As discussed in our last blog post, Amazon temporarily removed thousands of vendors from Vendor Central and notified some high-revenue sellers that it would be closing their Seller Central accounts, forcing their Amazon business into an exclusive relationship with Amazon Retail. The following week, Amazon walked back this decision, emailing brands that automatic PO’s will resume, so long as they are enrolled in Amazon’s Brand Registry. Non-brand owners are still directed to create Seller Central accounts.
These changes may foreshadow Amazon’s implementation of the One Vendor system, which would merge Vendor Central and Seller Central into a single system.
While Amazon has backtracked since the initial March 4th scare, the surprise has left many companies weighing their next steps and planning how they can avoid a detrimental impact to their business when Amazon finally does commit to a one-system platform.
To make your decision, you should understand each of your options. In this post, we’ll examine the main differences between the three ways brands can sell on Amazon. For brands who still have the ability to choose their preferred Amazon business model, we’ll cover points of consideration and next steps for all three options.
BUSINESS MODELS FOR SELLING ON AMAZON
|Sell to Amazon Retail (1P)||Sell from Your Own Account||Sell to a Third-Party Retailer (3P)|
|Platform||Vendor Central||Seller Central||Seller Central|
|Operations||Amazon provides the infrastructure||You or an agency provides the manpower, expertise, and infrastructure||Your 3P retailer provides the manpower, expertise, and infrastructure|
|Marketing||Tools provided in Vendor Central but managed by you (you pay).
Limited to Vendor Central platform for marketing optimization
|Managed by you or an agency (you pay).
Progressive agencies develop their own marketing technology or outsource to another platform to scale and improve marketing more effectively than is possible in SC or VC
|Managed by your 3P retailer (you pay).
Progressive 3Ps develop their own marketing technology or outsource to another platform to scale and improve marketing more effectively than is possible in SC or VC
|Data Reports||Vendor Central often charges extra fees for viewing data reports||Seller Central provides many data reports for free||Seller Central provides many data reports for free|
|Inventory Fulfillment||Managed by Amazon||Managed by you or an agency||Managed by your 3P retailer|
|Costs||21%-48% in fees||Pay for everything yourself or pay an agency a fee||None. Your 3P retailer will purchase inventory wholesale and resell it|
|Cashflow / Income||Amazon places PO’s||Sales revenue||3P retailer places consistent PO’s|
|Tax Considerations||Amazon collects sales tax in applicable states||You or an agency is responsible for collecting sales tax in applicable states||Your 3P retailer is responsible for collecting sales tax in applicable states|
|Future Stability||Amazon seems to be reducing the vendor model||Amazon seems to be pushing towards a seller model||Amazon seems to be pushing towards a seller model|
1. Selling to Amazon Retail (1P)
Amazon has notified some larger brands (annual Amazon sales exceeds $10 million) that they will no longer be able to sell on Amazon from their own account or through a third-party seller. If they want to continue selling on Amazon, they must sell exclusively to Amazon Retail.
The advantages of selling to Amazon Retail
- Hands-free selling. Once Amazon has the inventory, you don’t have to manage anything. This approach allows you to focus on other aspects of your business while Amazon does the legwork.
- Painless logistics. Amazon places a PO, you send the inventory to an Amazon warehouse, and you’re done.
- Amazon handles sales taxes. Keeping with the hands-free theme, you don’t have to worry about processing taxes because Amazon will ensure that sales taxes are applied where required. This nexus chart shows where and how ecommerce sales tax works in each state.
The challenges of selling to Amazon Retail
- Little pricing control. Amazon is committed to price matching, which means that they’ll slash prices in a heartbeat if your products are offered for a lower price elsewhere on Amazon.
- No leverage. Amazon holds the power in this relationship. You want to sell on their marketplace, and they allow you sell only through them. If you don’t like what they’re doing, tough.
- Cost. Because Amazon holds the power, they determine what you pay. Amazon’s various fees can be comparable to a third-party seller, but they’ll never be lower.
- Reporting fees. Vendor Central often charges extra fees for viewing user data that Seller Central provides for free.
2. Selling from Your Own Account
If you were temporarily removed from Vendor Central (or wish to act preemptively in case Amazon makes permanent cuts), you may be considering selling directly from your own account.
The advantages of selling from your own account
- Maximum brand control. When you are the exclusive seller of your product, you ensure maximum control over pricing, online representation, marketing, fulfillment, and customer service.
- Data insights. Unlike Vendor Central, Seller Central provides free reports on user data, including search terms, traffic, conversion rate, and sessions.
- More marketing options. When you sell through your own account, you can bring in additional marketing options from outside of Amazon’s Seller Central platform.
The challenges of selling from your own account
- Requires manpower. It requires employees with the training and expertise to manage and optimize every facet of the Amazon marketplace.
- High buy-in. If you do not already have the teams and infrastructure in place, paying for salaries, training, and technological resources will come with a hefty price tag.
- Managing inventory. Coordinating shipping and fulfillment involves complex logistics can be difficult and time consuming, especially for small or inexperienced brands.
- Taxes. You are now responsible for collecting sales tax in the applicable states and countries.
A solution to these challenges: Amazon Agency
If you love the advantages of selling from your own account but currently lack the infrastructure or resources to manage it in-house, you still have options. You can hire an Amazon agency to manage your Amazon channel from within your brand’s account.
With a channel management agency, you retain maximum brand control and marketing flexibility, while they provide the team, expertise, and technology to grow your channel.
3. Selling to a Third-Party Retailer (3P)
If you are leaving Vendor Central, transitioning to a 3P partnership is likely to be the easiest transition. When you sell to a 3P retailer, your relationship will function in many ways like your relationship with Amazon Retail. Your 3P retailer will buy your product wholesale, then resell it on Amazon. They provide the manpower, expertise, and technology to drive sales.
The advantages of selling to 3P
- Consistent cash flow. Your 3P retailer will place consistent PO’s, providing you a regular and consistent cash flow that makes planning for other business decisions easier.
- Benefit from the seller’s history. Amazon’s search algorithm gives preference to sellers that have been on the platform longer, more seller reviews, and higher ratings. By partnering with a 3P retailer, your products benefit from their seller history.
- Lower costs. Many 3P retailers have fewer and/or lower fees that Amazon Retail. You may decide to activate paid services like Search or Inbound marketing, but those are optional and, when done right, pay for themselves through high ROI.
- Immediate Expertise. You don’t have to hire a team of experts to support your Amazon business because your retail partner provides the tools and expertise.
The challenges of selling to 3P
- Trustworthy partners. When you partner with a retailer, you’re allowing them to represent your brand. When you have a trustworthy partner, that’s alright. When you don’t have a trustworthy partner, it’s dangerous. An unreliable partner can damage your brand’s prices and reputation.
- Smaller PO’s. One of Amazon Retail’s greatest appeals to manufacturers is its ability to place large PO’s that most 3P retailers can’t match. However, 3P retailers get around the massive bulk orders by placing more frequent orders, providing a steadier cashflow.
- Competing against yourself. If you choose to partner with both Amazon Retail and a 3P retailer, multiple 3P retailers, or sell from your own account while partnering with a 3P, you’re competing against yourself. Each seller in a listing runs their own marketing, and even though all that marketing is for the same product, each sellers ad is still bidding against the others’. Having multiple sellers dilutes marketing. If you partner with a 3P retailer, you’ll be best served by partnering with only one seller.
Amazon may be dictating some of your business decisions moving forward, but you still have options. Weigh the above considerations and determine which of the three business models is best suited for your long-term business goals.
If you want to work with a third-party retailer or an Amazon agency, Kaspien can help.
- For current partners, please contact your account manager to discuss how your brand has been impacted. We’ll collaborate to create a strategy that addresses any negative effects.
- For non-partners, partner with Kaspien as your 3P retailer or Amazon agency. We can support your brand in Vendor Central or Seller Central.