Amazon operates a two-tier system that differentiates between the businesses that Amazon are supplied by, called Vendors (typically brand owners), and what they call Sellers (typically resellers and retailers) that sell on Amazon Marketplace. In a nutshell, Vendors sell wholesale to Amazon who then retails on the Amazon websites. On the other hand, Sellers sell under their own name in Amazon Marketplace.
Differences between Vendor and Seller programmes
In the Seller programme, it’s all your responsibility. From setting up your listings, to delivery, shipping and marketing… you have to do everything. You pay a small monthly subscription and commissions of around 15% (depending on product category). The other opportunity is to give shipping responsibility to Amazon and join the Fulfilment by Amazon programme. Essentially Amazon holds your products in its warehouse and manages the distribution for you. There are, of course, fees for this (albeit very competitive).
In the Vendor programme (which is invite-only), your brand sells to Amazon on wholesale terms. Amazon issues Purchase Orders (PO) based on market demand (on Amazon websites), your business fulfils the Purchase orders, and Amazon handles the rest, from delivery and shipping to customer service and (sometimes) even building your product pages. The Vendor programme also gives you access to certain exclusive tools to strengthen your listings and brand on the platform, including ‘A+ Pages’ (media-rich product descriptions), Enhanced Brand Content, Storefronts (brand and product category landing pages) and additional options when using Amazon’s advertising platform. Payment terms are 60 days, unlike on the Seller platform where funds can be withdrawn within days of an order being fulfilled.
Who is daddy’s favourite?
As I mentioned earlier Amazon have historically seemed, and I emphasise seemed, to favour the Seller programme.
Currently, over 50% of Amazon sales are via the Seller programme, Amazon calls this 3P, short for third party (whilst Vendor is referred to as 1P), and although Amazon says they are agnostic about this there is considerable financial upside for them:
• There is no cost of sales on Amazon’s balance sheet. This makes their return on capital deployed look much better.
• More often than not the seller warehouses and distributes their own products (Although FBA uptake is increasing year-on-year).
• To maintain their ‘keep sale prices as low as possible’ proposition Amazon often matches the lowest price for Vendor products, which can be close to cost. This is expensive because they’ve purchased the goods and are discounting their own products.
It seems the logic of favouring Amazon Vendor over Seller is that although the margin is lower they want the big brands, generally vendors, so that they can control prices, supply, and distribution. It’s interesting to note that out of over 500 million SKU’s, only around 6 million are vendor supplied.
Conversely, the Seller programme with its third party structure would seem a more modern approach (subscription models are becoming increasingly popular), and easier to manage for Amazon.
It may seem prescient to think this considering what we’re going to be discussing further down the page but there are real rumblings, and some significant action to pre-suppose that this is Amazon’s next big drive.