Carina McLeod explains how brands can get the best of both worlds on Amazon by managing both a vendor and seller relationship
This post is by Carina McLeod. Carina spent over seven years working in Vendor Management at Amazon UK and now has her own consultancy business, eCommerce Nurse, where she helps vendors and sellers grow their business on Amazon.
The hybrid approach is when brands sell on Amazon in two different ways: as a third-party seller on the marketplace and also as a vendor selling direct to Amazon. A business following the hybrid approach will use Seller Central to sell “direct-to-consumer”, and use Vendor Central to sell wholesale to Amazon – who then retail the products to consumers.
This type of approach is not new in brick and mortar retail, as many brands will sell to the main retailers (e.g. Walmart) and also have their own physical store in shopping malls, and their own transactional website.
But now Amazon have changed the dynamics. They have made selling via wholesale a lot easier, and selling direct to the consumer also very attractive, because with FBA only limited infrastructure is required. This means opening up doors to wholesale for rapidly emerging private labels, and offering manufacturers a low-cost solution to trial and expand their direct-to-consumer sales.
There is a lot of information out there as to why a business should adopt a hybrid approach, and the benefits of doing this. It helps maximize sales opportunity, widens customer reach, spreads risk and gives brands access to both the vendor and seller tools.
The real question is: how do you successfully apply the hybrid selling model to your business? It’s easy to list out the benefits in theory, but putting it into practice is a whole different ball game. So, in this post, I’ll set out some practical strategies for using the hybrid model effectively in your business, so you can really reap those rewards.
Misconceptions about the hybrid approach
Now to be clear, when talking about selling on Amazon both as a seller and vendor, this doesn’t mean mirroring your product selection on both sides. If you start fighting to win the Buy Box against Amazon it will most likely end in tears, as it causes a conflict of interest and could result in Amazon closing down at least one of those accounts. Whilst it might help when Amazon fall out of stock on an item, that is just a solution to a single problem and not a long term strategy.
Also, when I talk about a hybrid approach I am not referring to the use of a “sacrificial SKU”. This term is used when you offer Amazon’s vendor side at least one item in your range in order to get access to the vendor tools that are not available on the seller side. This is not a long-term selling strategy either, it’s just finding loopholes in the system to help boost sales. That is not to say it is a bad idea though, as many sellers have benefited from using it, it’s just not a real hybrid approach combining seller and vendor strategically.
Applying a hybrid model
To apply a hybrid model a brand firstly needs to be aware of both the seller and vendor requirements and be set up to manage the two. Secondly, the brand needs assortment – a good variety of products. If you have a single SKU or a very small range, it is extremely difficult to take a different approach with each selling model, unless of course the brand is looking to expand the range, for example across colors or sizes.
There are a number of ways businesses can break down their assortment between the two models and I have provided some examples below. There is no one-size-fits-all, it very much depends on the brand’s set-up and capabilities, the products they sell, and how much freedom they have when it comes to sourcing new lines. These examples may not apply to your business, but hopefully it will help stimulate that thought process when it comes to considering the application of a hybrid approach and whether it is right for you.
If you lack the assortment to take a hybrid approach, or have insufficient resources to manage it, you’ll just need to choose one of either Seller Central or Vendor Central for your Amazon sales.
Product life cycle
At certain stages in the product life cycle, brands may want to push their products through the two different selling models.
Brands often use Seller Central to launch any new products.
For example, when launching a new product, brands can be very protective about the selling price and invest lots in marketing to create product awareness. New products can be “high touch” and need nurturing. This often results in brands using Seller Central to launch any new products. They can control the retail price, gain higher margins to invest in more marketing and they can even solicit product reviews and feedback from customers.
Brands can also create sponsored product ads, headline search ads, Amazon stores and promo codes to drive traffic to the listing. They can then create Enhanced Brand Content (EBC) and Video Shorts to help with conversion.
Once the sales kick in and the demand is in line with expectations, the item should become “low touch” and require less supervision. The brand may be less focused on the product and move their attention onto the launch of the next new product. This is when a brand should think about moving the SKU over to the vendor side. At this point, the product should have a good sales velocity and be ranking well enough for Amazon to place volume orders. The brand should also be less concerned about the retail price and have greater margins, with more efficient marketing campaigns.
The idea is that by moving the listing over to the vendor side, less management is required but at the same time you’re receiving bulk orders on a regular basis. This then frees up the brand’s time and cash flow to focus on launching new products or improving sales on slow sellers.
Retail price points
A challenge with Amazon’s vendor side is low retail price point items. In most cases, anything retailing under $10 will have a minimal profit margin after you take into account the cost of shipping Prime. Whilst Amazon has the Add On program to help manage this, the profit is still very low and often vendors can find Amazon regularly knocking on their door for improved cost prices, making items ineligible for sponsored ads or de-listing items because they are deemed unprofitable.
A challenge with Amazon’s vendor side is low retail price point items.
For low priced items, it is recommended that online sellers offer multi-packs to increase the basket spend and help cover the cost of free shipping. That works for some customers but not for all. Whilst some customers may be happy to buy in bulk in exchange for a better price, not every customer wants to purchase in volume. Plus, for non-consumable items, it doesn’t always make sense to buy in bulk. Customers may be okay buying a six pack of hand soap but not a six pack of scissors.
In these cases, where single items are not profitable for Amazon to sell on the vendor side, brands can look into offering them via the seller route. Of course there are still costs that sellers incur, especially if they use Fulfillment By Amazon (FBA) to ship their goods. But, usually the brand has the margins to accommodate this and if margins are tight they can increase the price accordingly. Then on the vendor side, the brand could offer multi-packs for those customers wanting to buy in quantity at a discounted price.
Alternatively, if singles are performing well on the vendor side and are profitable for both parties, the brand could look at trialing some multi-packs on the seller side to see if there is demand there. If there is demand, they could then offer them to Amazon on the vendor side, once the sales velocity is strong enough to guarantee the volume.
Continuity vs seasonal
A brand may only want to sell items on the vendor side where they can guarantee continued supply. With seasonal products such as fashion or Christmas items, there is only a specific amount of time the brand has to sell the inventory before the season ends.
Typically, the strategy with seasonal products is to sell the items at full price when launched and then gradually discount the product to clear through the inventory. When the brand offers their seasonal items to Amazon on the vendor side, they are relying on Amazon to manage this sell-through.
In addition, seasonal products often require orders upfront and if Amazon has not committed to ordering a certain quantity throughout the season, the brand may not be able to guarantee the stock. Amazon may also expect the vendor to reduce their costs mid-season if they see other retailers starting to reduce the retail price. On the other hand, Amazon may drop the retail prices too early in the season causing upset among your other retailers.
To avoid this, brands can just offer Amazon’s vendor side their continuity items that don’t need to be discounted and cleared through. On these items they have continued availability and, in most cases, a good sales history and velocity, resulting in Amazon placing regular orders. Brands can then look into selling their seasonal items via Seller Central where they can manage the sell through and set their own retail prices.
Core vs non-core
Many brands will divide their ranges into core and non-core products, or sometimes it’s a case of having top sellers that sell in volume to retailers, and slow sellers that are less readily available but complement the range.
With the hybrid approach, brands can offer their top sellers via wholesale where they can offer consistent availability and good prices. In exchange, they receive volume orders from Amazon.
Remember on the vendor side, vendors can be penalized for being out of stock on items.
For the slow sellers where brands can’t always guarantee 100% availability, margins might be tighter as they are not purchasing in volume. They also don’t want to run the risk of Amazon buying lots of inventory which doesn’t sell as expected and is returned six months later.
Instead the brand can offer these non-core, slower selling lines via the seller route. They can then manage the products more closely, adjust the price and run A/B tests to help boost sales on those items they believe to have greater sales potential.
Remember on the vendor side, vendors can be penalized for being out of stock on items. The key is to only offer Amazon the items where you can guarantee continuous availability. Although at times, even the core sellers fall out of stock due to unforeseen demand.
This can also apply to sizing and colors. Using footwear as an example, the designs and sizes that have good margins, availability and strong demand should be sold via the vendor route. Those that are in less demand can then be offered via the seller route. That way, the brand can receive volume orders on the vendor side and manage inventory and pricing on the seller side, as well as being able to offer their full range of sizes and colors.
Parts and accessories
It is common for brands in categories such as domestic appliances and computers to offer parts and accessories for their core range. For example, a brand might offer their refrigerators to Amazon as a vendor then drop ship to consumers when an order is placed (the vendor Direct Fulfillment program).
These refrigerators then come with an extensive catalog of replacement parts and accessories. Often, these parts are slow sellers and the brand cannot always guarantee availability. In these situations it would make sense for the brand to offer these on the seller side. This way they can manage the inventory and pricing for items where margins are tight. More importantly though, it allows them to make contact with the buyer to ensure they have ordered the correct part.
Alternatively a brand could manage all this via one vendor account. They could offer the core range for Amazon to order and hold in their Fulfillment Centers and then offer the parts and accessories via Direct Fulfillment (drop ship). Using this method means the brand can manage their inventory daily, but cannot control the price or communicate with the end consumer.
It is not unusual for some brands to have a high level of product returns, for example on niche technical items. Customers may return a product because they couldn’t set it up correctly and deemed it defective, or because it wasn’t what they expected when they received it. Brands may also find that their products are damaged in transit, and returned as a result.
Whilst there are ways in which these product returns can be reduced, brands are often left with inventory that they cannot sell as 100% new. The item may have been taken out the packaging and used slightly or it might have a slight scratch or dent. After checks and tests, it may still be in saleable condition and in this case, the brand can sell the item as used or refurbished.
Remember that Amazon does have some restrictions on products that can be sold as used and refurbished.
Brands who are looking to clear inventory that they offer via the vendor route may want to sell the stock off at a heavily discounted price. Whilst they could offer Amazon a bulk price, they don’t always have the margin to do this, or if they do, the discount amount may be minimal and not much of an incentive for Amazon to purchase a large quantity.
For many brands, it often makes sense for them to discontinue the lines on Vendor Central, then clear the inventory via Seller Central. They should then have a greater margin to provide customers with heavy discounts and can control the price they clear the inventory at.
Despite all these different ways in which a brand can apply the hybrid approach. It is important that all brands are aware of Amazon’s Product Availability Policy for Manufacturers. This policy states that if you are a manufacturer and your products are sold by any other retailers or distributors, Amazon expect you to offer their retail (vendor) team the option to source those products at competitive terms for sale as retail items only.
The last thing you want is for Amazon to close down an account.
Based on this, if you are already selling to other retailers, this may limit your ability to play around with your assortment. You may even find that you have to manage your assortment around this; all items that are available to other retailers you offer via the vendor route and then on the seller side, sell those items that are not sold to other retailers (e.g. you are only selling direct-to-consumer via your website or physical store).
Whilst it does not state anywhere that you cannot have both a vendor and seller account, brands do need to tread carefully, respect the Product Availability Policy, and avoid direct competition between the two.
For sellers looking to open a vendor account, be open to Amazon about the fact that you have a seller account and will continue trading certain items via that account.
For vendors moving over to the seller side, ask for approval, be open about the fact you are opening a seller account and give a strong, justifiable answer as to why you are doing this and why it will not cause a conflict of interest. Whilst you may be able to get away with things in the short term, the last thing you want is for Amazon to close down an account because they didn’t approve it.
The key to success in the hybrid approach is managing your assortment, and making strategic decisions about the products you sell to Amazon as a vendor, and the products you sell direct to consumers through the Amazon marketplace. The two routes may seem interchangeable – it’s all Amazon after all – but in practice they are very different.
Vendor Central offers big bulk purchases and a hands-off approach, but your margins will be squeezed. Seller Central offers greater control over pricing and higher margins, but piecemeal sales and a greater customer support burden.
Both models have advantages and disadvantages, but with the hybrid approach and a well-considered product strategy you can get the best of both worlds.
This post was by Carina McLeod. An Amazon Retail Consultant, Carina spent over 7 years working in Vendor Management at Amazon UK. She worked across multiple product categories including home and garden, sports and fitness, personal care and apparel. Carina has her own consultancy business eCommerce Nurse where she helps vendors and sellers grow their business on Amazon.