In a continuation of our series on the costs of the primary Amazon business models, today we explore the costs of Amazon Retail and the Vendor Central platform. You can read about the costs associated with Amazon third-party sellers in our previous blog post here.
In our next post, we’ll explore the costs associated with direct selling, where a brand operates as both manufacturer and B2C seller.
WHAT IS AMAZON RETAIL & HOW DOES IT WORK?
Amazon Retail is the name of Amazon’s first-party (1P) platform. In this model, Amazon itself serves as the middleman, buying product wholesale from manufacturers and reselling it on Amazon.com.
When working with Amazon Retail, manufacturers operate in Vendor Central (as opposed to Seller Central). In Vendor Central, manufacturers can monitor purchase orders and inventory levels, view reports, and, depending on the manufacturer’s size and budget, dictate some marketing control. Overall, Vendor Central provides much less control and customization than Seller Central since Amazon assumes near absolute control once they acquire inventory.
Amazon Retail is an enticing option for those starting an Amazon business or brands who wish to focus on being a manufacturer and take a hands-off approach to customer engagement. Another benefit is that Amazon Retail will often place larger purchase orders than many third-party sellers, although those orders will be placed less frequently since they are larger.
Will Amazon Retail Remove Smaller Vendors?
Amazon Retail has contributed less and less to Amazon’s total revenue over the years. In 2015, third-party seller sales surpassed Amazon Retail sales for the first time, tipping the scales to account for 51% of all sales on Amazon. That trend has continued ever since.
As first party market share wanes (even while total sales grow), advertising has become one of Amazon’s most profitable revenue streams, leading industry experts to predict that Amazon will eventually limit its first-party platform to only the highest-revenue brands and force all other brands to work with third-party sellers or enter direct selling, allowing Amazon to focus its attention and resources on only the most lucrative divisions.
This prediction was seemingly substantiated in early 2019, when Amazon Retail abruptly stopped placing purchase orders with thousands of vendors and notified some that Amazon would no longer purchase inventory. Some saw this as the first step towards the fabled “One Vendor” system, that would merge Seller Central and Vendor Central. A week later, Amazon redacted the move and quietly resumed business as usual, largely ignoring questions about vendor stability and any harm caused by the disruption.
The concerns resurfaced less than three months later when Bloomberg reported that Amazon was preparing to slow walk the vendor removal, letting contracts expire and not renewing them.
Since then, no new concerns have been raised, and as Amazon undergoes heightened federal scrutiny, it may exercise extra caution towards acts that could lead to widespread outcry.
WHAT ARE THE COSTS?
While the top-level overview of third-party sellers and Amazon Retail seem very similar, they have some important differences in their pricing structures.
Amazon Retail charges a handful of percentage-based fees for marketing co-op, damage allowance, early payment, chargebacks and shipping. In contrast, the third-party seller business model makes the 3P seller responsible for paying Amazon fees instead of the brand.
We’ve included two examples of how Amazon’s fee structure differs from a third-party seller fee structure, using Kaspien data as an example.
Like third-party sellers, Amazon Retail offers marketing services to brands. Brands fund these services, and they can choose to manage them themselves or pay Amazon to manage them.
- Sponsored Product Ads
- Sponsored Brand Ads*
- Product Display Ads*
- Amazon Vine
- A+ Detail Pages
- Brand Stores
- Amazon DSP*
- Amazon Live
*Brand Registry is required to access this service.
Amazon’s service fees vary. In many cases, Amazon will negotiate a PO discount in lieu of charging fees for their marketing services. Vendors can run these services themselves or hire Amazon to run them, which would be written into the contact. If Amazon runs marketing through Vendor Central, visibility into performance through reporting is very limited.
Amazon’s brand protection services, with the exception of the Transparency program, are free. These programs include Brand Registry, Brand Gating, and Project Zero.
Each of these programs is available to any brand on Amazon; they are not restricted to Amazon Retail partners. You can read more about each of these services in our blog post on online brand protection.
COMING UP: THE COST OF DIRECT SELLING ON AMAZON
To summarize, Amazon Retail charges a handful of percentage-based fees, but otherwise, there are no automatic costs for working with Amazon Retail. Like third-party sellers, Amazon Retail offers a variety of opt-in services for Amazon marketing.
In our next post, we’ll detail the costs associated with direct selling on Amazon, where a brand serves as both the manufacturer and seller.
- Amazon Retailer vs Amazon Agency: Which is the Better Financial Fit? - January 16, 2021
- Amazon Category Overview: Electronics - January 5, 2021
- Walmart vs Amazon: How the Two Largest Ecommerce Players Compare - December 7, 2020