Amazon Vendor Model vs. Amazon Seller Model

On June 26th, Amazon and marketplace recruiter, Patrick Murray hosted our second seminar event for our Amazon community. This article shares the key takeaways from the evening. 

In this event, Amazon and marketplace experts explored the different options for selling on Amazon – the Vendor model versus the Seller model. This is a hot topic in our networks, with many considering a transition away from the Vendor model. Whether this is the right move or not is another story, so we asked if the grass really is greener on the other side? 

Our panel was comprised of leaders in the Amazon and marketplace space: 

• Jennifer Hodgkinson, Managing Partner at Tambo, previously Commercial Director at Wahl 
• Ashwini Ramakrishna, Amazon Lead at Kao Brand, previously Amazon Consultant at ELEMIS, Pan-EU Vendor Manager at Amazon and Account Manager at P&G 
• Charlie Merrells, Amazon and Ecommerce Consultant at Pattern, previously SVP of Marketplace at Brainlabs and Category Manager at Amazon 

The difference between the Amazon Vendor Model and Selling Model 

The core difference between the two Amazon business models is the relationship sellers have with the online marketplace: 

• As a Vendor, businesses assume the role of manufacturer or distributor, selling products to Amazon at a wholesale price. This makes Amazon responsible for sales, shipping, logistics and customer service. 
• On the other hand, Sellers sell their products directly to customers through the platform. They are third-party sellers who are responsible for the entire customer journey, including shipping if they choose the FBM (fulfilment by merchant) model. 

Vendors and Sellers interact with Amazon differently. There are pros and cons to each option, some of which we’ll explore further in this article. 

Why are brands moving to the Selling model? 

The Amazon Selling Model is certainly a popular choice among Amazon Managers at the moment. Jennifer Hodgkinson noted from an agency-perspective that she has seen movement accelerating over the last 24 months. 

Ashwini Ramakrishna explained how the momentum has been building since the pandemic. Between 2020-2021, there was significant growth in vendors on Amazon. As a result, the platform began to be more particular during their AVN (Amazon Vendor Negotiations) discussions. This resulted in businesses on the Vendor model, exploring the option to move to the Amazon Selling Model. 

How to decide whether a new model is right for your business 

To help sellers on Amazon choose the right model, our expert panellists put together four points to consider: 

1. Profit and loss (P&L) 
2. Product and category 
3. Product lifecycle 
4. Distribution model 

#1 P&L 

Understanding the P&L is vital for sellers to have full visibility of their position on Amazon. Charlie Merrells highlighted that this is key to understanding Amazon’s motivations during the AVN. Perhaps even giving Amazon Managers a new perspective on the trade terms offered.  

Jennifer advised getting into the granular detail to get an oversight of long-term profitability. Ultimately, this will help you avoid a “shotgun decision” when it comes to business models. 

#2 Product and category 

Certain products and categories perform differently on each business model, impacting strategies for Amazon optimisation. For instance, Jennifer shared that grocery products tend to under-perform on the Seller fulfilment by Amazon (FBA) model. This is due to the products’ low average selling price. 

Charlie shared that the best products are “small, light and expensive.” These products naturally have stronger profit margins. 

#3 Product lifecycle 

Ashwini highlighted the role that seasonality plays in picking the right model for your business. Seasonal collections are difficult to manage on Vendor model, as it’s unlikely that Amazon will order large quantities. The same can be said for those products with expiration dates or meltable products, as Amazon doesn’t have cool storage in their supply chain. 

It's not advisable to build your entire business model around the Seller model, however. That’s where businesses may choose a Hybrid model. The Hybrid model combines both methods of distribution, allowing businesses to be more flexible when selling on Amazon. 

#4 Distribution model 

Your distribution model also plays a part in determining the right Amazon model for your brand.  

Charlie encouraged attendees to question “Who are your distribution partners? How are they playing on Amazon?”. Without being clear on this information, brands run the risk of competing against themself. Depending on your margins this might be okay, but it should play a part in your pricing strategy. 

How to get the board’s approval? 

Changing strategies on Amazon will often require senior management sign off. These individuals will usually include the CEO/MD, Head of Finance and Head of Operations. 

To give yourself the best chance of approval, our speakers recommended bringing them on board as early in the process as possible. However, it’s important to be well-researched before doing so. You want to be able to communicate: 

• Implications of changing models and how you’ll address them 
• Resource and costs of the process 
• Long-term benefits and when they can expect to see them 

Growing your Amazon team

A big thank you to our speakers, Jennifer Hodgkinson, Ashwini Ramakrishna, Charlie Merrells, for your contributions to our conversation around the different Amazon Business Models. If you’d like to join our next event for the Amazon community, register your interest below. 

Do you have the right Amazon management team in place for your brand to succeed on the platform? Get in touch with Patrick Murray to discuss your team structure and identify any hiring needs.