To be clear from the outset: there is no single, universal startegy for selling on Amazon. But choosing the right sales model is a critical factor for success in any holistic distribution strategy. It’s therefore essential to closely examine all the options available.
A look back: Having started as an online book retailer in 1995, Amazon founder Jeff Bezos quickly realised that his goal of making Amazon the “largest online department store in the world” would only be difficult to achieve through retail business with vendors alone. For this reason, the company from Seattle also opened up to third-party merchants – or sellers – at the end of the 1990s, which have since been able to sell under their own name on the platform in exchange for a sales fee.
Since then, Amazon’s marketplace business has been developing incredibly rapidly. It already overtook its own retail business in revenue in 2015. According to a report by Jeff Bezos to his shareholders published at the start of the year, the marketplace generated around 58% of the total sales of goods on the platform in 2018. This fact prompted a dry, yet apt comment from Bezos: “Third-party sellers are kicking our butt. Hard.”
Amazon focuses increasingly on the marketplace business
But this development is not unwanted – it shows strategic calculation. While Amazon used its direct supplier relationships to achieve fast growth and market dominance in the past, for some time a clear focus has been on the marketplace business that’s more profitable and less risky for Amazon. For instance, on the one hand tools have been harmonised which sellers and vendors use to present and promote their products (such as sponsored ads, A+ content and brand stores).
On the other, support and personal service for vendors have been clearly cut back, for example with vendor and in-stock managers. Not least, a report at the start of the year caused a stir which claimed Amazon stopped orders for several thousand, predominantly smaller vendors, unannounced and without justification, to force them into the seller programme. This would be a very aggresive way to transfer the retail business in favour of the marketplace business.
The models continue to differ fundamentally
Despite harmonisation in some areas, both models continue to differ from each other fundamentally. A decision for the vendor model first requires a corresponding invitation from Amazon. Once this hurdle is cleared, decisive factors include sales policy reasons, for example if a competitive situation with other merchants who may also be customers is to be avoided.
What’s more, the higher sales potential (at least in theory), the high trust of customers in the Amazon brand as well as access to the remaining exclusive marketing programmes (such as Amazon VINE for generating product reviews) are arguments for the vendor status. In turn, vendors lose their ability to affect price policy, have to enter difficult and lengthy term negotiations with Amazon every year and forego contact with end customers to a large extent.
By contrast, sellers enjoy greater flexibility in terms of pricing and storage planning, as well as the far more extensive, freely provided data and insights in relation to orders, keywords and shopping basket statistics. However, the higher costs of fulfilment or customer support are considered a disadvantage.
A hybrid approach could also be a good solution
Those who have sufficient resources, expertise and the corresponding technological infrastructure to implement both models, may consider a hybrid approach as another option. This solution combines the advantages of vendor and seller status and is therefore becoming increasingly popular. The higher flexibility in setting sales prices, the securing of the availability of even unprofitable “CRaP products” (Can’t Realise any Profit), as well as access to specific analytical data in Seller Central can provide compelling reasons for choosing a hybrid model for certain segments of a manufacturer or merchant. Managed right, this model can more than compensate for the increased costs and any cannibalisation effects of both channels.
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