Here's how to know which program is best for selling your products on Amazon.
Sales on Amazon this holiday season are expected to reach $38.8 billion according to digital agency NetElixir. Their projection includes sales from Amazon Vendor Central and Amazon Seller Central.
While these two programs may seem similar, they are actually very different.
- Vendor Central involves selling products to Amazon.
- Seller Central involves selling products on Amazon.
Many brands and small business owners don't know which program to use. Nor are they aware of the long-term implications and benefits of choosing one program over the other. This article lays out the differences between Vendor Central and Seller Central. You'll learn the strengths and weaknesses of each program so, hopefully, you can maximize Q4 sales and profit, while protecting the future of your brand or business.
What's the difference between Vendor Central and Seller Central?
There are two ways to get your products seen and sold on Amazon. One requires forming a first-party (1P) relationship with Amazon. The other requires forming a third-party (3P) relationship with Amazon.
In a 1P relationship, brands and businesses sell products directly to Amazon at wholesale prices. Then Amazon sells them to customers at retail prices. Brands and businesses act as the vendor or wholesaler. Amazon acts as the seller or retailer. Vendor Central is the program Amazon uses to manage its 1P relationships. It is an invitation-only program. However, certain steps can be taken to obtain an invitation, such as connecting with an Amazon Vendor Manager on LinkedIn or at industry trade shows, or hiring an e-commerce consultant who has an existing relationship with Amazon.
In a 3P relationship, brands and businesses use Amazon to sell products to customers at retail prices. Amazon acts as the selling platform. Brands and businesses act as the retailer, either directly or through authorized resellers. Seller Central is the program Amazon uses to manage its 3P relationships. This program is open to anyone – brands, businesses and resellers. Certain product categories, such as automotive, clothing and grocery, require preapproval.
Listing, pricing and selling products
With Vendor Central, Amazon lists, prices and sells products. However, this isn't always beneficial for brands and businesses. For one thing, Amazon decides which SKUs to carry. Rarely is it ever your entire product line or catalog. Amazon prefers buying products that sell fast. This number can be as low as 2 to 3 percent of your total product assortment. Amazon also controls product detail pages and pricing. If a product is sold below its minimum advertised price (MAP) by other retailers, Amazon can lower its price to match. This pricing behavior can create channel conflict with existing brick-and-mortar distributors.
Seller Central gives brands and businesses that are selling direct complete control over which products to offer, how they are listed for sale and at what price. This allows them to offer their entire product line, or at least as many SKUs as they want. It also makes MAP compliance and e-commerce brand management easier. However, product detail pages and inventory levels must be proactively managed.
Regardless of which program is used, Amazon requires brands and businesses to provide product content, such as titles, descriptions and images.
Fulfilling orders and managing inventory
Vendor Central prevents brands and businesses from having to change their distribution model. Shipping a few large wholesale orders to distributors on a regular basis is how they are used to operating, as opposed to shipping many small retail orders to customers on a one-off basis.
In a 1P relationship, Amazon fulfills customer orders. Vendor Central allows brands and businesses to keep receiving, processing, and distributing large wholesale orders with some level of predictability. They only have to change where they ship to instead of how much and how often they ship. This is especially beneficial during the holiday season when retail order volumes can easily double or triple.
If Amazon is the only online channel being used, Vendor Central can also eliminate the need for inventory and warehouse management. For brands and businesses that are unwilling or unable to manage and store inventory, the idea of having Amazon take responsibility for these tasks is very appealing. This allows brands and businesses to focus on what they do best: developing and bringing new products to market.
Seller Central requires brands and businesses to manage inventory and fulfill customer orders on time and in full. This is logistically challenging if their warehousing and shipping operations aren't set up to receive, process, and distribute many small retail orders. So brands and businesses often utilize Amazon's Fulfillment By Amazon (FBA) program). This allows them to sell products on Amazon as third-party sellers but without the worry of meeting Amazon's fulfillment requirements and customer expectations.
Which program is right for your brand or business?
It's a common question, but the answer isn't one-size-fits-all. Some brands and businesses rely solely on Vendor Central or Seller Central, while others rely on a combination of both programs. For example, let's assume Amazon invites you to join Vendor Central but decides to carry only a select number of SKUs. You can use Seller Central to offer the rest of your product line with Amazon's permission.
If you sell to Amazon but want to sell on Amazon, review your 1P agreement with your legal team first. A first right of refusal is often included that prevents you from opening a seller account without Amazon's express approval. I've found that transparency with Amazon is the best policy. Amazon is often willing to open the 3P door for brands and businesses because it is ultimately in Amazon's best interest.
Other considerations to keep in mind when choosing between Amazon 1P and Amazon 3P: Sales volume is higher and fees are lower with Vendor Central. Net profit margin is higher with Seller Central because products are sold at retail instead of wholesale prices. Brands and businesses also have greater control of their products and pricing with Seller Central, but with greater control comes greater responsibility. Much depends on your operating model, the types of products you sell, your wholesale and retail profit margins, and other resources at your disposal.