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Overcoming Amazon Vendor Central Obstacles
In addition to being the most popular online marketplace in the world, Amazon remains one of the largest retailers, buying products from wholesalers and then selling them directly to consumers. The company’s supply of products comes via its Vendor Central program. However, overcoming Amazon Vendor Central obstacles presents a different slate of challenges for participating companies compared to their Seller Central counterparts.
Exclusivity, inventory management, pricing, stability and service are all concerns for novice and experienced Vendor Central sellers alike. In some cases, they turn to an Amazon consulting expert for help optimizing their business and avoiding the pitfalls of selling to Amazon. Others opt to remain a direct-to-consumer seller or transition from Vendor Central to Seller Central, where margins are often higher, and brands have more control over the entire sales process. If you’re leading an Amazon business of any type, a clear grasp of Vendor Central can be vital to making sure your company is headed in the right direction.
What is Amazon Vendor Central?
Unique from a traditional Amazon seller account, Amazon’s Vendor Central platform is the interface brands use to sell products directly to Amazon rather than to the consumers shopping in the marketplace. Amazon is then responsible for listing, selling and shipping the products. The Vendor Central model, commonly referred to as first-party or 1P selling, is an opportunity for companies to establish a relationship with Amazon and sell its products at wholesale prices. However, this model is an invite-only program and is usually limited to larger brands with $10M or more in revenue on the Amazon marketplace.
For the few businesses that become eligible, the 1P option has some attractive advantages. First, it’s easy to understand. Since it’s similar to any other relationship between a vendor and retailer, a brand does not need internal Amazon expertise. It’s also purchase-order based, so the brand receives large purchase orders from Amazon, which then pays for the inventory. Also, as a retailer, Amazon will often accept lower profitability than a Seller Central (Third-Party or 3P seller), as they compete with Walmart and other retailers on price.
The 1P model is often a good fit for low-priced and highly competitive Consumer Packaged Goods (CPG). It can also work well for heavy products with high shipping costs, brands that sell through many distribution channels, and brands that do not attempt to enforce a MAP program.
For other brands, the downside of operating with a 1P model can make it a less appealing option than the Amazon Seller Central route. By selling to a retail intermediary, a seller is giving up margin, making 1P far less profitable for premium quality brands in many cases.
It’s also clear that Amazon provides little guidance to its vendors. For example, the platform does not assist in overall strategy, brand positioning, merchandising, or provide technical support. Instead, Amazon simply buys the products. The retailer is also very aggressive at negotiating lower costs from their 1P suppliers by tacking on co-op advertising fees, return fees and chargebacks. And it’s not unusual for Amazon to disregard Minimum Advertised Pricing (MAP) guidelines to sell products for less than a supplier expects.
Getting an Invite to Amazon Vendor Central
As mentioned, access to Vendor Central is limited to the companies that are invited to participate by Amazon. It is an exclusive program that typically targets merchants with a record of success within Seller Central or other direct-to-consumer sales channels.
While there’s no set method for obtaining an invite, there is a way to stand out among the businesses in contention and increase your chances. Essentially, brands interested in joining the Vendor Central program should focus on dominating the marketplace as a Third-Party Seller Central brand. An Amazon seller that has demonstrated a consistent ability to keep products in stock despite high demand and that has a stellar reputation among buyers is the most likely to catch the attention of Amazon.
In some cases, manufacturers that focus primarily on the wholesaler market can also be tapped by Amazon for a Vendor Central account if they can make an impression at a trade show or product fair. In either scenario, an invite will depend on the potential Amazon sees in a particular product. High-demand, low-cost items that will move quickly are the most appealing.
Unfortunately, companies invited to the Vendor Central program should not expect to have the opportunity to negotiate the terms of the relationship. Most of the time, Amazon will make an offer for the vendor to accept or decline. While a prominent brand with an established following may be able to seek adjustments, other companies will have to determine whether the offer is worth considering as is. Once an agreement is made, sellers will be able to create and access a Vendor Central account that will be used to manage the new relationship.
Fulfilling Vendor Central Orders
Companies with an active Vendor Central account can expect to receive purchase orders from Amazon, typically weekly. In cases where demand for a product is exceptionally high or outpaces expectations, purchase orders can arrive even more frequently. This is because Amazon prefers to regularly order smaller quantities of products to limit the risk of taking on inventory that they cannot sell.
Since Vendor Central ordering is automated, new 1P sellers may have to wait longer than expected to receive their initial order from Amazon, and it may be smaller than anticipated. However, as a product establishes a history and proves its ability to move out of Amazon’s stock and to shoppers, orders will likely grow.
As mentioned, the Vendor Central model means that Amazon is responsible for getting the products into the hands of its customers. As a 1P seller, your responsibility is to fulfill the purchase orders placed by Amazon and provide bulk shipments of your products according to Amazon’s requirements. Therefore, running out of stock on Vendor Central products can be a costly problem if not handled appropriately. Unavailable items, whether it’s a temporary or permanent issue, need to be marked accordingly in the Vendor Central dashboard to prevent Amazon from including them in their purchase orders. Placing inventory on backorder or a substantial number of cancellations can result in an expensive Amazon chargeback, which is a fee for not being able to provide the products ordered.
Fortunately, the Vendor Central features allow brands to access a broad range of information to help them manage their relationship with Amazon. In addition to providing a place to upload images, costs and details about products, 1P sellers can submit current shipment information related to orders from Amazon. The Vendor Central hub provides valuable reports about product sales, inventory forecasts and consumer behavior. For an experienced Vendor Central seller, these metrics can be an extremely useful tool to optimize sales and keep the brand in good standing with Amazon.
Vendor Central Pricing Challenges
The simplicity of a 1P relationship may be most evident when it comes to pricing. As an Amazon 1P vendor, products are sold to the online retailer at a wholesale price. Amazon can then set the retail price that customers will pay without consultation or approval from the vendor. Typically, this lack of price control is less attractive for products with high retail margins.
Amazon may also ask its vendors to reduce prices on certain products via the Vendor Central dashboard. Upon receiving such a request, businesses must choose whether to accommodate the reduction in full, lower the price partially, or discontinue selling that product to Amazon.
It’s also important to note that Amazon does not always follow Minimum Advertised Pricing (MAP) guidelines and may sell products for less than a supplier expects. Amazon’s primary concern is providing competitive pricing to shoppers, and a MAP agreement limits their flexibility. The best way to minimize the chances of a sale that violates MAP is to avoid overstocking Amazon with your products and to police pricing at other sales channels carefully. There’s little doubt that Amazon will reduce prices below the MAP to clear its inventory or to avoid being undercut by a competing marketplace.
Advertising your Vendor Central products
While it may seem surprising, Amazon advertising plays a critical role for Vendor Central sellers. Even though Amazon is responsible for the product listing and selling a vendor’s products, demand is what keeps the orders coming. For this reason, many Vendor Central participants undertake serious advertising campaigns to promote the products that Amazon is buying from them and selling to shoppers.
While there were previously significant differences between the advertising options for vendors and sellers, Amazon has tried to consolidate its advertising services recently. Currently, Amazon PPC and other advertising tools for Vendor Central are much the same as those offered to Amazon’s Seller Central brands. Sponsored Product Ads, Sponsored Brands and Amazon Display Advertising are all viable options for both vendors and sellers in the Amazon marketplace.
Although an Amazon Brand Registry account is not a requirement for Vendor Central, it is worth mentioning that it is required to take advantage of Amazon marketing. Also, while advertising as a vendor is optional, it can significantly boost product sales and add more stability to a vendor relationship with Amazon. This can be especially true when attempting to ramp up demand for new products that customers are unfamiliar with and can benefit significantly from an Amazon ad campaign.
Getting help with your Vendor Central account
Much like 3P sellers, 1P sellers can struggle to receive consistent account support from Amazon. Trying to resolve problems or find clear answers to complicated questions can be a frustrating experience. In some instances, a vendor manager is assigned to new vendors, at least temporarily, and can ease some of the headaches. However, this is not always the case, and these experts often move on to other clients after a certain amount of time. As a result, smaller vendors are regularly left to fend for themselves when trying to navigate Vendor Central successfully.
An outside Amazon consultant is an alternative worth considering for vendors that find the relationship difficult to manage. An Amazon expert will likely have the knowledge or connections to troubleshoot issues or avoid them in the first place. In addition to helping Vendor Central sellers navigate many of the challenges mentioned above, they provide brands with a reliable point of contact for their Amazon questions and optimization.
The Vendor Central vs. Seller Central Decision
E-commerce is continuing to evolve. As brands compete in a larger and more competitive environment, it is more important than ever for brands to control their own destiny on the Amazon platform. Unfortunately, this isn’t easy to achieve when a retailer sits between the brand and the end customer.
While each Amazon business will need to approach the question according to their unique circumstances, we expect the long-term trend will be for brands to sell directly on Amazon to increase margins, control their brand, manage the customer experience, and have better access to data.
Fortunately, brands can control their Amazon channel and choose the model best for them in this fast-changing industry. But, brands need to understand the necessary steps and have realistic expectations when switching from a retailer-based model to direct sales. When planning this switch, your Amazon product listings, Amazon storefront, and overall demand on Amazon should stay constant, if possible.
Find the right path to Amazon success
Amify’s clients enjoy a long-term partner with more than a decade of experience helping premium brands achieve their Amazon goals. If overcoming Amazon Vendor Central obstacles is proving more challenging than you expected, or a consumer-direct 3P sales model seems appealing, industry-leading expertise can be the first step to growing your business. Our results-oriented approach and up-to-the-minute Amazon listing services can outperform the competition and unlock your product’s full potential. Contact us today to learn more.
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