Driving Success With a Hybrid Amazon Vendor & Seller Strategy
I recently had a great podcast with Paul at Merchantspring to discuss what key aspects are imperative to being able to run both an Amazon vendor (1P) and Amazon seller (3p) account together.
So why are we talking about being able to run both an Amazon vendor and Seller account together?
The landscape on Amazon has certainly shifted over the past few years
Amazon vendor managers are becoming invisible or are leaving the space entirely, we also have seen a huge round of unfortunate layoffs at Amazon with staff in core leaving, so this is causing some ripples with many vendors that we speak too.
Marketplace pulse recently reported how the shift is slowly moving to vendor and according to them In an annual sales meeting, a static raised from a couple of years ago showed that a team of 15 people overseeing a retail category would see their growth outperformed by one person from the marketplace team, which as we have seen with recent Amazon layoffs means its more operationally effective as well as this Amazon 3p marketplace is more profitable because it carries no inventory risk.
This of course means more and more self management within a system which is quite admin heavy.
And the balance of tools available has now shifted, vendor had all the real goodies but now your able to balance both.
Amazon in the EU are now pulling away from vendor clients who source products that aren’t their own brands and that will be fading away now right with the final cut off in Jan 2024.
Its worth mentioning early on that we aren’t discounting vendor at all, i think the stats are that 30% range of retail sales on Amazon are still coming from vendor predominantly from your big FMCG brands and your bigger headliners of course
What is the hybrid model/hybrid account strategy overview
Technically it’s the art of being able to run an Amazon vendor (1P) account alongside a seller one (3p), a feat that a few years ago was a big no-no, back when vendor was king and had all the best marketing and the $10,000 a year analytics package, now with Amazon’s focus on brands the real advantage on vendor now is certain promotions, first dibs on amazon deals and the ability to go into niche amazon programmes such as Amazon fresh
The real reason why running a hybrid model can be a great idea and it’s something that many of our clients do successfully is because a large portion of your inventory may not work on vendor.
It could be that amazon dont see your ASIN as being profitable to buy and sell so resulting in what we call CRAP (can’t realise a profit) products, it means that vendor are not going to place purchase orders, these systems are being done more and more algorithmically now and we are hearing more of how AI tools are making calculations in the this space too.
The pricing point that vendor retail for may not align with your retail pricing goals or with your other marketplaces and retailers.
A key myth that we are always keen to try and breakdown is the thats margin to sell on Amazon FBA is higher than on vendor. Its very easy to pool your margins from your terms together and say they work out cheaper than the 15.3% seller fees and the FBA fees that sit with it, but what about other costs that sit in the funnel – labour, shortage and chargeback claims etc, as well as a full understanding the breakdown of terms, they are unique to all vendors (some sitting at 23%+ that we have dealt with) and the reality is that it depends on so many factors right down to your category, your supply chain etc.
Pricing has been a very sensitive area for our clients especially over the past 12 months with huge cost increases globally. Traditionally unless you have an active vendor manager being able to justify your NetPPM (your net pure profit margin) and giving reasonable timeframes you may not get a satisfactory outcome. It’s much easier to be able to control the pricing using 3P.
It might sound like i am saying divert your business to 3p seller – but it isnt always the case, so to give you some background to our business, about 8 of our clients are on vendor and utilising the hybrid model but one or two are purely vendor based because this fits their model, Amazon buy a good portion of their inventory, its profitable when we crunched the numbers and crucially the have a vendor manager which allows those negotiations and communications to take place.
So in taking these points into consideration, 3p or Amazon seller allows you to take additional steps with your inventory that may be restrictive on vendor.
A case study into hybrid amazon selling
One of our clients doubled their revenue in less than two years from using the hybrid model.
They were doing £16000 a month in 2021 and we are now hitting revenues of over £35000 year on year.
Their product balance was about 50% vendor and 50% seller, they had already implemented a hybrid model that wasn’t effective, they didnt know how to manage it, vendor management and any level of support wasn’t there, they had also done the mistake of trying to implement FBA stock onto lines that were already on vendor which is a big no-no.
We did a price analysis line by line, we looked at performance and account management issues, the key issue was lack of account management and of course, a vendor manager!
We have managed to make certain ASINS work on Amazon where POs are effective, the products maintain good profitability amd keep a good flow of orders.
Where there was issues with purchase orders or NetPPM targets we moved those ASINs onto their seller account and optimized their account through seller central.
We are now heavily leveraged towards seller 3P with an 80/20 split.
The hybrid model works on an ASIN by ASIN basis, there is no one size fits all here, it is all dependent on category and the businesses relationship with Amazon and of course their uniquely created terms.
It is imperative to get a good understanding of your terms and costs on both channels, this is absolutely pivotal and the first thing we do when we analyze clients ASINS. If Amazon are buying a PO from you consistently even if your margin is slightly higher on seller – stay on vendor, because the costs for you to reach that same consistency on seller could be more expensive, getting FBA right, sales velocity back up etc
Directly competing ASIN by ASIN is one of the worst mistakes you can make in running the hybrid model, challenging Amazon to create purchase orders for an ASIN whilst at the same having that item with Amazon either on FBA or FBM and competing effectively 2 different sellers for the buybox.
Benefits & Drawbacks
The key and main benefit of course is to diversity your portfolio of products and give you a second bite of the Amazon platform without having to risk not being able to present your product range to all consumers and its a win-win for both, if its not profitable for Amazon to buy the product from you, its perfectly reasonable for them to not want to invest in a slow moving range or one that is not meeting their profit demands, your still able to offer that product line and still give Amazon its cut.
A huge drawback for some brands especially in the US is that some vendor managers have told their vendors they CAN’T go onto seller, but then if you have a vendor manager or an account manager I would consider working on that relationship to improve the issues you are experiencing, be clear, negotiate and discuss, work on your NetPPM figures, build a good rapport, communication is key with every aspect to Amazon not just on vendor, on the flipside of that we have been told in UK by vendor managers TOO build a seller arm and have FBM products inline in case customers cannot get a vendor item.
Vendor is still the catalog king – in other words, having an ASIN on vendor first means contributions or product content will always feed from vendor, meaning if you try and update seller this may be more challenging, however we had a case very recently with brand registry support where we could actually tell Amazon to allow either 1p content contributors or 3P..
Remember – crunch the numbers in detail, we even go as far as looking at NetPPM by analyzing the time it takes you to do ASN (advance shipping notifications) over FBA shipments and tracking
The biggest takeaway i can give to this conversation is that flexibility does exist within the platform, and its not a case of being able to do all or nothing. I think its fair comment that vendors lack of understanding might make some want to make a quick move to seller central without fully reviewing their options, crunching those numbers, seeing if there is a vendor manager or working with support to create reasonable goals. Vendor is certainly an art form – but then it is also true that without proper support available on vendor, this is making a lot of brands explore possibilities in other areas, especially when they see their competitors wiping the floor in their categories.