go ahead, Nick.

Sorry. So it's kind of more of a philosophical view for how your vendor manager and their leaders look at this. As Kari said, it's the purest view of profitability, which like Andrew said earlier, and it's what they can control as the retail team. The other reason they don't share their true profitability is once they get past net PPM, it's really out of the retail team's hands. If labor costs at the fulfillment centers have increased, that hurts the profitability, and the vendor manager has nothing to do with that. So they're going to negotiate based on net PPM, but they're also still held to those secret profitability numbers. And that's why you'll sometimes see your outliers get suppressed, even if you're hitting your net PPM targets. True profitability on something that another one that aside from heavy bulky is very low ASP items, because the way costs are allocated, if it's $0.50 every time that somebody touches it in the fulfillment center, much bigger impact on a $4 package of plastic picnic forks than, you know, this pair of AirPods. Yeah, so you can get to us being truly unprofitable even with the right net VPMs sometimes on those edge cases.

Yep. Finally, it's pretty basic, but when you're doing item setup, make sure that you're checking all the boxes and setting that item up as correctly with as much catalog data as possible and that it's all accurate so that your ASIN flows into the right co-op agreements and therefore Amazon systems actually attribute your co-op correctly. That is— it might seem basic, but that is a very common source of PPM issues, especially with net new selection. Is that something about the setup went wrong. It got loaded into the wrong subcategory and therefore with the wrong accrual agreement. And therefore it looks systematically less profitable than your peer selection and Amazon system never orders it. And you don't figure that out until 3 months later when you're noticing, wow, we're aged on that entire initial purchase order. We've never seen another one. We've never sold a unit. Why? Oh, 'cause Amazon's not actually pushing for it because it looks unprofitable. All right. Comprehensive answer. And then we've got a more complex one with a follow-up. So I'm going to try to read this one live. If this was your question, I apologize in advance if I'm butchering this, but feel free to chime back in. What happens when we have a poor margin on— based on their new net PPM forecast? So unless we make a sale on last year, they have focused aggressively on Glance views on a 3,000 SKU catalog.

Huh.

What category is this?

Yeah, if this is you, if you wouldn't mind answer— if you wouldn't mind telling us what category you're in.

This is correct. In the first line, what happens when we literally have a poor margin on an ASIN based on their new net PPM forecast? So unless we make a sale on a 50 cents cost per acquisition, we lose money. So you're saying that with your current margins to Amazon, you don't have the room to drive traffic, and Amazon's saying you have to drive traffic to 3,000 ASINs. Is that Amazon saying that, or are they AE? Because that's— I'd call BS on that. You also could think about if this is really just like killing you Have you— when was the last time you did an assortment rationalization? So looking at your profitability per SKU, if there's any items that are getting degraded because of like chargebacks or any of those hidden costs, and if it's truly just like we can't be profitable, you can delist items and like refocus your catalog. Your top line may not be as much, but you'll make more money potentially. Because I, I've never heard a VM say every ASIN needs to be pushed with ads, because that's— if you want to do that, put them all in a brand store and drive to the brand store. Um, I think maybe because it is such a long-tail business, Amazon needs every ASIN to contribute, but then just delist the ones that aren't if you can. Um, you can also look at alternative forms of traffic which can be more cost-effective, like Affiliates where you pay a percentage, right? Which, you know, if you can afford that, hit or miss. Or do you have a social account? Are you spinning up organic posting? Like, because especially TikTok, you see a really strong halo to Amazon. And if you have items listed in TikTok Shop, you even see a halo to Amazon because a lot of customers still don't want to buy on TikTok Shop, but they discover products there. So that's a way to also diversify without just paying for every single customer acquired. I've had very good success with my clients who've implemented that strategy.

Yeah, lifecycle marketing seems to make sense there. If the— we got a response there. Correct. Can't afford to push budgets across the board like that. That was the AE.

That was the AE. Take that with a grain of salt. That AE is trying to make money. And guess what? Your VM is not going to give you any credit for pushing every single thing.

As a former senior AE in Amazon Ads, you were always free to ignore them.

They're trying to hit their bonus.

Yep, exactly. That is for their purposes, and that's, uh, that's a technique. Definitely focus on your business objectives. Your AE does not have— their interests are not aligned with yours necessarily.

They also don't really sound strategic at all. They're using like only one like hammer in their tool belt, and I, yeah, I would not. I would try to get that AAE to work for you, get you insights, get you reasons why, why does every ASIN have to get traffic? What's the halo effect? What are other ways we can combine ASINs together and get traffic that way, like to a brand store, like make them sell it to you because they're full of it. And they probably don't actually, a lot of AEs don't even understand retail.

And you'd also be shocked how many, like just the miscommunications between the two. Amazon Ads and Amazon Retail are two completely separate organizations. In practice as legal entities and culturally. So even your, your VM might not have like the greatest understanding of Amazon Ads either. Just kind of view them as two distinct folks. The, the VM is the one who's gonna have a much stronger impact on your actual business.

The AE can't do anything. Yeah.

Yep. Just to say it out loud. I think this comes up in every Office Hours, but we need to say it every single time. Separate P&Ls for ads and retail. Ad spend will never count to your PPM or your VM's goals, and that is absolutely leverage for you. If you are going to drive that conversation with your AE, make additional things on their side contingent on unlocking some retail goals or getting some help with your retail side because your AE has variable comp tied to that. Your VM does not. All right. Somebody submitted a question. You have an accrual that is ex, um, accrual co-op activity. Should we be getting anything in return for this? Uh, so there's a merch allocation basically.

So this is the one I'm thinking of. If it's at 10% like that, usually it's 10%, 8 to 10%, just says co-op. That's a slotting fee. That's like a shelving fee in Walmart. You're not going to get anything for that. It's one of the— if you're gonna find a hill to die on, that's not the hill. Now, if they're saying, hey, we want a 3% accrual for marketing activities, that's one that you should have— A, don't agree to that. B, if you have agreed to it, then go and make them give you all the options of what that unlocks— storefront placements, banners, uh, shopping guides, anything like that— and then give them— give you kind of results of that, even though they're not particularly effective and their reporting is not great. So we try to stay away from things like that as much as possible, because if you have a dollar, it's going to go farther put into Amazon Ads than Amazon Marketing.

Mm-hmm. With actual results they can share with you and that you can analyze.

Yeah.

Yep. Speaking as a former head of marketing for a category who was responsible for designing and managing these merchandising packages, don't expect results. The goal is for them to be defensible reasons for you to give your stakeholders about why you had to write Amazon a bigger check and why they are now getting more money. That's all it is. If you're going into it with an ROI mentality, you will be eternally disappointed, and Amazon will get frustrated with you because they expect you to see around that and, and understand that what you're doing is getting your brand name into a bunch of places. And so the goal that I always encourage brands to take is accept that that is the reality, that this isn't an ROI pay-for-play or an ROI opportunity at all. Instead, think about where exposure is more valuable to your stakeholders and your brand within the options that Amazon presents. And so, you know, it might be event sponsorship where you're going to appear on a certain storefront or an event page and inclusion in certain emails, etc. And none of those vehicles is going to drive more than, you know, $10,000 to $20,000 to $30,000 of attributed sales at the absolute most. But if you have a stakeholder that, you know, really cares about seeing your brand's name next to certain other brand names or in a certain context or on Amazon's category page or on their Black Friday page, that is why you should make a choice for those things. Not because they're going to deliver more, but because there's some small incremental benefit to you. All right, what are the actual implications of listing on 3P and hybrid? Seems like doom and gloom from what we hear, AKA Amazon would stop purchase orders, but what can they actually do or not do?

Uh, so technically it goes against Amazon's terms of service to list as you the brand as a 3P seller. They'll find ways to block you or they'll turn off your POs. However, they cannot stop you from partnering with an authorized reseller or selling in any retailer channel you want. Amazon's basically an open channel, but as long as it's not you, you know, there's not like it's, it's you're selling under Pattern or Recom or one of those others, Front Row Group, then that is perfectly legitimate. I've seen Amazon try to pull some shenanigans like slowing orders into the warehouses and stuff, but that's in very kind of unique contentious cases. Um, I honestly, I've, I've now stood up 3 different hybrid strategies at 3 different organizations, had great success with it, and I highly recommend it. There are other approaches you can take once you kind of get that down long term. Um, but part of the way you don't want to piss off Amazon is like You can have a backup offer on all the items where you're just there in case there's an ANDON quarter suppression to make sure you have an offer. But 3PL also offers you functionalities like you can bundle more than one of the same ASIN, which you can't do on Vendor. You can give them like unique assortment. You can take items that Amazon 1P has deemed unprofitable and list it through 3PL, which is more profitable to Amazon in general. So it's kind of like taking the approach where you don't want to piss off Amazon and screw up your business, but you do need to protect your business, and that's one way to do it.

Yep.

One thing to call out here is that this varies very significantly by region. And so what Kara's describing is specific to the US, maybe all of North America, where Amazon is the most restrictive about 1P. If you are a 1P vendor in the US, you are extremely restricted from doing 3P and Amazon is absolutely watching. And to Kara's point, 2P is your safe path. In Europe, Amazon 1P is much more open to the idea of you being hybrid and moving selection between the two. And they will actually encourage you to do that if it makes sense for their own business and P&L. For example, to Kara's point, you can avoid angering Amazon by focusing on backup offers, unique assortment, or stuff that has been systematically unprofitable for 1P. In Europe, Amazon vendor managers might proactively tell you, hey, look at this stuff. It's killing my net PPM. Go move it into 3P because it's good for their P&L and ultimately maybe even better for you. All right. We got 5 minutes left and a couple more hot questions. Can we ask for inclusion in retail merchandising packages as part of a larger advertising ads investment or a direct advertiser agreement? That face, Nick.

Sorry.

Yeah, sorry. Just the separate P&Ls ends up being the opener for that. These two groups will not really cooperate on that outside of a Maybe if you're able to thread the needle, get the VM and the AE in the same room and work something out. But I would expect anything retail merchandising, again, that's Amazon retail P&L, really is not going to interact at all with your Amazon Ads stuff, which is where your DAAs and your regular ad investment would live. Yep.

Well, and also Amazon Ads is gobbling up, like, if you think about all the marketing placements on Amazon, it's all real estate. Amazon Ads is going and gobbling up all the real estate. So retail really has a very limited real estate to choose from. Um, the only time I've seen an exception to this is for, uh, clients who have Buy with Prime on their D2C site, and they can kind of negotiate like a three-way agreement between Buy with Prime team, ads team, and VM to get like better homepage placements that actually drive to their D2C site. Very limited. And tricky, but that is kind of one kind of way you can pull the different groups together to work in your favor.

Yep.

Um, the only other example I've seen is if you are a very large or very strategic brand, um, there have been— Amazon will make whatever happen for you if you're large enough and important enough. And so, uh, back in my day in consumer electronics, where you're dealing with companies like Apple, for example, um, those companies have a little bit of power and are able to make all kinds of interesting things happen. And Amazon figures out accounting on the back end, but they don't like doing it. So it truly is a— if you are the top 0.1% of your category, then okay, maybe have that conversation, but otherwise don't. And last, I'd say, you know, to our point about merchandising being kind of low ROI and uncertain ROI and hard to measure, I actually think that what you're asking for is maybe going in the opposite direction where you're asking to take money that could be part of a mechanized, uh, well-instrumented, measurable set of investments like Amazon Ads and moving them into a less certain, lower ROI vehicle like merchandising. Uh, and in general, I'd just double-click and make sure that you're, you have a really specific defensible reason for doing that because you're going to make some trade-offs to do it. All right. We've got a couple more questions. Uh, ooh. And some stuff in, uh, chat as well. Oh, Oh, Kara, you've been answering it, so never mind. I will let that live on there.

Multitasking.

Better than I am at this. All right, so we'll answer one more question live. What strategy would you take if you have an item that has higher cost than ASP due to price matching to Walmart?

First, I'd ask what's going on with Walmart. I've had issues where teams internally don't talk to each other. And there's strategy, there's all the stuff that's like disconnected. Um, because if there's price matching, that's a you problem. I hate to say it. Um, or if you're a distributor of a brand, that's a distribution problem for the brand. Um, so it really needs to come down to the root cause. But for an item like that, I would delist that. I would look at a different way to approach that particular offer. Because if it's systemic and you have no control over why the matching is happening, that's not going to go well.

Yep. And if you can't do that, then all of the other fun tricks like new ASIN, slightly different SKU so that Amazon can't do an exact price match with Walmart, etc., these things do work. Amazon is getting smarter and smarter about finding comparables. But for example, if you create something that is truly slightly different, and can't be a direct price match because there's color variation or things like this. That is an ongoing defensible play. Yeah. All right. We are at time, everyone. That was our last question. And again, if anybody would like to follow up with our wonderful presenters today, it's Kara Babb and Nick Gezer from Flying Tiger Partners. They are extremely talented 1P consultants that we've worked with on a regular basis. And I am talking a lot because I was trying to get their contact information onto screen. If you want to work with them, their URL is flyingtigerpartners.com. Pretty easy to submit a request and get more insight from Kara and Nick directly. And Kara dropped her LinkedIn.

Yeah, LinkedIn link on the— you can book with us directly there too.

Awesome. Well, thank you again so much, Kara, Nick, for jumping in, especially at the last minute. It's always great to have you. If you joined us today, we'll be sending out summaries later on this week. And of course, join us again next week for more questions and answers. Thanks very much, everyone.

Thanks for having us, Andrew. This is great. Thanks, everybody, for joining us.