AMAZON BUSINESS MODEL: VENDOR VS SELLER CENTRAL

Updated: Nov 11, 2021

Please be aware this is a continuation article and we highly recommend you read Getting Started and Launching a Brand on Amazon from Scratch.




Okay, phew! Let’s come up for air for a hot sec. Can we just take a moment and applaud your progress. You’ve made it to this point, which means you’ve taken all the necessary steps, assessments and measures to becoming an Amazon Seller, we won’t call you an expert just yet since Amazon is so complex, the platform will push you to constantly learn just like we learn on daily basis, however since we are now we’re getting into it, let’s dig deeper.



You’ve read all about the framework to unpack and implement before getting launched - brand registry, content foundation, advertising alignment and acceleration (with a bonus insider secret attribute you’ll just have to read to get the scoop - read all about it HERE if you haven’t yet). These are the next steps to take to get you one step closer to being a successful Amazon Seller or Amazon Vendor.


AMAZON BUSINESS MODEL: VENDOR VS SELLER CENTRAL

Which one is right for your brand? If you have already been invited by Amazon to Vendor Central, then it’s time to determine if Vendor Central is the best for your brand or if Seller Central is the route to take whether it is FBA (Fulfilled by Amazon) or MFN (Merchant Fulfilled Network, also known as FBM, Fulfilled by Merchant).


VENDOR CENTRAL:

For most brands Vendor Central really doesn’t make sense and here’s why - Seller Central is a better fit for brands that do less than $50M in revenue on Amazon. Although, in our experience we have seen brands that do more than $50M in revenue on Seller Central. It all depends on how big your brand is - i.e. If it is part of a larger conglomerate, has international distribution, multiple retailers, etc. Some food or CPGs (Consumer Packaged Goods) for thought... if your brand doesn’t want to run into potential conflicts with other retailers - for example, let’s say a company that starts with a K and ends with a G, opts against selling their products directly (i.g. Seller Central) on Amazon for reasons such as: they are a massive brand, have multiple brands within their ecosystem and wouldn’t want to ruffle the feathers of any of their other retailers like Target, Walmart, etc. So after collectively deciding internally within the brand this is the direction to go in, they then go into Vendor Central so Amazon can purchase your products on a first party basis acting as a retailer and therefore Amazon prices the product as they see fit to sell themselves. As you may have already heard, Amazon is a price follower not a price leader, so they will set prices based on current trends and competitive rates set by other companies and Amazon’s algorithm will price match based on such SRP (Suggested Retail Price) while Amazon as well as the brand limit their exposure and liability. If that feels in alignment with your brand, then Vendor Central is the way to go. However, for most brands (over 80% of them) Seller Central is the way to go and here’s why…**recording from 4/29**


SELLER CENTRAL:

The Seller Central marketplace is either FBA (Fulfilled by Amazon) or MFN (Merchant Fulfilled Network, or FBM Fulfilled by Merchant). FBA is when Amazon ships the product on your behalf but you own the merchandise; you own the marketing, advertising, and pricing. MFN or FBM is when you use the Amazon platform to sell the product but you ship the product using your own warehouses (marketing model). You are using the Amazon platform to convey your message or raise brand awareness.


We cannot stress enough the importance of researching, assessing and determining which Amazon business model fits your brand before making any other next steps. If you are on the wrong platform from the get go or you have the wrong pricing set in place, then it can be a nightmare to re-correct to fix it. You may or may not trust us, but we have seen it time after time. More on Vendor and Seller Central HERE.



BRAND REGISTRY

Save this for later - it’ll be a great resource. Documentation for brand registry information can be found HERE. The idea behind it is that you have a trademark already registered in the US. If you have trademarks registered in other countries, Amazon will let you do that, but all the requirements are on the website. The benefit of brand registry is brand ownership, ultimately you own the content of your brand and nobody can take it away from you. You may not be able to remove third party sellers that are legitimately selling your product/s, however, the program makes it easier for brands to be able to remove (eliminate?) counterfeit products, as well as to contest brands, products and individuals who are using your trademarked name in their Amazon listings or packaging to gain a competitive advantage.


Simply put… brand registry is key. It also lets you build your brand store, lets you build content and in some cases Amazon won’t engage in changing any of the content on titles, bullet points, or above the fold images (link for another article here) you set in place if you have a brand registry. It is key especially if you are a distributor. If you’re a distributor and don’t have the Brand Registry it becomes really difficult for you to have any exposure to the brand because you can’t do anything with it at all. The only thing you can do is put an offer. So, again… brand registry is huge. It also allows you to ensure you can disclose your brand’s taglines, mission and then really do a deep dive into the content of your brand, products and the history of the brand and products. This will only strengthen the connection with your audience.


More on brand registry HERE.



STRATEGY FOR FINANCING + FEES

This is where you’ll do a deep dive into your financials and profitability per unit. Again, just like we tried to establish in our Amazon Basics article where we did an overview on short and long term strategy for your brand, this is where you are trying to determine your product’s profitability. Essentially when you are looking into your finances, you’re doing a breakdown of each individual product’s profitability to then determine whether or not all of your products’ current pricing is aligned to an Amazon financial strategy.


For example - Let’s say there are some products in your catalog that are very affordable, so you sell them on Walmart for $2 or $3. As a competitive assessment those products are not a good fit for Amazon customers unless you are selling them in bulk. Meaning you have to put 3-5 units in for each bundle to sell as one item. Is the product conducive? If you have an all purpose cleaner that sells at Target or Walmart for $2 the likelihood of you pricing that product for $2 on Amazon and being profitable is unlikely unless you make it a bundle item - i.e. you have an all purpose cleaner, a bathroom cleaner, window cleaner and now you sell them all for $10. This strategy is more likely to be successful, but you are still going to suffer from profitability.


Statistically speaking, the majority of products that are priced $15 or less on Amazon suffer from profitability regardless because you have to be either less than $10 and claim to be a small item or are less than $7 so you claim the Small and Light program and you partake in lower fees on Amazon depending on your category or you are priced above $15 in order for you to be profitable. Without this strategy unfortunately you won’t make it very far on Amazon’s economy of scale and you will have to sell hundreds of thousands of units in order to see some sort of profitability. We don’t want to sugar coat anything, because we all know maximum profitability is our goal so we’re going to be straight with you (because let’s be honest, not everyone will) so you can be set up for success from the start. So, just keep this in mind and take it seriously. That’s how important it is.


MANUFACTURING, STORAGE + SHIPPING

If a product is being manufactured overseas, products and brands in the Amazon ecosystem have seen a ton of issues receiving those products especially since the start of the pandemic. Getting products into the US, especially to the Amazon fulfillment center, has been extremely difficult because of manufacturing constraints. We have seen multiple brands experience getting their products stuck in the carrier port. All we’re going to say is please be aware of your manufacturing capacity and where your products are coming from. This is something that can easily be overlooked and can be detrimental to short and long term profitability.


Amazon has also constrained direct imports (DI), so let’s say you are shipping the product directly from China into Amazon through a container then you take on the risk of being at the mercy of potential trading issues with customs or with both the Chinese and US government or you may also see some constraints with tariffs. Importing is huge when we talk about manufacturing. The other thing that should be considered during the manufacturing process is the lab results for products that are primarily in the Health and Personal Care, Beauty, or Baby categories. Products that are hazmat, topicals, or consumables in nature will need other FDA approvals. Anything that has any issue with manufacturing and claims and approval processes can be detrimental to your brand’s success. For example, hazmats for storage are complicated as well because Amazon will limit the cubic feet storage for hazmat items so that is something to consider. In terms of shipping issues, consider this - How is the product being shipped if you are shipping let’s say a mattress or blankets that are heavy and bulky? Items like this typically carry a huge shipping cost. These are all the things you need to consider for logistics. Oh, and one more thing - FBA products have to be combined into the same box. We’ll get into this more later.



CUSTOMER SERVICE

Amazon handles your customer service if you are doing FBA, but if you are MFN/FBM then you have to handle your own customer service. Any type of delay on customer support can trigger negative reviews pretty much immediately on your Seller Central account.



ADVERTISING

We’re just going to say it now, advertising is not as easy as it looks or seems on Amazon. Advertising carries a heavy burden on a lot of people for many reasons. We recommend breaking down your advertising approach into four different metrics:

  • Brand products

  • Category

  • Complimentary

  • Competitors


There is also a very proactive and a reactive approach to be considered when it comes to advertising. Out of those you also have to consider sponsored products, sponsored video ads, product display ads. So then you have four metrics, two metrics, and three metrics then each individual metric to assess and strategize and then you have to worry about portfolios and budgets. Budgets are either ACOS or ROAS. This is just a very brief overview on what needs to be considered in your advertising approach and to be honest, most brands have no idea the level of detail that goes into it and how to do it well. We’re here for you and we can make it happen in a way that feels attainable and right for your brand. More on advertising HERE.


Like we said, one step closer. Are you still with us?? Let’s keep that momentum rolling. It’s time to Deep Dive on Seller Central vs Vendor Central and find the right fit for your brand. More on that HERE.


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