Amazon Hybrid Model | Leverage the Benefits of Both Platforms
As more and more sellers flock to Amazon and develop business strategies unique to the platform, brands are utilizing Vendor Central and Seller Central more than ever before. While both portals offer a variety of selling solutions to accommodate just about any brand need, many sellers still find themselves wondering which management tool better suits their business.
In some cases, it makes sense for sellers to tap into Vendor Central and Seller Central – a strategy known as the Amazon hybrid model – to leverage the benefits of both portals. But there are many things to consider before moving forward with the Amazon hybrid model. Here, we’ll discuss the benefits, drawbacks, and considerations any seller should keep in mind when making this important decision.
Vendor Central v. Seller Central – What’s the difference?
Anyone who sells on Amazon must do so through one of two portals – Vendor Central for first-party (1P) sellers and Seller Central for third-party (3P) sellers. The portals mainly differ in how businesses are able to sell and ship through Amazon.
1P sellers, or those who offer their products wholesale through Amazon, are able to sell on Vendor Central by way of Direct Fulfillment, Direct Prime Fulfillment and Product Purchase Orders. On the flip side, 3P sellers, or those who market their own private label brands, can sell on Seller Central via Fulfillment by Amazon (FBA), Fulfillment by Merchants or Seller Fulfilled Prime.
So, Which is Better?
Now that we know what Vendor Central and Seller Central are and how they differ, it’s time to address the question that’s been looming: which portal is better for my business? We wish we could give you a clear cut and dry answer, but the truth is, it depends on your business and products. The portal that might be best for one product, may not be the right solution for another. This is the reason more and more sellers are turning to the Amazon hybrid model.
Common Complaints Among Amazon Vendors
Let’s start with 1P sellers and discuss why they might consider transitioning some of their products to Amazon’s Seller Central portal. Businesses selling wholesale through Amazon are more likely to feel pressured by the platform, often citing complaints like:
- Control over product pricing
- Confusing chargeback costs
- Claims from Amazon that products are unprofitable
- Inconsistency in purchase orders
- Struggles with new product launches
- Trouble communicating with Vendor managers
- Increases in costs
- Constricting contractual terms
- Persistent requests for funding
- Amazon can end Vendor relationships at any time
While partnering with Amazon can be a great way to help 1P sellers move product, it can often be tricky for Vendors to keep up with Amazon’s constant demands.
The Benefits of Seller Central
For Vendors who are craving greater control over their products, transitioning a part of their Amazon business over to Seller Central may be a worthy endeavor. Seller Central offers private-label sellers many advantages, including:
- Greater Control Over Inventory – 1P sellers do not set their own levels of inventory, Amazon’s algorithm does. This is not the case when it comes to Seller Central. For 3P sellers who fulfill either by merchant or Amazon itself, the Seller has the power to determine how much inventory to stock.
- Greater Control Over Prices – Amazon Retail controls pricing for all 1P sellers, whereas 3P sells have complete control over all of their prices.
- More Clear-Cut Costs – Once again, 1P sellers are at the mercy of Amazon Retail when it comes to costs and wholesale pricing negotiations. 3P sellers don’t face the same restrictions, making it easier to calculate profitability.
- More Customer Communication – While 3P sellers can reach out to customers at their own discretion, 1P sellers hand over all customer communication to Amazon.
Exploring Seller Scenarios
Let’s take a deeper dive into some of the major questions and circumstances sellers face when weighing the benefits of the hybrid mode.
Inventory – Controlling Your Own Destiny
As we’ve already mentioned, inventory control is one of the biggest pain points for Vendors. Because they are forced to abide by the inventory levels set by Amazon, 1P sellers run the risk of product order lag, stockouts or Amazon not ordering product enough to meet demand. It’s a whole different ball game for 3P sellers, who have control to fluctuate inventory as they see fit.
For Vendors who have fairly streamlined and predictable sales, Amazon-controlled inventory may not be an issue (especially if they are enrolled in the Amazon Direct Fulfillment Program, which we will discuss soon). In fact, not having to worry about inventory management may be preferred by some Vendors. In this case, it’s probably not necessary to transition any products out of Vendor Central.
But for sellers who are launching a new product, dealing with increased demand during the holiday season or simply want more consistent control over their inventory, a hybrid model may be a good move.
Direct Fulfillment: Filling the Gaps in 1P Inventory
Amazon recognizes that its demand forecasting is less than foolproof, and has taken steps to help Vendors protect themselves from running out of inventory. The Amazon Direct Fulfillment Program, available through Vendor Central, helps Vendors cover their inventory with drop shipping.
Essentially, the Vendor’s own inventory acts as a backup if Amazon’s stock ever runs out. If a customer orders a product that Amazon does not have in stock, Amazon will relay the order to the Vendor who then hands off the product from their own inventory to their carrier for delivery. For Vendors who are solely concerned with stockouts and are okay with relinquishing control of the rest of their inventory management, this may be a good alternative to the hybrid model.
New Product Launches
If you are getting ready to launch a new product, it is the perfect time to consider the Amazon hybrid model. As we touched on briefly above, new product launches can be tricky for Vendors because Amazon has no product history from which to calculate demand. Therefore, the platform has no idea how much inventory to stock.
Seller Central gives Sellers much more control over most aspects of their brand, inventory included, making it a great place to test out new products. Vendor Central is much more rigid and is better suited for more established products. Consider testing your new products out on Seller Central and moving it over the Vendor Central once you have a solid foundation and steady sales.
Dealing with Pricing Control Issues
Vendors have just about as much control over their prices as they do their inventory. Constant re-pricing and pressure from Amazon to lower the cost of goods sold, and therefore selling prices, can be a constant headache for Vendors. Amazon Sellers, on the other hand, have full authority to re-price whenever and however they see fit.
But with this freedom comes great responsibility. It is up to the Sellers themselves to constantly monitor the market and adjust prices as necessary. Controlling your own prices may sound like a no-brainer, but if you have MAP or MSRP pricing that you need to sustain, a hybrid model might be best to ensure you are meeting these requirements.
The Costs of Doing Business
Fees are an important factor for any sellers to consider, especially those who may have slim profit margins or are particularly focused on profitability. Vendors typically pay about 20% of their Marketplace revenue in fees, while Sellers tend to hover anywhere from 25-35%.
The following is an estimated average breakdown of these costs by portal. Keep in mind that these are just average estimates. Factors like inventory storage costs, the size of the product and shipping costs can all have an impact on actual fees.
As you can see, there are a lot more question marks when it comes to Seller Central fees. Whether you are solely selling through Seller Central or employing the hybrid model, it is important to keep these variabilities in mind and be prepared for the possibility of fluctuating costs.
Hybrid Model Hurdles and Hiccups
Inventory, new product launches, pricing and fees – these are all factors you need to consider before choosing to move forward with a hybrid approach. If you do decide to adopt this model, be aware that there are challenges that come with doing business across two different Amazon portals.
- Coordinating two separate systems – Vendor Central and Seller Central operate as two entirely separate entities. This means that the way you communicate with Amazon, receive invoices, manage operations, handle inventory, etc. will need to vary from portal to portal. Successful hybrid sellers understand the differences between the two portals and have the flexibility to adapt to them.
- Managing inventory – For Vendors who are not accustomed to handling their own inventory, the shift to Seller Central can be a bit of a shock. Amazon will not issue product orders for ASINs within your Seller account. Instead, it’s all on you to manage your own inventory and distribution.
- Maintaining control of product content – You can migrate an ASIN from a Vendor Central to a Seller Central account, but you can’t migrate control of the product content. That being said, if you choose to move forward with a hybrid approach, keep your Vendor Central account or you may lose the content on your product page.
- Sales tax compliance – Unlike Vendor Central, 3P sellers must comply with the sales tax laws in every state their customers purchase from. So if you’re transitioning into Seller Central this will newly require you to stay on top of state sales tax laws.
- Differences in marketing – There are some marketing programs, such as Vendor coupons, that are reserved for Amazon Vendors. Additionally, Lightning Deals, Deal of the Day and other marketing promotions differ between the two portals. Make sure you know what programs each ASIN is eligible for based on the portal in which it is enrolled.
Prepare for Bumps in the Road
After you’ve weighed the pros and cons of the Amazon hybrid model and considered any potential hurdles, you’re ready to make the transition from Vendor Central to Seller Central. But keep in mind, with your newfound brand control comes some potential hiccups and bumps in the road. Overall, Seller Central is much more demanding than Vendor Central, requiring the Seller to consider things like pricing, shipping and customer service that they didn’t have to worry about as a Vendor.
One issue that might arise during the transition is that while a product may be moved to Seller Central the Buy Box will probably still be owned by Amazon. This can cause a delay in sales until Amazon exhausts its inventory. One way to deal with this problem is to use FBA for the product listing in Seller Central. This allows the Seller to capitalize on Amazon’s shipping and customer service expertise while reducing lag time.
One Final Note
Clearly, there is a lot to consider when trying to decide whether or not to adopt the Amazon hybrid model for your business. It offers you greater control over your products, but it also requires additional time, resources, planning and attention to detail. For you to get the results you want, you need to capitalize on the benefits of each – making the two platforms work together as one well-oiled machine.
There are many welcomed benefits to Seller Central, but it won’t solve all of your operational concerns. You’ll still be faced with challenges, a few of which we’ve mentioned above, but if executed properly, the efficiencies you’ll enjoy will be well worth it.