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Amazon Marketing February 06, 2019

Challenges for manufacturers through Amazon's cross-border sourcing

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Each European country where Amazon launches a website – most recently with its launch in the Netherlands (first as a translation of the German site) – brings a new set of challenges for manufacturers, brands, and vendors: Europe-wide sourcing in combination with Europe-wide relocations at Amazon. At Amazon, purchases are made across borders and goods are transported daily between the European Fulfillment Centers (FCs).

Manufacturers reduce costs by making their products as internationally usable as possible. This entails utilizing adapters for different socket outlets, multilingual packaging and operating instructions. By making them globally usable, one product can have an identical European Article Number (EAN) which means it can be sold in Germany, Italy, and Spain. Therefore, only the item detail pages need to be translated for each individual country.

Sales prices coming under pressure

The result of this mixed situation means sale prices on Amazon often change. Two examples:

  • Manufacturer A is the market leader in Germany and is very keen to sell its high-priced brand steadily across the different distribution channels. His local purchase prices are calculated accordingly. However, competition in Germany is still aggressive and the margin problems of the retail sector are correspondingly high, with a downward spiral of prices being observed online. Amazon prices fall only up to a defined profitability limit from which the buy box and thus the turnover of internal competitors can be left to the buyer. Direct sales between Vendor and Amazon are therefore missing. At the same time, the aim of manufacturer A is to gain massive market share in Italy. The brand is positioned much more favourably, the Italian purchase prices are significantly lower than in Germany.
  • Manufacturer B is in a similarly competitive situation in Germany. He wants to boost his sales in Spain and financed by a purchase price rebate a “20% off everything” promotion on amazon.es.

Amazon compares all prices stored in its system with each other. In addition, all European stocks with the corresponding value are visible. Due to the cheaper purchase price in Italy, the goods are now ordered directly from manufacturer A. Due to the now more favourable value of goods, Amazon now has more room for manoeuvre in Germany. The profitability limit is shifting downwards – the price continues to fall.

In the second example, Amazon views the Spanish goods from manufacturer B as more favourable in value and initiates a transhipment from the Spanish warehouse to a German one. The result is the same: the selling price in Germany is coming under pressure.

This cross-border topic can not only lead to price irritations. Low dealer margins for top sellers, combined with relevant EC differences, quickly lead to considerable sales shifts to other European countries. The performance of the German supplier is rated negatively by Amazon with decreasing direct sales (amazon.de orders directly from the contractual partner). The risk of non-achievement of sales targets increases.

This process poses risks not only for the manufacturer but also for Amazon. Volume bonuses negotiated in Germany are generally only valid for direct equity volumes. Major shifts in both direct purchases and stock transfers often lead to distortions in inventories and availability. European national companies of the manufacturers are bought empty, while at the same time surplus stocks are built up in Germany. At the end of the day, these excess stocks end up in other channels at reduced prices, which in turn encourages a negative national price spiral.

Possible Solutions

There are several approaches to dealing with the mentioned challenges. However, all of them involve taking an important step forward: an honest stocktaking, which encompasses and includes all sales channels and national companies. It is often the case that countries within a company are in competition with each other. When the Belgian key account manager becomes “Employee of the Year” because they know best how to sell German goods back to Germany at the lowest price, it will be difficult with a European strategy.

In addition, it is important to take into account the international impact of all national strategies and decisions, be it price levels, product range policy or marketing.

  • Standardisation of conditions and prices
    Even if purchasing power in Spain will not be the same in the medium term as in Germany, there is still a need to look for a way to minimise the attractiveness of transshipments for Amazon. It is important to find the right balance of equity prices and downstream conditions for each individual country.
  • Country-specific offers
    Smaller online retailers like to buy Eastern European goods, manually pack a self-printed German instruction manual and sell these new goods at low prices. Amazon doesn’t do that. For this reason, it might be worth considering reallocating separate EANs for the most important markets or working with country-specific exclusive features.
  • Serial Number Tracking
    Tracking the flow of goods is always a highly complex task. A functional tracking of the serial number through all trading levels is not implemented overnight, but in the long run, it brings much more transparency in handling Amazon. In this case, an argument based on reliable data is worth its weight in gold.

Amazon is consistently focusing on the Europeanisation of its flow of goods. The advantage resulting from a lack of pan-European strategies in parts of the industry is also being consistently exploited. This can be condemned or seen as an opportunity. In the end, Amazon only reveals this long-standing challenge and induces manufacturers to finally deal with the topic.

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