More and more brands are asking us which model works best for them on Amazon. For this reason, we compare Amazon Vendor and Amazon Seller (FBA) in this article and explain the advantages and disadvantages of both models.
Dispatched from and sold by Amazon
Amazon Seller FBA (Fulfillment by Amazon)
Sold by Brand/Merchant & shipped by Amazon
Amazon Seller FBM (Fulfillment by Merchant)
Sold & shipped by brand/merchant
We took the trouble to structure and illustrate the main features of the models in a graphic. The underlying idea is to enable merchants on Amazon to quickly classify the models in a structured way, giving them clear metrics. In addition, the individual categories can be understood as a check-list that every vendor/seller can take into consideration when evaluating the following questions:
It is hardly surprising that the categories correspond with the elements of our Amazon Marketing Pyramid. In the following, we will discuss all points and explain how we came to our evaluation. Important note: This evaluation does not reflect the view of every single seller on Amazon but provides an overview based on our experience with numerous vendors and sellers.
As a vendor and FBA seller, Prime shipping is guaranteed. Also FBM sellers have the option of receiving the Prime Badge. However, many sellers are facing challenges in complying with Amazon's requirements. Since it is difficult to achieve competitive ranking positions in many product categories without Prime Services, we only compare vendors (1P) and FBA sellers (3P). Anyone, even a vendor, can transparently view Amazon's shipping costs through the Amazon Revenue Calculator and get an idea of the products’ margins.
Product Selection & Order Quantities
The selection of products and order quantities in the 1P model is done by Amazon. The vendor receives Purchase Orders (POs) and sells his goods to Amazon. The say of the brands in this is very limited. This model is operating differently for 3P sellers, who can decide when to send which products and quantities to the Amazon warehouse. In case a product is performing better than expected, an FBA seller can react quickly by delivering additional items to the Amazon warehouse. If the sales turn out to be lower than expected, the seller may also create fee-based remission orders to destroy or reclaim items in order to avoid long-term storage fees. On the one hand, it is a great advantage to always have control over the stock levels in the Amazon warehouses. On the other hand, inventory tracking and managing are very time consuming. Vendors mostly only have to react to Amazon’s orders and therefore can keep their logistic efforts at a minimum. But in some cases also vendors need to remind Amazon Vendor Support (AVS) managers to initiate POs.
Amazon sellers can determine prices and adjust them at any time. This is beneficial for brands that want to ensure a consistent price level across multiple channels. Unlike vendors: once the goods have been sold to Amazon, the tech giant sets the prices automatically and continuously adjusts them to the level of the cheapest seller. The vendor enters a certain dependency, because Amazon determines the conditions. This is problematic for many vendors, especially when communicating with other retail partners. In addition, the Amazon Seller Account offers the possibility to set sales and promotion prices on a temporary basis. Vendors can achieve this in a more complicated way by specifying a recommended retail price or by offering discounts.
Buy Box Ownership
In most cases, vendors win the BuyBox – but there is no guarantee: sometimes sellers manage to offer the items even cheaper than Amazon and thereby win the BuyBox. Sellers often use repricing tools to control prices efficiently and adapt them to the competition. Vendors do not have to worry about this, but the automated control by Amazon is often problematic. For example, if there are no other sellers of a product, the price might be too high for a certain category, making the offer less competitive which ultimately will lead to fewer sales. If many sellers offer a product for a low price, Amazon follows and vendors often complain about the problem of an inconsistent pricing strategy between their own web store and Amazon.
There are Amazon content guidelines for both vendors and sellers. These guidelines limit the SEO potential in many ways, for example, because keywords cannot be integrated due to very short titles and bullets. However, these rules are often ignored by 3P sellers and only marginally controlled by Amazon. Therefore, seller listings are often characterized by incorporating many keywords, unicodes, capital letters, long titles and detailed bullet points. These sellers have found out that Amazon copy including exactly those elements converts best for their products on the marketplace. On the vendor side, compliance is sometimes strictly controlled: Either the brand is asked to make the changes or adjustments are made without any notification of the manufacturer. However, there are also generous Amazon Vendor Support (AVS) managers who are aware of the unfair situation and give brands more leeway. Content maintenance and optimization are time-consuming for both sides. Sellers can easily change most of their content in Seller Central. Unlike in Vendor Central, where the fairly new Catalog has much room for improvement: quite often, product descriptions and keywords cannot be edited. As AVS support is often not sufficient, vendors have to update their content via cases. Unfortunately, the Vendor Service often performs case processing at an unsatisfactory level. A content monitoring tool like Remazing's Remdash is essential when managing large numbers of items.
For a long time, vendors had an advantage over sellers due to the A+ Pages. But Amazon launched the Enhanced Brand Content pages a couple of months ago. Those content pages are the equivalent for A+ on the 3P side and now also contain cross-selling modules. This is why there are no longer any significant disadvantages compared to A+. Recently there has been another innovation for vendors: A+ Premium Pages with better modules and mobile optimization. However, those A+ Premium Pages are quite expensive until now. In both models, the effort for creation and optimization is high.
For vendors there is the Vine Program - Amazon's product tester club. Whenever a vendor launches a new product, he or she has the chance to use the tester club to generate up to 30 Vine reviews. This exclusive club is not accessible for 3P sellers. One interesting observation: in the US Seller Central, sellers have access to the Early Reviewer Program, which can lead to reviews especially when a product is launched and can be seen as a soft equivalent to the Vine Program. Unfortunately, this program does not yet exist for Seller Central Europe. Sellers are often forced to look for alternative methods. Since most options are incompatible with Amazon's guidelines, the procedure is relatively tedious and time-consuming.
While vendors gain access to Amazon Advertising (formerly known as AMS / Amazon Marketing Services), marketplace sellers control their campaigns directly out of Seller Central. With regard to the available advertising formats, however, there are only small differences between those two models. Sellers have access to Sponsored Brands (formerly Headline Search Ads) and Sponsored Product Ads. Additionally, vendors have access to Product Display Ads. The latter, however, are currently being added up in the other two formats and will be completely substituted by the end of the year. It can be assumed that in the long run all Amazon sellers will place their advertisements via the Amazon Advertising platform.
When it comes to setting up promotions, vendors are at a disadvantage compared to their seller counterparts. For example, sellers can set up and conveniently change very effective Money Off Discounts in Seller Central, while for vendors this is only possible through the AVS. Furthermore, for 1P brands it is more complicated to set up Coupons and Strike Prices: they can only be set up using Excel templates and, in some cases, entail longer waiting times until the start of the campaign. In addition, discounts on the 1P side are paid directly to Amazon, which can be irritating for many vendors because Amazon has already become the owner of the goods. For temporary Lightning Deals the conditions are the same for both parties. Sellers are disadvantaged in two promotions: Deals of the Day and Best Deals are only available to a few sellers and cannot be set up and managed by themselves. Although the effect of Deals of the Day is great, they are usually quite expensive and part of negotiations with Amazon. Even though the effort is high for both sides, sellers have an advantage because they can conveniently control promotions in Seller Central.
Data & Information
1P sellers can retrieve time-limited sales data via ARA Basic. Significantly more information is provided within the ARA Premium version, which however is part of the budget negotiations with Amazon and is priced with approximately 1% of annual sales on Amazon. With the premium version, vendors have the option to set time frames for their sales data. Another highlight is the dashboard on customer behaviour, the only tool that provides reliable insights into the relevance of keywords on Amazon. On the one hand, it can be seen as a disadvantage for sellers to be cut off from this real-life customer behavior data, on the other hand, even vendors often do not choose the premium version because of the high costs. Both sides can benefit from us as an agency, as we have access to both ARAP and other tools that give insights into the customers’ buying behavior. The decisive disadvantage in ARA Basic and Premium is that many important key figures are not given in absolute terms, but in relation to the previous period. This is not the case with sellers. They can, for example, directly draw insights such as shopping basket sizes or conversion rates from the tool. The low data transparency for vendors is a major challenge and an important argument for Seller Central.
There are many cases circulating the internet that tell the stories of unauthorized account suspensions of seller accounts that demonize Amazon and portray it as unfair. We believe that this must be viewed in a differentiated way. As a seller, it is very important to react promptly to Amazon's requests. If you want to be particularly successful on Amazon, you have to ensure these resources either internally or through an agency like us, which can help to defuse even the most dangerous situations. The risk, however, exists and every 3P seller must be aware of it. Account suspensions usually do not happen to vendors. However, there are other punitive measures, such as prime-only sanctions, which Amazon uses when communication and, above all, willingness to negotiate are considered inadequate. Our software Remdash is capable of automatically detecting these sanctions.
The metric resource input roughly estimates how much time, know-how and manpower is necessary to meet the requirements of the respective area. Overall, sellers need to calculate with a higher input of resources in order to be successful on Amazon, especially with regards to the areas of inventory management, reviews and risks management. The KYI and account set up process, VAT and tax challenges, as well as legal issues are further aggravating the situation for sellers. For example, if a seller wants to store goods in an Amazon warehouse that is located in a foreign (EU) country he or she is forced to apply for a VAT-ID in those countries and to fill out the pre-tax registrations on a monthly basis. But also the effort for vendors should not be underestimated: CRM services (replying to questions and reviews) and essential marketing measures (content optimization and campaign management) are not taken away from the Amazon vendor. A significant factor for the evaluation of the vendor effort is the individual AVS manager, whose performance is assessed very differently.
Selling on Amazon as a Vendor and Seller
All in all, one can state that the advantages on the FBA Seller side predominate through better control and faster implementation of the measures, but should also be calculated with a higher outlay and risk. However, there are also advantages of the vendor model, such as the Vine Program or increased account security.
Many vendor brands complain that negotiations with Amazon are becoming increasingly difficult. They are looking for alternative approaches to reduce their dependency. A switch to the marketplace model appears to be a sensible course of action to many. However, this creates a number of challenges. At Amazon, retail and marketplace teams act like different companies that compete with each other. Since vendor teams are measured by the sales of their brands, an exit into the 3P model is a bitter loss. Therefore, they can significantly impede or even prevent the creation of a seller account.
Accordingly, we recommend a transparent communication of strategy and plans with the vendor team. For many, a Hybrid Approach is the best solution in order to benefit from the advantages of both models, to achieve a better risk distribution and not to complicate the collaboration with the vendor team. It is not either vendor or seller, but a combination of both. However, the starting position and strategic options are different for each vendor and should be carefully considered to ensure a successful performance on Amazon.
The articles of this blog only show a small part of our Amazon marketing experience.
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