Seller or Vendor: Which Route Do We Take?
by Carina McLeod, on January 9, 2017
Many people ask me whether they should become a seller or vendor on the Amazon marketplace. Unfortunately, the answer is not so simple. It depends upon a number of factors including product range, margins, logistics, inventory and marketing. Being a seller may work for one business, but not for another, and the same is true with being a vendor. What works for one doesn't necessarily mean that it is right for everyone. There is no one-size-fits-all solution.
Brand owners need to be clear on the definition of the two platforms. A seller sells directly to consumers while a vendor sells via a wholesale route. Therefore before a brand considers combining the two platforms they need to ensure they are set up to support both sides of the business.
Each platform has its benefits and challenges which should be taken into consideration when making a decision on whether to become a seller or vendor. However, in some instances businesses manage both platforms. This is often known as the hybrid approach, which I will provide more detail about in a post next month.
First, let's spend some time focusing on the benefits and challenges of each platform.
Marketing and Merchandising
A big reason for a number of businesses choosing to go down the vendor route is the variety of marketing and merchandising services available. On the Vendor Central dashboard, a brand has the ability to take part in the Vine review program, A+ detail pages, product coupons, video uploads and a variety of promotions that have good visibility. Although, don’t forget that some of these come at a premium. If you are a vendor with a Vendor Central account, you also have access to Amazon Marketing Services (AMS). Within AMS you can create a variety of sponsored ads including headline search, product display and sponsored products in addition to building a brand page.
On the seller side there are fewer tools available. While sellers can create sponsored products, employ promotions such as lightning deals and develop enhanced brand content pages, there are a number of limitations. Promotions have lower visibility, lightning deals can only be on items that Amazon.com, Inc. ("Amazon") recommends and enhanced brand pages are only available to brand owners who have enrolled in the brand registry.
One of the main reasons brands become or remain sellers rather than vendors is related to brand control. Many brands want to have control over their pricing and listings, which is lost when they sell via the vendor route. On the Seller Central dashboard, sellers have the ability to set their own prices and the brand owners registered with the brand registry own their content. This content should then set precedence over any other content loaded for those items unless, of course, their products are then offered to Amazon Retail via the vendor route.
If a brand chooses to work with Amazon as a vendor they need to be aware that they cannot control pricing and that Amazon does not formally agree to MAP pricing. While brands in some categories may have a mutual understanding of the importance of not pricing below MAP and the implications of this, you cannot forget Amazon’s stance on pricing. Amazon needs to remain competitive, so if another retailer drops the price on an item, Amazon will drop its prices in order to match and be in line with the competition.
Cash Flow and Profit Margins
Depending on the category and how a business sources its products, some brands may have tighter margins where they don’t have the ability to sell to Amazon as a vendor and only direct to consumers as a seller. While they may choose to sell via the FBA program, these fees are typically lower than the level of discount they have to offer on the vendor side.
Brands also need to take into account when they will receive payment. For vendors payment of goods is often not received for 60-90 days, although payment is received for all goods regardless of whether they sell or not. On the seller side payment is received every 14 days or in some cases 7 days. However, if a merchant is selling via the FBA program they will not be paid for the goods until they are sold. In this case, it's important to get forecasting as accurate as possible to ensure they do not have unsold stock sitting in the Amazon Fulfillment Centers collecting dust instead of making money.
A great thing about being a seller is that you have control over the inventory and what is available to the customer, avoiding any unnecessary out-of-stocks. Unfortunately on the vendor side, there is no control over what Amazon orders and sometimes they may order inventory on items that the brand would not recommend. Additionally, on occasion the ordering can be inconsistent, resulting in out-of-stocks.
Nevertheless, vendor orders are typically bulk orders, and the brand only has to pay for the cost of shipping once, as opposed to twice on the seller side when selling via the FBA platform. However, expectations as to what is perceived as "bulk" varies across brands. Amazon does not hold a high number of weeks of cover and prefers to place orders on a small and frequent basis. This can cause upset with brands when they first start working with Amazon as a vendor. In their minds they are waiting for a relatively large order that in most cases doesn’t come. That is not because there isn’t demand; it is due to Amazon being conservative over their orders and keeping stock levels to a minimum.
Reporting & Data
The Seller Central dashboard has some great reports available for sales and traffic analysis, which are a lot more user-friendly than the reports available on the Vendor Central dashboard. On the vendor side, there are some extensive reports available that look into things like customer’s shopping behavior. However, this comes at a cost. The free reports, for instance, are extremely basic and not produced on a real-time basis. In addition to the sales and traffic analysis that the Seller Central dashboard offers, brands can also obtain customer data, which is not available on the vendor side. This is great if the brand wants to solicit feedback on their products and the services that they offer.
There is no denying that both platforms require a certain level of administrative work, unless the brand hires a third-party company to manage this on their behalf. On the Seller Central account, a brand needs to manage pricing, inventory forecasting as well as order management and customer service if they don’t go down the FBA route. Although even with the FBA program a seller can still receive general customer queries that need managing. On the vendor side a business needs to manage orders, shipments and invoices. Vendors can be integrated with electronic data interchange (EDI), which helps but does not eliminate all administrative tasks. Vendors get a lot of headaches meeting Amazon’s shipping requirements to avoid the dreaded chargebacks and must also manage the quantity variances and shortage claims that frequently occur.
International & Multi-Channel Fulfillment
If the business is looking to supply countries outside of the United States such as Mexico and Canada, they will be able to do this under one unified seller account in the Seller Central dashboard. Vendors must establish a direct relationship with a vendor manager for their category in a specific country in order to sell in additional countries. If the business wants to sell on other sales channels and wants Amazon to fulfill those orders on their behalf, this can only be done with a Seller Central account.
All in all, as you can see, each platform has its pros and cons. This is why brands often take a hybrid approach and work with both. Before a brand makes any decision as to the route taken, it's important to have a business strategy that looks at distribution, marketing and product assortment. It's also essential to review the business setup to ensure that they are capable of fulfilling orders on both a seller and vendor level. One thing to remember is that nothing stands still on Amazon. What may not be a feature on Seller Central now may be one in the next year.
As the Amazon marketplace continues to evolve, I can’t wait to see what 2017 has in store.