Want to become an active Amazon merchant, but undecided as to whether you should offer your products as a seller or as a vendor? Should you go for it if Amazon offers you the option of selling as a vendor? In the end, it all comes down to what you hope to achieve on Amazon.
Amazon Seller and Amazon Vendor: there’s a big difference
When you start out as a merchant on Amazon, your status is that of a third-party seller. You can outsource a large part of the logistics of your operation to FBA (Fulfillment by Amazon). In any event, you remain responsible for the pricing and for your product listings.
If you are successful in selling your products, Amazon will sooner or later approach you with the opportunity to become an Amazon Vendor. If you accept the offer, Amazon will buy your goods directly from you. You take care of the marketing, production and shipping of the goods. If you represent a somewhat well-known brand, you can also enter into price negotiations.
This is not a decision that has to apply to all of your products; you can be an Amazon vendor and seller at the same time. However, the hybrid model is not widely used.
Amazon Seller vs. Vendor: advantages and disadvantages
The seller and vendor models have a number of advantages and disadvantages depending on your strategic direction.
With the Amazon Vendor model, Amazon essentially acts as a wholesale partner. Working with Amazon in this way can substantially increase your sales. Amazon takes over all of the logistics and returns management. You also get paid in return for your products, regardless of whether they sell on the platform.
While this may sound tempting, the vendor business model is not without its drawbacks. Retailers can become very dependent on this model. Amazon is also notorious for significantly lowering its vendors’ purchase prices. This results in decreased profit margins, and this cannot always be made up for by higher sales.
If you sell your products on other eCommmerce platforms, you need to bear in mind that Amazon often sets its sales prices significantly below the RRP. This can undercut the market price that your other eCommerce partners have set for your products, which makes your products unattractive to them.
If you are active as a vendor, you cease to have direct contact with your customers. Your marketing activities do not take place in consultation with Amazon. You may find that your campaigns underperform because it is not possible to satisfy increases in demand for your products. Alternatively, you may find that your efforts to achieve sales come to nothing.
When you advertise on Amazon, you are also advertising for products that no longer belong to you. Amazon earns twice as much from you.
As a seller, on the other hand, you retain a greater degree of control over your prices and profit margins. There is also far less risk of becoming dependent on Amazon, and you can communicate directly with your end customers. On the other hand, you forego some advertising opportunities.
Conclusion: Which is better? Amazon Vendor or Amazon Seller?
This is, above all, a strategic decision. The Amazon Vendor model takes a lot of the work off your hands, but not all of it. You still have to manage your logistics and marketing activities to a certain extent.
Becoming too dependent on Amazon and having to deal with tough price negotiations is a major business risk. On the other hand, Amazon can help you to make your brand better known, and it can enable you to increase your sales without you having to overcome major scaling challenges on your own.
You can achieve this to a certain extent with a seller account and FBA, but not to the same degree.