How Should You Respond?

By Stew Bishop, President and CEO

Many CPG manufacturers have opened their inboxes to a similar email from their Amazon contact, “Your margins are running too low with us and need to come up.”

Although he/she did not say “or else,” this immediately inflicts stress on the recipient which soon spreads to leadership, with nearly everyone assuming the worst. Why?

  1. Manufacturers, especially those with developed brands, have not carefully, strategically planned what they want from Amazon, and all of their customers for that matter. They simply treat Amazon as: “incremental” business, without calculating the cost of adding them as a strategic customer.
  2. Most brands are not doing effective ROI calculations on Amazon because they don’t know how; therefore, they surrender more margin to Amazon out of fear of being left out of the fastest growing retailer in the marketplace. Too often, decisions are driven by, “What if I don’t?”
  3. Without historical precedence or a similar customer, they don’t know when to say yes or no to Amazon requests, never mind know what to approach Amazon with as a proactive proposal. Guardrails for this client do not yet exist.
  4. This behavior is similar to what happened with Walmart in the early 90’s. In fear of being left behind, brands spent aggressively, more than they needed to considering the organic growth driven by the increase in Walmart stores and shoppers. That same organic growth is happening on Amazon now.
  5. But this time it is different, because Amazon also serves as a brand advertisement, education medium, and forum for consumer reviews. Nondifferentiated items that are late to arrive or not optimally merchandised will have a hard time competing with the “best sellers.”

How much should a brand invest in order to get to the top of the page (aka more brand exposure)? With our rigorous academic models, analytic firepower and decades of CPG experience, CMG is in a unique position to analyze Total Customer Marketing Spend at Amazon or any other major retailer.

In an online world the lines between “distribution” and “promotion” are blurred. CMG can help you see more clearly how much return your investment is delivering and how to spend more effectively and efficiently moving forward.