Quantum Networks | March 2nd, 2017
There are two ways you can sell your products on Amazon. First, you can interact directly with Amazon Retail, selling as first-party (1P) through the Vendor Central interface. You can also use Seller Central, where you function as a third-party (3P) independent seller using the Seller Central interface. In the first case, Amazon buys the product from you in bulk, advertises it on its platform and pays you according to its standard payment terms. Through Seller Central, you negotiate your own terms, deal with sellers and handle your own marketing, customers complaints and logistics.
Each has its advantages and disadvantages.
You’re a first-party seller using the Amazon Vendor Central web interface, which is by invite only. You're also a manufacturer and distributor dealing directly with Amazon Retail. This has its pros and cons.
Amazon sets its own price - about $480 a year plus per-transaction fees of about 15 percent of your revenue - and there’s little you can do to butter the deal. Although Amazon Retail promises to honor a brand owner’s MAP policies, that rarely occurs since Amazon has a Price Match Guarantee which means it takes only one MAP violator for Amazon to shrink its prices.
On the plus side, Amazon buys in bulk, so you may get the chance to sell more than you might have on your own. Then again, bulk selling may not appeal if you’re a startup and want to grow your business.
Amazon’s payment is slow - 60-90 days on average - plus there are reported problems with timeliness. James Thomson and Joseph Hansen, alternately former head of Amazon Services and ecommerce expert, mention that some brands have been asked to hire mediators to prove that inventory actually made it to Amazon, before payment would be issued. Other brands were told that they needed to pay Amazon $25K in order to receive about $250K in accounts receivable.
Control over Inventory and Pricing
Amazon may end up slimming down on carrying your items without telling you because they’ve saturated their allotment. This means you can't control your inventory or listings! Disbursement can take as long as 60-90 days.
On the other hand, if Amazon really likes your products, you have a fast track to global viewers, since Amazon may include your items on its Amazon catalog - and the Amazon brand is gold.
Marketing & Promotional Opportunities
One huge advantage is the Amazon interface that allows A+, or enhanced, content which gives you the possibility of showcasing a more attractive multimedia experience than with Seller Central. Amazon reports that its A+ option can increase sales from 3-10%, since it improves SEO results while telling visitors about your product and brand.
Other marketing and promotional programs that Vendor Central provides include Brand/Store Page, Vendor Powered Coupons (VPC), Product Display Ads, and the Amazon Vine program.
In the last, Amazon's top reviewers review your item before it hits the shelf. You can find details of these and other incentives on the Amazon Marketing Services guide. All help you increase conversion, drive sales, and reach Amazon.com’s 144 million shoppers, albeit for a price. If you’d like marketing and PR assistance, you may find this option tantalizing particularly since Amazon Marketing Services (AMS) allows you to present your brand as you wish. This may be huge considering that brand owners on Central Seller lack marketing control and can have their products shoddily and inaccurately displayed. To AMS users such as Sun Products, it makes all the difference in sales.
Here’s where you're an independent, or third-party (3P) seller, and you manage your items through the Amazon Seller Central interface.
You’re the one who sets the item price and can lower or raise it at will. This is huge considering that through Vendor Central, you’ll need to make at least 40 percent margin on listed products to earn a profit. In contrast, Seller Central gives you a far higher margin for your products.
Expect pay within one to two weeks. Payment is timely. You have none of the problems of Amazon Retailer, where you have to hire third party parties or pay a certain amount of money to elicit remuneration.
Control over Inventory and Pricing
Seller Central may order less products from you, but you’re the one who decides which, and how many, items you upload to Amazon. This means that you control your listings and inventory shipments, which may mean survival of your business.
Seller Central slacks the reins in other ways, too, such as enabling a repeat customer relationship. On Vendor Central, Amazon ensures that your customers return to Amazon rather than to you. It does offer a Fulfillment by Amazon option, in which Amazon does the shipping but owns the data and the customer relationship. All you see is the revenue stream; nothing about your customer at all. In contrast, as independent seller on Seller Central, you’re responsible for your own customer relationships, which means you can get customers to come back and buy your products.
Marketing & Promotional Opportunities
Seller Central gives you advanced analytics, which Vendor Central lacks, where you can forecast demand. (Merchants who use Vendor Central may be allowed Premium Analytics for a price). Also note that although Amazon may give you access to 144 million shoppers, the traffic’s coming to Amazon.com not to your website. Your brand nowhere; Amazon’s the one upselling your visitors.
Seller Central, also, backs you with the assured support that with Vendor Central you’ll only get if you’re an established brand or paying at least $250k for elite service. Note, however, that 1st Party does take care of customer support issues, including resolving customer and competitor fraud issues. If you sell to 3rd Party, you’re the one whose solely responsible for dealing with difficulties, although Amazon does provide high-volume sellers with a Fulfillment by Amazon (FBA) option, where Amazon handles shipping, customer service, and returns.
The Bottom Line
From discussions with multiple brands and manufacturers, sales teams tend to prefer Vendor Central, since it gives them digital marketing and logistic skills to reach the customer. Those who feel they have these skills, invariably use 3rd Party which is cheaper, more predictable and provides higher margins. This is especially important if you’re running a startup and need ready cash flow and a handle over your inventory and shipment to survive. Thomson and Hanson mention they’ve seen too many business buckle under with Amazon’s unpredictable payment procedure. Then again, your ability to contact your customers and build your brand by directing traffic to your site, are two further reasons to opt for Seller Central.
In short, these five reasons seem to be motivation enough for most ecommerce entrepreneurs to choose Seller Central over Vendor Central as their way to sell to Amazon Retail.
You can, of course, sign up for both parties, although, at least, two instances limit you. First, Amazon.com Retail services only the US market, which excludes you from selling to Canda, Mexico or EU. (Amazon.ca or Amazon.com.mx do that). Second, you have to be invited by Amazon to use 1P - so 3P may end up your only way to go.