Vendor vs. Seller Update: The big comparison

The Amazon platform is largely made up of two different models. You can think of it literally as running a wall dividing all the Amazon offices in the world.

The Vendor Model on Amazon

On one side sit the vendor teams. In the vendor model, Amazon buys the products directly from the brand-name manufacturers, and thus usually also from the leaders of a product category, and then sells them on the platform under its own name. Nothing different from what Otto and Zalando do – or Rossmann, Edeka and Galeria Karstadt Kaufhof in stationary retail: a B2B business for brand manufacturers without direct contact to the end consumer.

The Seller Model on Amazon

On the other side of the wall sit the marketplace teams. In the seller model, brand manufacturers use Amazon only as a platform and remain owners of their goods until they are sold to the end consumer. If, in addition, shipping and warehousing are outsourced to Amazon, this is known as the FBA model (Fulfillment by Amazon). In this model, the brand manufacturer places parts of its inventory in Amazon’s warehouses and Amazon takes over shipping in the Prime program for a fee every time an item is ordered (possibility of next-day delivery). But no matter who handles the logistics in the Seller model, you’re in the B2C space here, where brand manufacturers have direct contact with their customers.

Our comparison: Vendor vs. Seller

Whether it is brand manufacturers who have been selling on Amazon for many years or those who want to start completely new on the marketplace – we are always asked one central question: Which model is better for my brand and my project?

The following analysis is intended to depict as comprehensive a comparison of the two models as possible. In addition, we provide an assessment of the direction in which individual metrics of the two models have developed in recent months and in which direction they will tend to develop further. We always look at this from the perspective of the brand manufacturers: Is the respective model becoming more attractive or less attractive for brands? In addition to the attractiveness, we also look at the resources that a brand manufacturer has to expend internally to get the maximum out of the respective model.

In total, we examine the Amazon models on seven levels. At the end of each chapter, we summarize our assessment of which model is currently ahead at the respective level. In order not to make the comparison too complex, we will limit ourselves to FBA sellers on the seller model side.

Fulfillment

In the vendor model, fulfillment is explained relatively quickly. Amazon makes its forecasts behind closed doors and then buys directly from the brand manufacturer the quantity of products  that it estimates it can sell to end customers over a fixed period of time. The brand receives regular orders from Amazon, so-called “Purchase Orders”, which must be delivered to the Amazon Fullfilment Centers within a specified time window. Of course, exceptions prove the rule (as always with Amazon)—in the dropshipping model, for example, the goods remain in the brand manufacturer’s warehouse after Amazon’s purchase, and the brand manufacturer itself is responsible for shipping them to the end consumer. 

The purchase orders ensure good planning and scalability in logistics on the part of the vendor. Often, sales volumes are also firmly agreed on with Amazon, e.g. via so-called “pre-orders”, which gives the vendors a great deal of security. Disadvantages include the increased dependence on Amazon and the lack of influence on the forecasts of the platform for certain periods. If, for example, a brand manufacturer already knows in June that a major TV campaign will be broadcast in October, it is not always guaranteed that Amazon will include this in its planning and thus ensure that the products do not run “out of stock”. The so-called NIS (New Item Setup) sheet must also be mentioned here. Only if many hundreds of cells have been filled in correctly and submitted to Amazon can the fulfillment process run smoothly. If this is not the case, the consequence may be very high penalties on the part of Amazon.

For FBA sellers it looks different in the area of fulfillment: The forecasts are the responsibility of the brand manufacturers. They have to constantly ask themselves how many items will have to be purchased in a certain period and thus stocked on Amazon. 

Now, sellers could try to simplify planning by stocking huge quantities on Amazon and thus ensuring provisions for a long period. However, this does not actually work; Amazon sometimes counteracts this with enormously high long-term storage fees for items that are in the warehouse for longer than 365 days. In addition, Amazon has recently been pushing the so-called inventory index for FBA sellers more and more. Some time ago it was still possible to store any desired number of items, but Amazon is now increasingly introducing limits on the storage space for its seller customers. The size of the available storage space is directly linked to the sales performance of the manufacturer. Brands quickly find themselves in a vicious circle: poor forecasts lead to too many “slow sellers” being stored at Amazon. This reduces the sell-through rate or the proportion of overstock, which in turn leads to a reduction in the available space in the next period – and ultimately to less space for bestsellers. This in turn can result in a further drop in the sell-through rate, which is a major factor in calculating the inventory index, which in turn gets worse. The only way to escape this vicious circle and enormous penalty costs is to use tight forecasting. We recommend that sellers only ever stock as many items on Amazon as are certain to sell within 90 days. Sales events like Prime Day and Black Friday Week add to the complexity of planning and illustrate how high the resource commitment is for brand manufacturers as sellers – despite outsourcing what is actually a “shipping process” to Amazon.

Even if the forecast is clean, there is further effort for sellers: manually creating orders in the Seller Central portal, registering the goods with Amazon, and attaching labels provided by Amazon on the pallets.

The advantage of the model is again the enormous flexibility. Brands can respond well to cross-channel promotional campaigns and control inventory granularly.

Conclusion: Regarding fulfillment, the vendor model wins, especially for brand manufacturers who have a lot of experience in B2B business and primarily sell their core products via Amazon. With the same resource input as in the seller model, there is greater scalability for vendors if Amazon makes the forecasts and buys the goods directly at regular intervals. However, it is important to properly assess the risks in advance: If the conditions stipulated by Amazon are not fulfilled, there is a threat of penalties. If flexibility and agility are desired, then the seller model offers advantages.

Pricing

In the vendor model, brand manufacturers are prohibited from intervening in pricing, as in any manufacturer-retailer relationship. They can, of course, specify an MSRP, but in the end Amazon alone decides at what price the products are offered to the end consumer. This can be seen as a disadvantage, but some vendors also see it as an advantage not to have to worry about prices on the platform themselves. 

When it comes to pricing, Amazon is relying more and more on artificial intelligence and algorithms. It is anchored in the Group’s DNA to always have the most attractive price for the customer. So at regular intervals, a very large number of web stores and other online marketplaces (some even offline) are scanned for offers and lower prices are matched within minutes. 

The bad news here is that these prices do not always go back up when a special offer ends on another platform. As a result, many brand manufacturers complain of a downward spiral in their prices and problems with major retailers on other platforms and channels. It can also create the impression of an inconsistent pricing strategy between Amazon and its own online store.

On the bright side, Amazon’s aggressive pricing strategy means that vendors can be fairly certain of winning the buybox with their products in the medium term and thus generating higher sales figures compared to sellers who generally offer the products at a higher price. However, there is no guarantee that vendors will consistently win the buybox, because repricing tools sometimes enable sellers to adjust their prices to the competition and undercut Amazon in the short term – until Amazon has matched the lowest price again. However, if the price falls below a certain threshold, our observation is that Amazon no longer matches it.

However, Amazon’s automatic control of prices also has its pitfalls: if there is no seller for an offered product, the price may be set too high for the category and fewer sales will be generated. In addition, the price resulting from comparisons is not displayed by Amazon as a strike price, so that no savings are apparent to customers. Vendors have the somewhat complicated option of showing the savings by specifying an RRP. As a vendor, it is also possible to independently set time-limited offer prices, but there is a major disadvantage here: the discount granted must be paid by the brand manufacturer to Amazon, so-called “funding”.

On the seller side, the freedom in pricing is much greater. Until not too long ago, the simplified rule was: the brand manufacturer has 100% price control. Today $20, tomorrow $29 and the day after tomorrow $15 – that was absolutely no problem. In recent months, however, the wind has changed here, too. The same Artificial Intelligence that compares and matches prices online for the Vendors team is increasingly being rolled out in the Seller model. Amazon is increasingly defining so-called “maximum” and “minimum” prices as strict recommendations. If a brand does not comply with these, Amazon either kicks it out of the buybox (even if no other seller offers this product) or blocks the product entirely. At this point, it is recommended to use repricer tools that automatically adjust the price of seller products up and down should such an incident occur.

Sellers can also set limited-time offer prices that are recognizable as strike prices. This sales-promoting measure can be used in combination with deals, where the savings for the Amazon customer are also highlighted.

Conclusion: The absolute flexibility in pricing is also over for sellers, yet the room for maneuver remains huge compared to vendors. If a brand wants to ensure that certain items are not offered below a certain price on Amazon and that other retail partners are not alienated, the seller model is the only choice.

Content

Content creation is rather strictly regulated for vendors. Since the products in the vendor model belong to Amazon and the platform can be held directly responsible for claims and statements on the product detail pages, Amazon keeps a close eye on the content.

The most important elements of content on Amazon are the title, the bullet points directly below it, the detailed product description, the A+ content, and the image gallery. Additional content can be found in the Brand Store, which is essentially the company’s own online store on the platform. An additional element, which is currently only available to vendors, is A+ Premium Content. This further development of A+ content enables brand manufacturers to include videos on the A+ page, for example. In addition, interactive modules such as clickable images and a Q&A section can be added to the A+ content. A+ Premium elements are currently still well paid for by Amazon – the price is usually determined as part of the annual negotiations. All other content elements are completely free for vendors.

Sellers basically have all the content elements at their disposal that vendors also have. The basic prerequisite for this is the registration of a brand in Amazon’s brand registry. Otherwise it is possible that the content can be overwritten again and again by other sellers (based on whoever has the highest content rights), or that a brand does not even have the possibility to upload A+ content.

As already indicated, in most categories sellers still have a slight advantage when it comes to freedom of design in the content. For example, in some categories it is still possible to include emojis in the text or to go through extremely extensive product descriptions at times. For example, even with the images it is still possible that Amazon does not fully evaluate warranty claims that can be depicted in the gallery.

Exceptions can be experienced by brand manufacturers if they are a part of special programs, such as the Amazon Launchpad program. Through this, sellers can also unlock a type of A+ premium content and, for example, embed videos in their A+ content. Overall, all content elements on Amazon are completely free for sellers.

Conclusion: 90% of the content creation process for sellers and vendors will be the same in 2021. The biggest difference is currently the access to A+ Premium elements and slightly higher design freedom for sellers. However, we believe that consolidation will also take place here in 2021 and that Amazon will set even stricter guidelines that all participants, regardless of whether they are vendors or sellers, will have to adhere to. In the fashion category, for example, this is already the case today. 

It is also conceivable that A+ Premium will soon be available free of charge and thus also for sellers. A+ Content was also initially only available to vendors and was then introduced as a replacement for Enhanced Brand Content for sellers as well. Brand manufacturers should therefore already be looking more closely at the production of additional expressive images and videos for their products on Amazon, even in the seller model.

Reviews

Reviews are a topic that has probably changed more than any other in recent months – and where it now hardly makes a difference whether it is viewed from the seller’s or vendor’s point of view. 

The fact remains that without relevant reviews, many products and brands on Amazon will be unsuccessful in 2021. We have repeatedly found that poor or few reviews are the number one reason why a product is not purchased or hardly purchased at all. At the same time, with a good strategy around reviews, brand manufacturers can still get ahead extremely quickly in 2021 and turn previously unknown products and brands into bestsellers within a very short time. Especially when launching new products, reviews should play a central role – both for vendors and sellers.

A very important element in terms of reviews is the Amazon Vine program. For a long period of time, it was exclusively available to vendors but is now also available to sellers. Amazon Vine is an Amazon-internal club of testers where brand owners can register their products. Amazon then selects candidates from its best end customers, who are given the respective product free of charge as part of the program and in return leave an honest review. This is a great opportunity especially when launching new brands or products, as the reviews are 100% legal and usually very detailed with a high added value for other shoppers.

For a year now, sellers have also had access to Amazon Vine. And not only that, for sellers, unlike for vendors, the program is free – a huge change in the area of reviews and against the background of the differences between Vendors and Sellers on the platform. In the U.K. and the U.S., sellers also have access to the so-called “Early Reviewer Program”. A kind of Vine “light” from the time when Amazon Vine was still reserved exclusively for sellers. The Early Reviewer Program also gives sellers the chance to drive traffic to the pages of new products within the extremely important first weeks on Amazon.

Another important point: responding to reviews, especially negative reviews. Here we have observed some changes on Amazon’s side during the last weeks. While it used to be very easy for us and our customers to respond to negative feedback from shoppers with one click, Amazon removed this feature overnight just a few weeks ago. No one really understands why and currently some brand owners still have access to this function, according to our observations mainly sellers. However, the removal of the reply function may only be temporary. We are convinced that Amazon is currently working on a better solution in the background to focus even more on communication with end customers and will then roll it out to sellers and vendors in all countries in a timely manner.

Conclusion: The topic of reviews remains one of the hottest for vendors and sellers on Amazon. The platform has done a lot in recent years to screen out fake reviews using smart algorithms. As a result, it is increasingly giving both vendors and sellers their own tools to generate valuable product insights for buyers. In 2021, there will again be a lot going on around reviews for both sides – we no longer see any major differences between vendors and sellers here.

Advertising

If we had written this part two years ago, we probably would have identified huge advantages for vendors: many advertising formats and settings were available on Amazon mainly to vendors. Sellers had to settle for fewer features or very stripped-down versions.

At the beginning of 2021, the situation here is almost completely balanced. A few months ago, Amazon smoothed out and standardized the user interface for vendors and sellers. For example, until a few months ago only vendors could access the Sponsored Display Ads advertising format, but it is now also fully available to sellers with a few exceptions. Only the re-targeting of specific target groups that have shown interest in certain categories is still a “vendor only” function in the area of Sponsored Display Ads. In the case of Sponsored Product and Sponsored Brand Ads, there are no differences in the marketplace: all sellers can take full advantage of the possibilities offered by both campaign types. 

In the area of advertising, it is therefore hardly worthwhile to make a distinction between vendors and sellers. Rather, it is clear that Amazon has declared advertising to be the number one growth topic on the platform and therefore wants to pull brand manufacturers along in both seller models, as it were.

However, differences in advertising by geographic region are discernible. We continue to observe one trend very frequently: many innovative tools in advertising are initially available primarily to sellers and vendors in the USA. The most recent example is audience targeting in sponsored display ads, which until a few weeks ago was only available in the U.S., but has now been released for both vendors and sellers on the European marketplaces. Generally, such advertising functions and tools come with a slight delay to Europe (here mostly UK first) and then later also to the “newer” Amazon marketplaces such as Brazil or the United Arab Emirates. What is striking here is that the delay is getting shorter and shorter: The time from the beta phase of a new feature in the US to the launch on a marketplace like Amazon.de has become very short in 2020 compared to previous years.

Data & Business Intelligence

Here, too, we have to say that if this analysis had been done just one year ago, the result would certainly have been significantly different. Until mid-2020, there was still extremely little free data available to vendors on Amazon. In terms of performance data and sales figures, the only option was to look in Vendor Central to see how high the shipped COGS (shipped cost of goods sold, i.e. the manufacturer’s selling price to Amazon x units shipped) were, how many units were shipped by Amazon to customers per week, month, or quarter, and how much revenue Amazon generated with them. If you wanted to know more, you had to pay horrendous sums for the so-called ARA (Amazon Retail Analytics) Premium program. Only then could brand manufacturers access data that dated back several months and access search terms with the corresponding search volume. If a vendor did not have ARA Premium, it had to pull the previous month’s performance data from Vendor Central every month and store it locally, otherwise it was gone forever. Conversion rates at the ASIN level or Glance Views, however, could not be retrieved with the program either.

The situation began to change when Amazon abolished ARA Premium at short notice in early 2020 and made Brand Analytics available to sellers and vendors completely free of charge. In Brand Analytics, everyone could now view the most important search terms with the associated search volume.

Even more transparency has been available since the end of 2020. In the last quarter of the year, Amazon provided all vendors (again at short notice) with insights on historical performance, glance views and even conversion rates free of charge. An absolute milestone! The fact that Amazon shows brands in the vendor program exactly which net PPM (contribution margins) they generate with which ASIN can be pure gold if used correctly. Especially for the strategic and long-term planning of the portfolio composition on the platform, this info is very valuable.

Overall, a very important step has been made in terms of data transparency for vendors – the situation can hardly be compared to that of a year ago. However, our current evaluations and tests in various categories have shown that the data provided by Amazon for vendors is still very shaky and not always correct. If data is requested again for a period of time later, this data differs from the data previously pulled.

For years, sellers were clearly ahead of the game when it came to Amazon’s data transparency. Even a few years ago, sellers had many insights into data worlds that were only recently opened up to vendors. Even now, sellers can get insights into data treasures such as units sold, revenue, return rates, units shipped, glance views, page views, sessions, and conversion rates – all historically and at the ASIN level – at no additional cost. This has long been a huge advantage over most vendors and the reason why sellers in many niches could often target and optimize their products even more. They weren’t poking around in the “data fog” that Vendors faced. 

The opening of ARA Premium in the form of Brand Analytics to all sellers who have registered their brand with Amazon, as described above, is the final piece of the puzzle for perfect data transparency. For all professional sellers, the platform thus provides the basis for data-driven optimization.

Although most of the data is now also available to sellers free of charge, in our opinion sellers still have a small advantage—the user interface of Brand Analytics is still somewhat better designed for sellers and the data is more correct according to our tests.

Conclusion: Currently, both sellers and vendors have a lot of very valuable data at their disposal free of charge. For a very long time, sellers were miles ahead here; this lead has been almost completely compensated for by Amazon over the last few months. For us, this is an indication that Amazon wants to give medium and large brand manufacturers more responsibility for optimization and their own growth on the platform. This means that it is now up to the individual brand manufacturers to scrutinize the data supplied, combine it with each other and, if it is correct, use it for their own company in a targeted manner.

Predictability & Negotiations

The fact that brand manufacturers have to renegotiate terms with Amazon every year will probably always remain by far the biggest difference between sellers and vendors.

At the beginning of each year, representatives of the brands and strategic buyers from Amazon meet to redefine the pillars of the annual cooperation. A wide variety of parameters are discussed – depending on which strategic goals the online marketplace is currently pursuing for a particular category. Accordingly, Amazon’s goal in the negotiations may be to increase its Net Pure Product Margin (Net PPM; net margin) and thus profitability, or simply to attract as many new items and brands as possible to the category and thus expand its own assortment. In the latter case, the profit that Amazon makes is secondary.

If Amazon wants to increase its Net PPM, the annual meetings often focus, among other things, on whether the vendor can lower the purchase price for Amazon, since the platform is currently in the red with part of the portfolio, and whether the vendor can make even more “damage payments” to Amazon. If neither of these is possible – after often tough negotiations – a so-called crap-out often occurs and parts of the portfolio are (temporarily) removed from the program.

In some cases, fixed sums for the advertising activities on Amazon are also agreed in the annual meetings – a kind of newfangled WKZ. However, we currently observe this less frequently, since the advertising budgets at Amazon are increasingly separated internally from the annual conditions.

As already indicated, the annual negotiations can be very tough – especially when the first “honeymoon” phase has expired, in which Amazon is prepared to meet just about any demand from the vendors. As time goes by, Amazon considers the brands to be increasingly dependent on its platform and partly takes advantage of this in the negotiations. However, as already mentioned, an important aspect is also the objective of the respective Amazon representative.  There are also positive examples of negotiations in which brand manufacturers and Amazon buyers jointly develop realistic and mutually beneficial roadmaps for the year. Amazon then stands by the vendor as an advisor for growth on the platform, from which both benefit in the end.

Negotiations look completely different for sellers: They simply don’t exist. 

In the seller area, the brand manufacturer signs the terms and conditions with Amazon when setting up his account. After that, nothing usually changes. The conditions are the same for all participants (for the most part) and remain stable as they were initially defined. 

To put it simply, a seller pays a commission fee of 15% to Amazon on every euro that he turns over via the marketplace. This fee has been the same in most parts for years, but again exceptions prove the rule. For example, Amazon has reduced the commission to be paid in some product categories (e.g. jewelry) to 7% in order to encourage more brand manufacturers to sell in these categories.

If a seller uses the FBA program, it too faces some non-negotiable fees. For example, the amount of the pick-and-pack fee the seller must pay to Amazon is determined based on the weight and size of the item sold. The values are defined in a table that changes from time to time – in 2020, for example, there was an increase in most areas. On the whole, however, the framework set by Amazon is stable here as well.

For sellers, however, there is an innovation in the area of logistics, which was implemented just under a year ago with the onset of the Corona pandemic and the overloading of Amazon’s warehouse space. Amazon placed restrictions and tougher conditions on the amount of warehouse space available to each Seller with the Inventory Index. A few years ago, it was still possible for sellers to send as many items as they wanted to Amazon warehouses without incurring direct penalties. Today, that hardly works at all. A brand has to earn the trust for a lot of warehouse space at Amazon with a good Inventory Performance Index. Prerequisites for a good index are, for example, good sales values, little excess inventory and low out-of-stock (OOS) rates.

Conclusion: Overall, sellers have a much better ability to plan when it comes to margins and conditions for their products on Amazon. Vendors are dependent on Amazon and their own negotiating skills in this respect. In extreme cases, it could happen that they make good sales on Amazon until the day of the annual negotiations, only to be unable to sell profitably on the channel after the talks with worse conditions. 

However, the conditions are also becoming more complex for sellers, especially due to the inventory index. Therefore, in both sales models, it is advisable to have experts at your side who always keep a firm eye on the most important parameters for profitability on Amazon. Vendors also need strong negotiators who can stand up to Amazon in annual meetings.

Conclusion

Overall, it can be said that both models – seller and vendor – have converged enormously over the last year or two. And that in both directions: the once blind spots of each model have been corrected. Vendors, as shown, have much more free data and KPIs at their disposal – a long time advantage of Seller Central. Further, sellers suddenly have the opportunity to participate in the Amazon Vine program and run sponsored display campaigns – previously clear unique selling points of the vendors.

This is our overall evaluation:

Despite all the similarities, however, it should not be forgotten that the bottom line is that these are still two completely different strategic approaches (B2C vs. B2B). Thus, both systems require different structures in the company in order to function well.

The most important requirements as a seller

If you want to be successful as a seller on Amazon in the long run, you need good people who can exploit the many freedoms of the model, dig deep into data and find every little gap for more growth. Prices need to be fine-tuned and monitored themselves, and logistics need to be excellent to grant good forecasts and timely redeliveries. In addition, direct contact with the end customer should be loved and lived. Last but not least, it takes a lot of skill to negotiate with trading partners and stakeholders of other distribution channels to avoid conflicts. 

Often, retail partners still view it very critically when brand manufacturers enter into direct competition with them for the end consumer – many brand manufacturers do not want to and cannot risk disrupting long-standing retailer relationships. If negotiations and agreements with retail partners do not lead to success, the so-called “broker model” can be a fallback solution. Here, a service provider makes its seller account available to a brand manufacturer so that the latter can gain direct access to the Amazon end customer under its cover in the commission setup – without retail partners being able to recognize this at first glance. Other aspects such as logistics or price management can also be outsourced to a broker.

These are the strengths a vendor must bring to the table

To be successful as a vendor, you need above all good key account managers who are strong in controlling, reporting and drawing up annual plans. The annual condition negotiations with Amazon require negotiating skills, straightforward and determined communication and a great deal of patience – certainly not everyone’s cup of tea. In addition, tightly meshed pricing strategies are needed that span all sales channels so that you don’t end up in a negative price spiral that erodes margins.

The best of both Amazon worlds: the hybrid model

If a brand manufacturer is in the fortunate position of being able to combine the requirements of both systems under one roof, then it can be a very exciting option to build a setup in the so-called hybrid model, which combines the best of both worlds. Unfortunately, if a brand is already active as a vendor, there is still often the problem that the Amazon vendor manager gets in the way of building an additional seller channel. 

The basic prerequisite for the hybrid model to work at all levels and for an Amazon vendor manager not to intervene, for example, is a clear and logical split of one’s own product and brand world. It may even be advisable for Seller and Vendor Central to be handled by different (subsidiary) companies. For example, if there are products in the overall portfolio for which a certain price point is important for maintaining the brand, then these should be included in the Seller program. Products for which a regulated launch is important, for example because other channels are also involved, are also in good hands in Seller Central. If, on the other hand, a brand has very generic products that need to be made accessible to a large mass of people, thousands of which pass over the virtual store counter every day, and which are dependent on stationary placements, the vendor program is more suitable.