Hybrid Strategy: Capitalizing on Vendor and Seller Central
What is a Hybrid Strategy?
There are two ways to sell on Amazon: as a first-party (1P) vendor or as a third-party (3P) seller. Each comes with its own benefits and pitfalls - so why not utilize both to maximize their utility?
A hybrid account on Amazon is a model of selling as both a vendor and a seller. These accounts can be accessed through Vendor Central and Seller Central in the Amazon marketplace, respectively. This strategy is intended to capitalize on the best of each, minimizing the challenges associated with 1P selling.
Selling as a vendor is the preferred method for brands. Vendor Central is an invite-only program that boasts a hands-off approach to selling, with Amazon handling customer service and order fulfillment. All your brand needs to do is keep up with purchase order fulfillment and platform advertising. Vendor Central provides better advertising opportunities, A+ content creation, and participation in programs like Vine and Subscribe & Save. Most importantly, vendor products will receive a “Ships from and sold by Amazon” label. In a market saturated with counterfeit products, this verification is a great way to increase consumer confidence.
In exchange for these benefits, vendors sacrifice autonomy. Pricing for 1P sellers is controlled by Amazon, often resulting in lower profit margins than brands can typically expect. There is no set Minimum Advertised Price (MAP) policy, meaning your brand can actually lose money on products. Vendors also struggle with inventory concerns due to Amazon’s purchase order forecasts. Like price, inventory is set by Amazon. Brands aren’t always able to maintain desired levels. New products are even more of a challenge; with no established selling history, Amazon has no idea how new offerings will perform. They have no incentive to place large purchase orders for new products, making early product sales a challenge.
3P sellers have far more control over their products than their vendor counterparts. Rather than simply shipping products to Amazon and hoping for the best, sellers establish inventory levels and price. This better enables brands to capitalize on holidays or periods with high demand. An additional benefit of Seller Central is its simplified marketing features and free, detailed analytics. While sellers have fewer advertising opportunities, the interface is far easier to use. This autonomy extends to product detail pages and customer feedback; sellers can more easily update listings and establish a line of communication with customers. While the seller approach requires more work from the seller, it can be worth it for the consequent control over all aspects of product sales.
Sellers generally see lower sales numbers than vendors, largely because of the lack of “Ships from and sold by Amazon” label. They're also faced with steeper fees on a 3P account. For many sellers, however, Seller Central’s flexibility makes this sacrifice worth it. Aside from lesser sales, the disadvantages stem from the autonomy of the service. Depending on your brand's needs, having complete control over listings can be a good or bad thing. For sellers with little resources to manage shipping, pricing, inventory, customer feedback, and more, Seller Central can be more trouble than it's worth.
Inventory Backups via Direct Fulfillment
As a 1P vendor, you don't sell on Amazon, you sell to Amazon. Associated with this are insufficient and untimely product orders and consequent stock outs. Amazon's warehouse space is one of its most valuable assets. If it were to fully stock all 1P products, it would walk a thin line between sufficient stock and too much. Running out of inventory is a common issue for vendors, and a Seller Central account can help ease much of this pain.
Let's say Amazon stocks 60% of forecasted demand on the platform. 40% of the time, you're out of stock. A seller account serves as a backup to ensure demand is met. You can use Direct Fulfillment (Dropship) to fill this gap. Essentially, this is a supply chain strategy where customer orders transfer from Amazon to your brand when warehouses are out of stock. You'll be responsible for shipping goods directly to the end consumer until stock is replenished.
New Product Launches
Amazon develops demand forecasts for purchase orders using historical data. In the event that your brand launches a new product, how does Amazon know how much to stock? This is another instance where a seller account is valuable. When Amazon orders little to no inventory of a new product, you can use direct fulfillment to support demand and establish initial sales volume. Amazon does have a Vendor Central program called Born to Run, but the 3P method can be a simpler way to sell products in the offset due to the strict requirements of the program.
Just like Amazon controls inventory, it controls prices. While Amazon claims to adhere to brands' Minimum Advertised Price (MAP) requirements, many vendors claim pricing is a pain point. Furthermore, vendors struggle with prices falling below the breakeven point. A hybrid strategy can help you set and continually monitor pricing to stay competitive and maintain margins.
The pricing structure of Vendor Central and Seller Central are different, with the latter being the more expensive of the two. Nevertheless, pricing autonomy on the seller side often results in larger profits.
Challenges of Going Hybrid
While a hybrid Amazon strategy can have innumerable benefits for your e-commerce business, it does come with its challenges. Your brand will need to invest substantial time and energy to establish a well-rounded understanding of both platforms. Vendor Central and Seller Central are very different; you'll need comprehension of pricing, inventory, content, advertising, and more on both. By taking the time to become knowledgeable about the vendor and seller side, your brand can capitalize on the benefits of each and win the buy box. This will require immense planning and thought, but the potential benefits are worth it.