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Using Amazon Demand Forecast to Increase Profitability

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Amazon Retail Analytics (ARA) is one of the most powerful tools available to vendors who want to better understand and improve their operational performance on Amazon. However, it can be extremely difficult to interpret ARA and utilize the data to make actionable changes. Our expert speaker will interpret the new Amazon Probability Level (P-Level) Demand Forecast so brands can invest in an ongoing, data-driven process to manage their Amazon operations. Learn how purchase order management, forecast and inventory planning, and sound warehouse performance inform advertising and marketing decisions to drive greater profitability.

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Using Amazon Demand Forecast to Increase Profitability

  1. 1. Using The Amazon Demand Forecast to Increase Profitability Stay in Stock: How Operational Inefficiency on Amazon Can Impact Sales & Marketing Growth
  2. 2. Today’s Logistics ● Session recording and slides will be sent ● Submit questions to our panelists ● Join in on our poll questions throughout ● Resources available as handouts Persephanie Arellano Webinar Coordinator
  3. 3. Experts-Only Approach Strategic acquisitions have positioned us as the leading independent performance marketing agency Search • Social • Amazon • Email • Display • Shopping & Data Feed • SEO • Affiliate • Conversion Rate Optimization • Creative Services • Analytics & Marketing Science
  4. 4. Today’s Speakers Eric Kauss Manager, Amazon Vendor Operations
  5. 5. Today’s Agenda ● How to Navigating Amazon’s Probability Level & Demand Forecast ● Different Adverse Effects of Inefficient Demand Forecasting ● Benefits of Analyzing Self-Service Data & Its Impact ● Purchase Order & Chargeback Management
  6. 6. POLL QUESTION What is your level of confidence using the probability forecast ?
  7. 7. Navigating Amazon’s Probability Level & Demand Forecast
  8. 8. Operational Foundation - Path to Sales & Profits
  9. 9. Why Proper Demand Forecasting Is Crucial Expanding Product Offering Content + Product Setup Amazon Operational Efficiency Purchase Order Management Advertising / Marketing Efforts Increased Sales Growth Warehouse Efficiencies
  10. 10. Demand Forecast - Purchase Orders ● Indirect Market Factors ○ Sales Performance History ○ Seasonality Market Factors Demand Forecast - Market Factors
  11. 11. Top 4 Factors Impacting Demand Traffic to the Detail Page Amazon’s Profitability Vendor Lead-Time (VLT) Sales History
  12. 12. Sourcing vs. Manufacturing View Sourcing – Sales and inventory metrics for an asin purchased from the directly 1P vendor for the parent vendor code associated with the asin in Vendor Central. Manufacturing – Includes sales and inventory metrics from all sources the asin is purchased from including suppliers/distributors. The Forecast is calculated on the Manufacturing data. Demand includes glance views for the detail page and is not vendor/seller specific. Amazon has no way to differentiate whether a glance view was due to a 1P or 3P offer. If an asin is being purchased by Amazon from multiple sources, Manufacturer data should be higher than Sourcing data. It is primarily due to some asins the vendor is not designated as the manufacturer.
  13. 13. Interpreting Amazon’s Probability Forecast & Vendor Inventory Risk P90 10% Amazon will purchase more P80 20% Amazon will purchase more P70 30% Amazon will purchase more Mean For vendors that need more lead-time to acquire inventory ➔ 6 weeks or longer ➔ Key for vendors who manufacturer overseas
  14. 14. Understanding the New Amazon Probability Level (P-Level) Demand Forecast Forecast is a rolling 26 week estimate as close as possible to actual customer demand. Demand is predicated on total traffic to a detail page whether a customer purchases from 1P or 3P. Presented in different probability levels giving vendors a choice of how to stock inventory based on risk tolerance No longer calculates safety stock into demand Continues to use Vendor Lead-Time (VLT) for the calculation of actual purchase order quantities per week ✓ ✓ ✓ ✓ Does not represent an actual purchase order forecast
  15. 15. Amazon Purchase Order Formula Example Available Inventory On Hand Open Purchase Orders 4 Week Demand Potential Purchase Order Quantity Vendor Lead-Time (VLT) Revised Potential Purchase Order Quantity 1000 100 1200 100 7 days (1 Week) 25 Does not represent an actual purchase order forecast Available Inventory On Hand Open Purchase Orders Potential Purchase Order Quantity Demand
  16. 16. Adverse Effect of Inefficient Demand Forecasting
  17. 17. True Cost of Stocking Out Lost sales when product is out of stock Loss in organic ranking (result of lost sales velocity) Re-investment in resources to recover ranking True cost of stock outs on Amazon
  18. 18. Analyzing Self-Service Data & Its Impact on Amazon’s Demand Forecasting
  19. 19. Key Metrics Impacting Forecasting Demand Fast Track Glance View Rate (in stock to ship Prime) Sell-Through Percentile and /or Conversion Percentile Change in Glance Views (prior period or YoY) Traffic Diagnostic Rep OOS (out of stock) Lost Buy Box (due to price) Sales Diagnostic Change in Shipped COGS (prior period or YoY) Note: Traffic Diagnostic includes ALL glance views to a detail page not just from vendor direct supplied product
  20. 20. Strategy to Determine Future Purchase Orders Purchase Order vs. Demand Tracking - Understanding what demand within the forecast is actually 1P ● Demand forecast → previous 13 weeks sales; compare these to actual purchase orders ● Track the demand vs. purchase orders on a weekly basis ● Calculate % of actual demand for which PO are issued ● Demand changes based on time of the year ● Amazon is still expecting a 100% confirmation rate
  21. 21. Back Up Planning: Direct Fulfillment / Drop-Ship Advantages of Direct Fulfillment/Dropship ● Vendor’s inventory acts as a backup ● Make a vendor’s entire catalog available ● Build demand for new products at a quicker pace ● Protect sales Note: You may already have a Direct Fulfillment account. See Handouts for additional information on this program.
  22. 22. Hybrid Approach to Selling on Amazon The Amazon Hybrid Strategy Allows a Vendor to: ● Keep up with demand ● Pricing control ● Flexibility ● 3rd party direct shipping or FBA ● New product launches
  23. 23. Purchase Order & Chargeback Management
  24. 24. Purchase Order Management ● Review procedures for processing purchase orders in a timely and efficient manner ● Review procedures use of PO ● Acknowledgement Status and Codes ● Understand the backorder process and the ramifications/costs of doing so ● Monitor shipping information to update delivery dates to Amazon ● Confirm information is being transmitted in a timely manner to Amazon
  25. 25. Operational Metrics Impacting Efficiencies PO On-Time Accuracy Percentage of time a purchase order did not ship on time, which causes late delivery and missed sales. Target is below 10% ASN Accuracy Percentage of Advance Ship Notices with errors. Target is below 5% Prep Issues Product not prepared correctly for immediate shipping. Target is below 5% Rejected PO Rate Percentage of rejected asins by the vendor at their discretion. If average is above 20% for the specific asin over the last 13 weeks a chargeback occurs.
  26. 26. Pro - Tips ● Understand the Complexity of the Forecasting System ● Know the Key Metrics Impacting Demand ● Understand the Split of 1P vs. 3P Demand ● Analyze Alternative Strategies for Operating on the Platform ● Review Correct Procedures of PO Management ● Analyze Current Chargebacks for Action Points
  27. 27. SMALL TEXT STACK TEXT ROW 1 STACK TEXT ROW 2 Schedule Your 1-1 Advanced Amazon Advertising and Operations Strategy Evaluation
  28. 28. Q & A Eric Kauss Manager, Amazon Vendor Operations
  29. 29. Blog: How Amazon Operations Can Boost Your Profitability Link to Blog: https://www.cpcstrategy.com/blog/ 2019/04/amazon-operations/ Posted by: Greg Swan, Content Specialist
  30. 30. Webinar Calendar for May Factors That Influence Purchase: 1. Price 2. Shipping Method 3. Review Quality 4. Count of Reviews MAY 5 6 7 8 9 Using Amazon Demand Forecast to Increase Profitability 10 11 12 13 14 15 16 17 18 19 20 21 Increase Amazon Detail Page Conversions Leveraging Creative Content 22 How to Deploy the Ultimate Cart Abandonment Strategy Masterclass 23 24 25 26 27 28 29 30 31 JUNE 1

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