The ever-expanding marketplace is becoming more and more competitive, and businesses are having to look harder and harder to gain an advantage. One of the big questions for brands on Amazon is whether they are better off as a Seller or Vendor.
If you’re a seller who has just received an invite to become a Vendor, or a Vendor who is wondering if the grass is greener in Seller Central, there are some key differences to understand before deciding what’s best for your brand.
Some quick definitions
- 1P or Vendor: A brand that sells directly to Amazon. Amazon acts as the retailer, setting prices, warehousing and shipping the products to consumers. Vendors operate using Vendor Central.
- 2P or Seller: A brand that sells their products direct to consumer on Amazon via Seller Central. They control their own prices, storage and shipping method. They have the option to use Fulfillment by Amazon (FBA). They have (or should have) their brand enrolled in the Amazon Brand Registry.
- 3P or (also) Seller: Sells another brand’s products on Amazon, with the same conditions as the 2P seller. They cannot enrol the brands they sell in the Amazon Brand Registry as they do not own them.
The Downsides Of Being A Vendor
The terms won’t get better
Your initial terms from Amazon may be very attractive, offering reasonable pricing and often coming with some complementary marketing budget to get you on board. These terms will never improve from your perspective however, and in fact Vendor Managers are ‘KPI’d’ on getting a better deal for Amazon with each successive negotiation.
They control the pricing, and they only like moving it in one direction
Amazon will set the retail prices for your products, which may undercut other channels that you sell through. Amazon really want to win the buy box for products that they own the inventory for, and their most common strategy for a product that is lagging is dropping the price. However, once there’s some traction the price rarely comes back up, especially when it’s secure in the buy box and selling well at that level.
There are extra terms
As part of your negotiations, they may start asking for additional commitment of marketing budget, as well as something they call “damage allowance”. Roughly translated, this refers to product loss incurred during warehousing or shipping. This is a bit cheeky considering once you’ve shipped it with their preferred partner there is nothing you can do to prevent this.
There is zero sympathy
If your costs change, ie. if a product Amazon orders from you becomes more expensive for you to source or manufacture, they are very unlikely to amend your terms to accommodate you. At best they will give you a small percentage adjustment, but usually on the condition that the difference be reinvested into marketing with them.
There will likely be conflict with Google Ads
If you sell through your own site in addition to Amazon, and run Google Ads as part of that, they might be running competing ads. You’ll essentially be competing against yourself, which is bad for a whole host of reasons we’re sure we don’t need to explain.
The CRaP list
Under performing products that Amazon Can’t Realise any Profit on (CRaP) will suffer. If you only hold a Vendor account, your hands are tied if you want to continue to sell these products as when they stop ordering it and it goes out of stock, it can’t be sold.
You get charged late fees when they’re late
Some relatively recent changes to their shipping requirements mean that it will likely now be more costly for you to fulfil their POs. They also charge some rather hefty fees when an order arrives incomplete or late, even when using their recommended shipping partners.
The Upside Of Being A Vendor
You have someone to talk to
As a Vendor, you have a Vendor Manager. This is your point of contact at Amazon for any issues that you may be having and can be a valuable avenue for resolving problems that arise. As part of this, it’s possible to gain access to Senior Category Managers for the purpose of gaining additional insight into your market.
You have ‘free’ Google Ads
If products from your catalogue are deemed suitable, Amazon will advertise them using Google Ads. Your contribution to marketing budget as per your terms aside, this is free marketing done on your behalf by Amazon.
You can get involved in marketing initiatives
As a first party seller your products may be eligible to participate in the various marketing initiatives that Amazon offers. This can provide you with a huge amount of exposure to all kinds of customers.
The Downsides Of Being A Seller
You’re on your own
As a Seller, you have no dedicated point of contact at Amazon, the best you get is Seller Support. While they’re generally quite responsive, the assistance you receive can be limited dependent on the nature of your problem.
You may have little to no category insight
As a Seller, you have very little insight into your performance within the category besides that which is available through Brand Analytics, which is useful, but somewhat limited.
It’s all you
Unless you exclusively use FBA, customer service, shipping and returns are your responsibility. This can cause issues if your business is unaccustomed to servicing this side of your account or if you are short on internal resource. Failures in this area can be particularly detrimental as it can take you out of the buy box (disabling your Sponsored Product Ads) even if you’re the only seller for the product. Being entirely responsible for the customer service process however, can provide you with an opportunity to go above and beyond to create brand loyalty with your customers.
The Upsides Of Being A Seller
You control pricing
As a Seller you have complete control of your pricing, allowing you to move with your competitors as required without being forced to drop so unreasonably that you become unprofitable. You can also avoid undercutting yourself if you sell through other channels.
You have control over shipping
You have complete control over how you choose to ship your products. While naturally you can use Fulfillment By Amazon (FBA), which comes with both fees and benefits, you can ship products yourself if that makes more sense for your business.
You sell on your own terms
One of the most common complaints from Vendors is the nature of their negotiations with Amazon. As a Seller, this is never a problem for you, you get to do what you want (within the confines of Amazon policies of course).
You can still maximise Amazon Advertising
You have largely the same access to Amazon Advertising as Vendors if you’re a brand registry enrolled seller. The only arrow missing from your advertising quiver was Product Display Ads, however they are now being made available to Sellers as Sponsored Display Ads.
Shifting from Vendor to Seller
In conclusion, there are a lot of challenges associated with a shift from vendor central to seller central, and it’s not always clear which is the best option for your brand. If you want further advice and insight, or need extra support with your Amazon marketing strategy, then get in touch.