When selling on Amazon, businesses often face a critical decision: should they operate as a Vendor (1P), a Seller (3P), or adopt a hybrid model? Each pathway comes with unique advantages, challenges, and operational implications. Understanding these models is essential to choosing the right fit for your business. Let’s explore the distinctions between Amazon Vendor and Seller, and examine the hybrid model that combines the best of both worlds.
What is an Amazon Vendor?
Amazon Vendors, also known as 1P (First Party), operate in a model where Amazon acts as the customer. Businesses sell their products directly to Amazon at an agreed price often in quantity, and Amazon then sells those products to the end consumer. This arrangement closely mirrors traditional retail relationships with stores like Walmart or Tesco. Here are some key features of the vendor model:
- Wholesale Relationship: Vendors sell in bulk to Amazon at wholesale prices.
- Amazon Controls Inventory and Pricing: Once Amazon purchases inventory, they set retail prices, own the product listings and oversee the entire customer journey, including returns and customer service.
- Vendor Central Platform: Vendors manage their operations, catalogue and marketing through Vendor Central, a dedicated, invite only platform.
Why Choose the Vendor Model?
- Hands-Off Approach: Amazon manages inventory, customer service, and returns, making this model attractive for businesses not set up for direct-to-consumer (DTC) sales.
- Frequent Purchase Orders: Amazon typically places smaller, more frequent orders based on their demand forecasts, ensuring steady stock turnover and cash flow.
- Access to Exclusive Programs: Programs like Amazon Fresh and Prime Now often start with vendors, providing early access to growth opportunities.
However, this model has its downsides. Vendors relinquish control over pricing and listings, and the forecasts Amazon provides may not always align with actual demand. Additionally, some businesses are wary of Amazon's reputation for aggressive discounting although more recently some vendors have experienced overinflated pricing above RRP!
What is an Amazon Seller?
Amazon Sellers, or 3P (Third Party), operate as retailers. Instead of selling inventory to Amazon, they list products directly on the Amazon marketplace and sell them to end customers. Key features of the seller model include:
- Direct-to-Consumer Sales: Sellers manage their listings, pricing, and customer relationships.
- Inventory Management: Sellers decide how much inventory to send to Amazon’s fulfillment centers if they use Fulfillment by Amazon (FBA) or manage shipping themselves through Fulfillment by Merchant (FBM).
- Seller Central Platform: Sellers utilise Seller Central, a platform equipped with tools for listing optimisation, customer engagement, and performance tracking, accessible to all sellers.
Why Choose the Seller Model?
- Control Over Pricing: Sellers have the flexibility to set their own retail prices, allowing them to protect margins and avoid pricing conflicts with other retail partners. However, selling directly to consumers may not sit well with some retail customers, as it could be perceived as competing with them.
- Listing Autonomy: Sellers retain control over their product listings, including content, images, and branding, as long as they comply with Amazon’s guidelines.
- Higher Margins: Selling at retail prices instead of wholesale rates often results in better profitability for sellers. That said, this isn’t always the case, it largely depends on the product. For instance, smaller, lower-priced items may be more cost-effective when sold through the vendor model.
That said, being a seller requires more hands-on involvement. Managing inventory, customer inquiries, and pricing strategies can be resource-intensive even when using FBA.
Hybrid Model: Combining Vendor and Seller
A hybrid approach allows businesses to operate as both vendors and sellers. This model enables companies to leverage the advantages of each, creating flexibility and resilience.
How Does the Hybrid Model Work?
- Strategic Product Allocation: Businesses can sell high-margin products as a seller while offering bulk items or less profitable products as a vendor. For example, you might sell multi-packs on Vendor Central and individual items on Seller Central.
- New Product Launches: Launch price-sensitive products as a seller to maintain control over pricing and marketing, then transition them to vendor status once established.
- Backup Plan: Use Seller Central as a backup during supply chain disruptions, such as when Amazon limits vendor inventory orders (as seen during COVID-19 and annual vendor negotiations).
The hybrid model requires a strategic approach to avoid competing against your own listings. Clear differentiation between the products offered on each platform is essential.
Key Factors to Consider
When deciding between Vendor, Seller, or Hybrid models, consider the following:
- Business Infrastructure
- Are you set up for wholesale (vendor) or direct-to-consumer (seller)?
- Do you have the logistics in place to support inventory management and customer service?
- Pricing Control
- Do you want to control your retail pricing, or are you comfortable letting Amazon determine it?
- If maintaining price consistency across retail channels is a priority, the seller model may be more suitable.
- Profit Margins
- Vendors sell at wholesale prices and are required to agree to specific trading terms and discounts, which can lead to lower margins compared to selling at full retail as a seller.
- Seller margins may appear more appealing initially, it's essential to account for all associated fees, including Amazon's commission, storage, and shipping costs.
- Assess the profitability of your product portfolio in each model.
- Market Opportunities
- Vendor relationships often grant access to exclusive programs like Amazon Fresh and other pilot initiaitves.
- Sellers enjoy greater agility in launching new products and targeting specific customer segments.
- Operational Complexity
- Vendors benefit from Amazon handling logistics but must comply with Amazon’s strict policies and shipping requirements, with penalties imposed for non-compliance.
- Sellers have more control but face the complexity of inventory management, pricing strategies, and customer service.
Final Thoughts: What’s Right for Your Business?
Deciding whether to be an Amazon Vendor, Seller, or Hybrid depends on your business goals, infrastructure, and long-term strategy. Vendors benefit from a hands-off wholesale approach but sacrifice control, while sellers enjoy pricing and listing autonomy at the cost of increased operational involvement. A hybrid model offers flexibility but requires careful planning to manage product allocations and avoid cannibalising sales.
Before making a decision, evaluate your current setup and future ambitions. Are you ready to manage direct-to-consumer relationships, or is wholesale your primary strength? Do you value control over pricing and branding, or is operational simplicity your priority?
Amazon offers immense growth opportunities for businesses of all types, but success depends on aligning the right selling model with your unique business needs. However, it’s important to note that Amazon Vendor is an invite-only platform, so if you haven’t received an invitation, your only option will be to become or remain a seller.
At eCommerce Nurse, we bring extensive expertise to guide Amazon vendors and sellers in choosing the right platform for their business, as well as facilitating seamless transitions between vendor and seller accounts. Our team has successfully supported numerous brands in making these transitions as smooth as possible. From account and ads management to platform migration, product listing optimisation, compelling copywriting, and standout design creation, we’re here to help. Get in touch with us today—we’d love to support your success on your Amazon journey!
