Winning the Price Game (Part 1): Securing Cost Increases

Paul Sonneveld

I'm Paul Sonneveld, co-founder and CEO of MerchantSpring and host of this weekly podcast. Now, before we get started, j ust a quick note about Amazon Accelerate. We are there and we're proud to be a sponsor at Amazon Accelerate there if you are attending, please come and see us at our booth to discover our latest features enter exciting giveaway and even chat with us about being a guest on this very podcast. Now, today I have invited a very special guest, Josh Cowan, Sales Director and Senior Account Manager at Intero Digital, a leading digital agency offering full funnel marketing solutions that support your entire brand and drive your bottom line. He is a seasoned sales and marketing professional with over 18 years of experience spanning e-commerce, technology, and retail sectors. And prior to his tenure at Intero Digital, Josh built a rich background at several Fortune 500 companies.

He worked at Amazon as a vendor manager, where he implemented strategic marketing initiatives that resulted in double-digit sales growth. In addition, his corporate experience, Josh also is an entrepreneur. He co-founded Foothills Innovations in 2018 and founded JTC Marketing in 2019. Both ventures focused on developing unique brands and helping manufacturers expand their business on Amazon. Josh is known for his dependable leadership, relationship-building qualities, and a proven track record of driving growth and success throughout his career. Josh, it is absolutely fantastic to have you on the show today. 

Josh Cowan
Thanks for having me, Paul. 

Paul Sonneved
Okay, great. Well, let's get back on track. Let's get back to our topic, which is we're talking today about cost price increases and as well as managing retails. And I know you've seen both sides of the story there. But maybe let's just start with sort of a ground sort of groundwork question here. And that is why is Amazon pushing back so hard on cost price increases now? You know, we're hearing a lot of stories of vendors just finding it really, really difficult. Why is it so hard right now?

Josh Cowan
Yeah, so before I answer, I'll have to apologise that I've lost my voice this last weekend. So bear with me here. But yeah, so why is Amazon pushing back so hard on cost increases? I actually think that they're not. I think that the current strategy, it has, you know, on Amazon side of things hasn't really changed. I think that it's just getting a lot more attention because there's a, there's a lot more requests for cost increases this year more than ever. And I think part of that is due to tariffs just compounding on brands normal need for cost increases. And so it's a super hot topic right now. 

Almost everyone needs an increase due to tariffs. And Amazon took a wait and see approach at first, they did not, you know, jump to go help everyone out and, you know, take some of the hit. They wanted to see where tariffs landed. And I think for some vendors, Amazon has come back around and agreed to share the hit from the tariffs. And for others, maybe smaller vendors, smaller brands that don't quite have their full attention yet, they have not come around yet. And so it's been tough. But yeah, as far as their overall approach, I think it's the same. I think it's always been really, really difficult to get cost increases across, especially if you don't have a vendor manager internal at Amazon to talk to.

Paul Sonneveld
Thanks, Josh. That's a really good point. Really, what you're saying is actually Amazon's approach has been pretty consistent, but I think the volume of cost price increase requests from vendors is starting to increase because of all these external pressures that we've started to see in the last 12 to 24 months. So, which then leads us back to, well, if Amazon tends to be consistent, what are they looking for in terms of building a case to have them accept your cross-price increase? What does a strong data-led case for a cross-price increase actually look like, at least in Amazon's eyes?

Josh Cowan
Yeah, great question. So I think, I mean, the bottom line is the successful cost increase negotiations come when Amazon sees a benefit, right? So that's going to look a little bit different depending on whether you have a vendor manager. So for those with vendor managers, you know, it's quite a bit easier. I wouldn't say it's easy, but there's a lot of things that you can do and a lot of things in your power to get that increase across from a data standpoint. So one, when you come to Amazon and invest in promos and discounts, another one is, you know, communicating to them your ASP and how it's increased and they can of course, see that on their end by looking at those other retail channels. I think talking about real tariff pressures and conveying that to them and helping them understand exactly what those pressures are for you. And then other cost pressures that come from labour or parts cost increases or, you know, but things that are specific to items. 

So the data piece is really important. If you come to Amazon and you give them a blanket percentage increase across your catalogue, they're immediately going to reject it. And that is true for both if you have a vendor manager or do not. They want to know that you have meticulously looked at your bottom line and that there are true cost increases that you absolutely need to pass on. And then they also need to see that in the retail marketplace so that they can maintain their margins. So there's lots of ways to give something back to Amazon and return for that increase. But it does start with the data. So if you don't have a vendor manager and someone to talk to, net PPM is really key. You have to have a strong net PPM for your brand already. And you need to be, you know, you may not know what the category average is, but you need to know that yours is strong. Because if you're already below the category average, they're not going to take any increases on your products.

Paul Sonneveld
I was going to ask you about, because many of our, particularly in Europe, a lot of our vendors don't have vendor managers. And I'll probably let's go a bit deeper on that towards the end of this event, end of this episode. But for now, actually, I wanted to go back to maybe some of the documentation, right? So you may say, okay, well, actually, Amazon, my labour cost has gone up. There are some specific components. I've got this particular material, the cost has gone up 30% or whatever. What sort of evidence does Amazon demand in terms of actually checking, hey, what you're saying is kind of true? Like what, what level do they go to in order to tick off and say, actually, what you're claiming here is true. And we agree that it's impacting your bottom line. And therefore, you know, we will accept the cost price increase. What have you seen in your experience?

Josh Cowan
Yeah, you know, Amazon is going to be able to see some of those things on their own and then other things they're not. So, for instance, Amazon, of course, has, you know, lots and lots of vendors within a category. So they can easily see if very similar brands with similar products are also needing increases, right, and are also increasing their list prices because of those pressures. If you're the only one within a category with similar products saying that you've got an increase, Amazon's going to have question marks, right? 

They're also going to go and they're going to check what's happening with your price in other retailers, right? That's something they can easily check. They can look and see what is your price doing on, you know, some of their competitors' websites. If you're selling to Target or Walmart, you know, is your list price increasing there, right? Because this is really, really key. When you provide a cost increase to Amazon and ask them for an increase, you have to increase list price at the same time. Because if you don't, you're asking Amazon to take a hit and they need to maintain their margin, right? And so it's always gonna be a conversation of number one, have you increased list price? And then two, has that list price increased everywhere else already? Amazon sees themselves as kind of the last ones to ever need an increase because of the way that they do business. And this is one of the arguments that they will make when talking to you about the increase that you're requesting. They will say, well, have you already passed this on to everyone else? Okay, if you've already passed it on to everyone else, have we seen that ASP increase for your products, right? And if not, why not? Because Amazon is a replenishment-oriented company, right? They're ordering week after week after week, and they're trying to maintain minimal stock levels. 

Whereas a lot of the other retailers out there will take bulk buys, and they have the benefit of being able to sit on more inventory, especially if they have brick-and-mortar locations. And because of that, they can bulk up and stock up at that lower cost. And then of course, you know, Amazon will have to take the hit when they're still seeing the benefit of that lower cost. And so, you know, those are some of the considerations. And those are the some of the things that Amazon will look at on their end. But as far as the data that you can provide Amazon, tell them specifically what is increasing in the cost increase spreadsheet. Again, if you don't have a vendor manager and you're submitting those cost increases, there is a dropdown in there for a reason code. And so you can put in there specifically item by item what the reason is that you need that increase. May or may not help you depending on what the margins are for your product already, but it can't hurt.

Paul Sonneveld
So are you saying there is a specific template that Amazon is asking you to complete all these requests? I may have missed that. Yeah. Yeah. And is that, sorry, go ahead.

Josh Cowan
Yeah. And that's true. That's true. Whether you're asking a vendor manager or doing it yourself internally on Vendor Central, you do have to fill out that cost increase form. So when you go up to settings and hit edit costs, there's a template right there that you have to submit and they will provide a blank template for you. I mean, most brands already have this, but if you need one, you can download it there. Sometimes they update it with new fields, but you need to follow the instructions in that template and submit it there before even having a conversation with Amazon internal vendor managers, and there's a 60-day waiting period too. So if you don't have a VM to talk to, you still have to wait, you know, you have to wait 60 days before Amazon will even consider taking those increases. 

Paul Sonneveld
Gotcha. All right. Timing wise, is there, is there a preferred is there a way to line up timing here or is there a particular time of year where chances of success increase or, or vice versa? Right.

Josh Cowan
Yeah.

Paul Sonneveld
And any advice on that front?

Josh Cowan
Yeah. Great question. I would say two things. Number one, don't ask for increases right before Q4, because obviously volumes are increasing dramatically. Amazon's about to cut, you know, huge purchase orders. The last thing in the world they want to hear is, hey, here's the cost increase we want to take. You know, we need you to take a big increase right before you order all this product. So, for Q4 almost guaranteed, no across the board, right? As far as a positive time where you have better chances, AVN negotiation time, right? So whether you have a VM or not, AVN negotiations will typically start happening around December, January, February, where you'll either get an email or someone will contact you and ask you, you know, to update your terms and increase your damage allowance or increase your marketing co-op, whatever it is. And oftentimes, that's going to be a larger conversation. And you can include a lot of different things in there. But cost increases are a great time to introduce at that time of year. So that you're not taking all the head, at least you're seeing a little bit of benefit. And it will likely be a back-and-forth with Amazon on, you know, who's getting the bigger benefit. 

Paul Sonneveld-
I used to work for a retailer and we used to deal with these sorts of things as well, like this sort of bricks and mortar retail. Some of this stuff is pretty common. Sometimes what we would do is accept the cost price increase, but sort of requested that the vendor would give it back to us, at least for the first year in, say, an additional promotional support or funding of some sort. To what extent have you seen those conversations take place in Amazon? They sort of accepted, so the vendor can go, everyone across the marketplace accepted it, but actually you may give Amazon back a little bit more than maybe what you give other retailers. Maybe I'm making stuff up here, it doesn't apply in the world of Amazon, but what have you seen on that front?

Josh Cowan
Yeah, no, it absolutely applies. And it's very, very relevant, especially in, you know, the potential success of your cost increase. But I would say have things in the back pocket, right? So have certain levers that you can pull in that conversation to make it more incentivising for Amazon. So lots of different ways to do this. One is investing back into the business via promotions, right? So you can give them promo funding and say, okay, I'll commit to X amount of marketing dollars to spend on best deals or coupons or marketing events with a specific category or whatever that may be. But promo funding is big because that helps Amazon's top line, it helps their bottom line, it helps all around, it's going to help both sides. 

If you're planning on doing some of those things already, then that's why I say keep it in the back pocket because you can bring it up and use it as leverage to act like you're giving Amazon something in return when you need to do that to invest back into the business anyway. I would say advertising, don't keep that as a lever because advertising does not hit the retail team's P&L. It goes into the contribution margin line of Amazon's P&L. The retail teams don't see advertising as a huge benefit. It's only a top-line driver. Something else that you can use though is discounted bulk buys. If you're going to give Amazon a cost increase, offer them a one-time chance to take a big discounted book by stock up on some of that product at the previous rate, or even a discounted rate. And you know, they might be more likely to take it. 

I would say also, a CSA agreement is something that Amazon loves to loves to have on hand a CSA agreement or a margin agreement per se is typically a dollar based agreement where you're agreeing that your product across your catalogue will hit a certain dollar value per unit, and it guarantees a specific margin for Amazon so that at the end of the year, if you don't hit that margin, they'll invoice you for the difference basically. And if you know you can hit that for one reason or another, whatever that dollar amount is, then sometimes a CSA agreement is Amazon will take that in return.

Paul Sonneveld
Yeah, I guess that's a great insurance policy for Amazon, right? Because at the end of the day, Amazon's taking a risk that they can get that increase in retails in order to recover the increase in cost. And they may have a different view on whether it's possible or not. You know, my experience, vendors will always say it's possible, right? But it may not be due to competitive pressures and the like. So yeah, that is a great way to sort of basically give them a bit of an insurance policy there. So what happens, Josh? So when Amazon says no, Josh, sorry, go away, not approved, right? But I'm sure this happens all the time, even where you there's a genuine rationale for a cost price increase. 

Josh Cowan
Yep. 

Paul Sonneveld
What are your options from there? What do you do?

Josh Cowan
Yeah, the first, probably fairly obvious one is to move your offer to Seller Central. And I know that's not ideal for anyone, but it's definitely a way to have stronger control on your price. And obviously, you're going to have more margin control there. Another option is to potentially start over with the product. If you don't have a lot of reviews, don't have a lot of relevancy on it anyway, maybe it's just starting to gain traction and you needed a price increase fairly quickly after setting it up. You could start over, call it a 2.0, give it a new UPC and offer and push it with BTRs and vine. You know, that's an option. I would say the third option, if neither of those sound great and you really do just want the cost increase and to keep pushing on that product, you could continue to push those cost increases externally and ask again when Amazon's margin might have increased on those items. You might need to discontinue selling it to them temporarily and eat the margin hit, but wait until Amazon's in a better place to accept the increase.

Paul Sonneveld
Does, and sorry, I know we want to talk about retails as well, but I've got a few more questions here. One of them is actually two. One is, does Amazon ever come back at vendors for cost price reductions? So for example, tariffs, cost prices have gone up. Amazon knows that the base cost has gone up. Let's say tariffs fall again next year, hypothetically. Will Amazon proactively come back to them and say, hey, remember that cost price increase we accepted last year on the basis of the tariff argument? We don't think it's no longer relevant. And therefore, can we please now have the reduction or, you know, do those reverse situations happen with Amazon?

Josh Cowan
Yes, not necessarily in the tariff conversation, because Amazon's so careful about accepting increases for tariffs, they're only going to do it either temporarily or when they know it's a strong, it's a positive permanent move. That said, Cost decreases Amazon is asking for all the time, right? This is also a lever I missed in the conversation before. You can give increases or I'm sorry, you can offer decreases at the same time as increases. Amazon will typically look at the trailing 12 months' volume to determine what the benefit is to them on a decrease. So maybe you could offer decreases on things that you might know are discontinuing in the near future, right? And that will, will be a bigger benefit to Amazon than it really hurts you. But yeah, I mean, Amazon comes back for decreases for every reason all the time, they're constantly sending automated emails asking for decreases. There's constant pressure from them to decrease costs.

Paul Sonneveld
Do you have, uh, some advice on how you can bet those away? Any tactics there that might be useful for our audience?

Josh Cowan
Oh my gosh, yeah. I mean, the ignoring game is strong with my clients, I have to say. You have to be really good at ignoring Amazon's emails because they're relentless. So they will constantly send automated emails out to you. Many of them are automated. That's the important point here. You don't have to respond to anything that's automated from Amazon, right? 
I'll give you another example too. Like when you provide a decrease to Amazon, so many, so many brands don't understand this. Even my clients, we talk about it all the time. Amazon will issue something called a price protection agreement. A price protection agreement is an automatic agreement that is created when you decrease costs on an item. And what that agreement does is it says, hey, we would like to realise that cost decrease in all of the inventory that you have already sold to us that's sitting in our warehouse. 

So please sign this so that we can issue, so that we can get paid for that difference in cost for all the inventory we've already bought, right? which is ridiculous. You do not have to accept those price protection agreements. And you can ignore them or you can reject them, but they you do not have to accept them. And I recommend not unless it's strategic in an AVN conversation. But yeah, it's, you know, best advice is, is answer emails when it comes from someone who's who's actually trying to help you and who's emailing you directly. But, you know, do your best to ignore the ones that aren't necessary.

Paul Sonneveld
Ignore automated emails, right?

Josh Cowan
Most of them.

Paul Sonneveld
That's just general good life advice as well. So I just want to go back to the one last question about what do you do when you don't have a vendor manager? You touched on it briefly at the start. I know a lot of our audience used to have a vendor manager, no longer have one. They just have some sort of case log or some black hole that they throw things in. Maybe I'm being a little bit harsh here. But any specific advice, particularly around like you submit the cost price increase and maybe you don't hear back or maybe it's a no, like any advice you have for those vendors who don't have the ability to email someone directly?

Josh Cowan
Yeah, my best advice to you is to be relentless. Amazon is notorious, their customer service is notorious for sending copy-and-paste emails, whether it be costs or anything else. However, oftentimes, if you just keep emailing, keep opening cases, keep pushing, pushing, pushing, you will find someone who is more helpful and who's willing to actually take action and help you with what you need. It just takes a ton of persistence. And so that's the best advice I really have when it comes to cost increases. 

It's one of the most difficult things to get across when you're relying on the central teams to look at your spreadsheet and evaluate. And it's almost always going to be a rejection. But open cases, try to call in the support line, try to talk to someone and see if you can get someone that has some power to make some changes for you.

Paul Sonneveld
There we go. I do find that a general case support anyway, keep assisting. At some point, you're going to get a different AI algorithm or a different person or whoever it might be that gives you a different answer. So that definitely helps too. Excellent. We're nearing the end of our session, Josh, but I always like to ask, is there any success story? I know you've been working with a lot of vendors during your time there at Intero and also during your other ventures, but you've been on the inside as well. What does it look like? Any success story that you're really proud of here in terms of getting a cost price increase?

Josh Cowan
Yeah, you know, I have a couple of clients that have had some success stories around cost increases, both in negotiating with vendor managers as well as through the automated system. And I would say that the common ground in both is really have a really strong net PPM that is at least at the category average or higher. And how you do that is really the bigger question. And I think it's so important to have a really strong pricing policy. And what I mean by that is know who you're selling to have strong relationships, and manage what's happening on Amazon really carefully. So your distribution strategy will play into your Amazon business and will impact all of your other retail channels. So don't sell to everyone under the sun. Choose really carefully who you sell to and make sure that those relationships are strong and that you have active Amazon pricing policies, map policies in place. Because the two success stories I have they both came from having really strong external retail policies and really good margins for their products on Amazon.

Paul Sonneveld
There's a lot there and I think we should probably have a chat about it, should we do another episode just on managing retail? I know we said we're getting into that, 

Josh Cowan
Totally.

Paul Sonneveld
But I think there was a lot of content there on the cost price increase. So I wanted to go pretty deep there. 

Josh Cowan
Yeah.

Paul Sonneveld
That's super helpful advice. Josh, there might be people listening to this podcast that maybe just want to have a follow-up conversation. Maybe they need some help. Maybe they just want to bounce some ideas off you. What's the best way for them to get in touch with you?

Josh Cowan
Yeah, for sure. You can reach me at my Intero email josh.cowan@interodigital.com or reach out to me on LinkedIn, either one.

Paul Sonneveld
I think we've got it here. I'm just flashing up on the screen. There we go. Excellent. Great. Yeah, unfortunately, we are past the 30-minute mark. So we do have to wrap up. Huge thank you, Josh, for really sharing all your technical wisdom on cost price increases. You know, as a vendor, if you're looking to elevate how you really get these cost price increases on or how to maximise your chance of success, I really hope that today's conversation will give you plenty to run with. So Josh, thank you so much for joining us. Let's talk, and I'm serious, let's talk about doing another session around managing retails.

Josh Cowan
You got it.

Paul Sonneveld
Because that's another whole big topic. And apologies to our audience, we really didn't get into that today, but I think it really warrants a separate session. Thanks, Josh. And we'll see you soon at Accelerate.

Josh Cowan
All right. Sounds good. Thanks, Paul. All right. Bye now.

Paul Sonneveld
All right, everyone, that is the end of our show today. Apologies to those of you who tried to join us in LinkedIn where we had some technical streaming difficulties. I hope you've managed to find the YouTube link. We'll probably re-stream this episode on LinkedIn for our audience there, so that you guys can benefit from that. Of course, you can also just head to our website to explore all of our past episodes and register for the upcoming ones at merchantspring.io. 

And of course, if you are looking for a partner to help you simplify reporting and performance analytics for Amazon vendors and other marketplaces, we'd love to show you what we're building here at MerchantSpring. My name is Paul Sonneveld. Thank you so much for tuning in, and we'll see you next time. Take care.