Vendor Central or Seller Central?
1P vs. 3P Amazon Strategies
Understanding the Key Tradeoffs of Different
Distribution Strategies for the Amazon Channel
When a brand owner contemplates selling on Amazon, he or she has a big choice to make:

1P: Sell first-party, wholesale, directly to Amazon Retail, using the Vendor Central
interface.
OR

3P: Sell third-party to consumers through the Amazon marketplace, using the Seller
Central interface (whether the brand sets up its own 3P seller account, or works with
partner 3P sellers focused on the brand).
Given the complexity of the Amazon marketplace, and the desire of brands to control their own
destinies, we are seeing a significant move towards brands either setting up their own thirdparty seller accounts, or working with sophisticated third-party sellers who will manage the
brands’ brand equity and product feeds, while respecting pricing and ensuring constant
availability of product through the Fulfillment by Amazon program.
In this paper, we discuss the key issues and trade-offs of selling wholesale to Amazon Retail vs.
selling through third-party Amazon sellers, and outline the risks involved in each approach.
1. Control Over Brand: The brand should have a “brand equity” plan for the Amazon
marketplace – how do they want their products displayed on Amazon? What information is
important to display?
Even brands with tight control of their distribution channels find that their product still
surfaces on Amazon somehow. It is important that they are properly represented so
Amazon customers don’t get the wrong impression of the brand – proper images, product
classification, titles, product descriptions, etc. are all important to ensure that customers
aren’t disappointed. Quite often, uncontrolled third-party sellers put the minimum amount
of time into creating a product listing, resulting in the products looking cheap, shoddy or
confusing to customers.
As a wholesaler to Amazon Retail, a brand owner can list their products accurately and
completely, and ensure that their products are represented in the fashion that they want.
And if the brand is willing to pay Amazon Retail substantially for premium product detail
page merchandising (called A+ detail pages), they can get superior embedded images and
videos on its pages – features not currently available through third-party listings.
If working through a third-party seller or as a third-party seller themselves, the brand owner
may have a slightly higher level of control over their brand (if they are proactive in
submitting data), as they don’t have to deal with Amazon Retail deciding to alter the
branded content for its own purposes (something that can be avoided if the brand owner
submits data through the third-party Brand Registry program).
Advantage: EVEN
This material was originally published in Web Retailer in January 2016.
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2. Control Over Pricing: Amazon Retail will state that it will honor a brand owner’s MAP
policies. And yet, that is almost never true. Because Amazon Retail gives itself the “out” that
it can match any other seller’s price (sellers on Amazon.com or other sales channels), it
takes only one MAP violator anywhere for Amazon Retail to lower its prices and break MAP.
Once the price erosion starts, it is very hard to get Amazon Retail back to MAP. And given
that Amazon Retail’s long view means it is prepared to lose money on individual
transactions, the price erosion often can go so far as to make the MAP price points
meaningless as they are only intermittently followed on Amazon.
As a third-party seller, the brand owner has 100% control over the prices they charge. If the
brand owner instead works closely with a trusted third-party seller, that control over pricing
can be tight, as long as the third-party seller honors the policy.
Advantage: Third-Party
3. Sales Velocity: Amazon Retail has been known to tell the story to brand owners that overall
sales will grow substantially once Amazon Retail starts carrying the brand.
Let’s break this claim down into a few different situations. First, if there are already thirdparty sales of the brand on Amazon, and now Amazon Retail starts carrying the product, yes
overall sales may grow, but the majority of sales will shift almost completely away from
existing third-party sales to Amazon Retail sales, where the brand owner has a lot less
control over pricing.
In situations where existing third-party sales are already processed through Amazon’s
Fulfillment by Amazon (FBA) program, it is not likely that more incremental sales will
happen, as customer conversion doesn’t increase much from FBA to Amazon Retail fulfilled
orders.
In situations where the brand isn’t sold at all on Amazon today, and now Amazon Retail
starts carrying it, yes sales will grow from zero to something, but again the issue remains of
how much control the brand owner will retain over its brand being sold through Amazon
Retail.
Amazon Retail will also set sales targets that it wants each of its brands to generate each
year. If the sales aren’t happening, Amazon Retail will expect brands to spend on
incremental merchandising, or else the amount of attention the Amazon vendor manager
spends on the specific brand is likely to drop significantly, in favor of a brand that is
spending on merchandising.
Advantage: Third-Party
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This material was originally published in Web Retailer in January 2016.
4. Support from Amazon: If you sell through Amazon Retail, and you are not a big brand, good
luck getting a hold of anyone regularly unless you are paying at least $250k for dedicated
service.
As a third-party seller, you most likely won’t get an “account manager”, but Seller Support
does respond and fix problems with your listings and inventory and payments, etc.
There is no comparably responsive Vendor Central Support like this for Amazon Retail
clients. As a third-party seller, you have much more flexibility updating product images,
titles, bullet points, description, whereas a wholesale client must have all of its images and
content approved by Amazon Retail (and that part of Amazon is often a lot more
conservative in what it allows).
Advantage: Third-Party
5. Costs: Amazon Retail will negotiate hard on wholesale pricing, and typically will ask for a
payment of 4-10% to help cover so-called marketing or slotting costs. As sales increase,
Amazon Retail may try to re-negotiate down for lower prices, or request more fees for
marketing or on-going account support.
On the other hand, when product is sold through the third-party channel, the commission
fee that is due to Amazon is fixed by category as a percentage of the selling price (typically
between 8%-20%), and there are no additional selling fees to consider.
If the third-party seller is using Amazon’s FBA program, then there are other specific
fulfillment costs, but those are competitive with the costs a seller might incur themselves
fulfilling an order. All in all, we give the advantage to third-party, as costs are much more
predictable.
Advantage: Third-Party
6. Tax Nexus: Selling to Amazon Retail is unlikely to create any new sales tax nexus for the
brand, whereas selling as a third-party seller may create tax nexus if the brand is storing
inventory in Amazon’s FBA fulfillment centers. On the other hand, if the brand has aligned
itself with a third-party seller that does the actual selling, there is less likelihood that
additional tax nexus positions have been created for the brand.
Recently, Amazon Retail has been very vocal about this issue with prospective brands,
potentially creating a scare for brands that don’t already have a multi-state presence.
While additional tax nexus would require additional tax collection and remittance, there are
very good external providers of these services for the Amazon marketplace, thereby making
this issue manageable if the will to sell through third-party is strong.
Advantage: Varies
The best option differs on a case-by-case basis, but most likely an advantage for Amazon Retail.
This material was originally published in Web Retailer in January 2016.
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7. Margins: Selling to Amazon Retail will produce typical wholesale margins, while selling to
third-party sellers will also produce typical wholesale margins (without any of the marketing
or slotting fees that Amazon Retail charges). The wholesale margins will be squeezed over
time, as Amazon Retail pushes for lower prices, or forces the brand’s hand by sourcing the
same products at a lower cost through indirect channels.
If the brand owner sells to third-party sellers, they will generate wholesale margins, without
the cost of fees that Amazon Retail typically charges brands for marketing and on-going
support.
If the brand owner chooses to sell as a third-party seller themselves, that will produce retail
margins, but there are obviously additional costs involved in running a B2C operation.
Advantage: Third-Party
There’s a big advantage for third-party here, if the brand owner is running an efficient B2C
business on Amazon.
8. Marketing & Promotional Opportunities: If you are willing to pay Amazon Retail for
additional merchandising, there are more merchandising options available through Amazon
Retail than through the third-party platform.
Keep in mind, that unless a brand is considered one of the top 10-15 strategic brands within
a major category on Amazon (e.g., electronics, tools, apparel), Amazon Retail is not going to
pay as much attention to them without the brand spending heavily on merchandising (the
brand’s catalog will be treated as just more widgets to be added in the already massive
300+ million listings catalog).
On a positive note as an Amazon Retail supplier, there are a large number of marketing and
promotional tools that simply are not available to third-party sellers, including Brand/Store
Page, A+ Detail Content, Vendor Powered Coupons, Headline Ads, and the Amazon Vine
program.
While a third-party seller can create a pricing promotion, creating awareness of that pricing
promotion is very difficult, though Sponsored Product Ads and Amazon Marketing Service
programs can be used to drive awareness of third-party offers.
Interestingly, third-party sellers are more able to be proactive in soliciting feedback from
customers than if they were first-party wholesalers to Amazon Retail. And because recent
feedback greatly helps with the A9 search algorithm within Amazon, it’s easier for a thirdparty seller to help itself with higher search results on Amazon through proactive feedback
requests.
We know of examples where third-party sellers started selling wholesale to Amazon Retail,
and saw their search results drop significantly relative to existing third-party competitors
that were still able to solicit feedback. That being said, the marketing and promotional
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This material was originally published in Web Retailer in January 2016.
opportunities certainly favor Amazon Retail, even if the wholesaler has to pay for these
advantages.
Advantage: Amazon Retail
9. Staying In Stock: It’s quite common for Amazon Retail not to manage to be in stock all the
time, often unpredictably leading brands to have no product coverage. Amazon Retail often
seeks to get the full catalog from a brand initially, but will slim down what it carries over
time, though rarely will it notify the brand that Amazon Retail has chosen to stop carrying
certain items.
On the other hand, if the brand is selling through a third-party seller or as a third-party
seller themselves, the brand has complete control over when and what product is made
available for sale on Amazon.
Advantage: Third-Party
10. Day-to-Day Involvement: If you are selling to Amazon Retail, you will likely need someone to
check orders and periodically review product feed data to make sure it’s current and
accurate. Through Amazon’s APIs and Vendor Central portal, the process of keeping on top
of inventory is reasonably straightforward.
If selling to third-party sellers, the process of wholesaling is no different than most other
wholesale channels.
If selling as a third-party seller, then you will need to have staff dedicated to handling
customer inquiries, individual order processing, inventory replenishment, pricing, product
feeds and so on. A good third-party seller partner will, of course, be able to handle all of
those responsibilities within their current operations.
Advantage: Depends on control being sought
11. Getting Paid: While Amazon Retail typically offers 2% Net 30, Net 60, or Net 90 terms, thirdparty sellers are typically paid every 14 days or every 7 days.
Some brands selling to Amazon Retail have been asked to hire third party companies to
provide proof of delivery documents to Amazon, to show that inventory actually made it to
Amazon’s fulfillment center, before payment would be issued (even though the inventory
balances in Vendor Central accurately reflected receipt by Amazon).
Others were told that they needed to pay Amazon $25K in co-op fees in order to receive
about $250K in accounts receivable (Amazon refused to just deduct the co-op portion from
the company’s receivable balance). We have never heard of third-party sellers in good
standing having problems getting paid.
When the seller gets paid on a timely basis, cash flow management is much easier to do,
and so investments in further growth can happen. When payment isn’t made on time, the
implications to a business can be staggering, and we have seen first-hand how highly
This material was originally published in Web Retailer in January 2016.
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leveraged companies have had to let go of staff and drop acquisition plans all because of an
unexpected delay in payment.
Advantage: Clearly Third-Party
12. Shipping and Accounting: Amazon Retail is EDI-based, and arguably antiquated for receiving
POs, acknowledging, and processing. Amazon Retail also requires wholesalers to break up
shipments to often as many as a dozen fulfillment centers. Amazon Retail does provide
inventory forecasts for suppliers, but only for 60 days in advance.
The third-party FBA replenishment system allows sellers to palletize and ship to 3-4
fulfillment centers. Third-party sellers must forecast inventory demand themselves and
create replenishment orders regularly to stay stocked.
Advantage: EVEN
The tradeoff here is an easier fulfillment process for third-party sellers, but Amazon Retail takes
the burden of forecasting and creating replenishment orders for wholesale suppliers.
13. Reporting & Analytics: Amazon Retail Analytics do cost extra but offer valuable insights –
such analytic capabilities are not available to third-party sellers.
But the third-party Seller Central portal produces much better accounting and general sales
reports than Vendor Central.
Advantage: EVEN
14. Customer Service: If the brand owner sells to Amazon Retail, Amazon takes care of all
customer service, including customer and competitor fraud issues.
If the brand owner sells to other third-party sellers, customer service becomes the
responsibility of the third-party seller, where there can be a lot more variability on
delivering customer service adequately.
If a third-party seller uses FBA, Amazon will help with many of the customer service issues,
but the seller still has to deal with customers (or competitors posing as customers) making
false claims about receiving fake products. Given that most brands have a wide range of
competitors also on Amazon, it remains more challenging to counter dishonest competitors
if the brand uses third-party sellers or sells third-party themselves.
Advantage: Amazon Retail
15. Multi-Channel Fulfillment: If you sell to Amazon Retail, you cannot use the same inventory
to fulfill multi-channel orders, whereas if you sell through a third-party seller account using
FBA, you have the option of using multi-channel fulfillment.
This may not seem like a big deal in most cases, but many brand owners seeking to build a
multi-channel sales strategy don’t want to split inventory or have to deal with individual
order fulfillment capacity as its overall business grows.
This material was originally published in Web Retailer in January 2016.
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Advantage: Third-Party
16. Selling into Canada, Mexico, and EU Markets: If you sell to Amazon.com Retail, you are
dealing only with the US marketplace, so your products will be sold only on Amazon.com. If
you want to wholesale into Amazon.ca or Amazon.com.mx, those require separate vendor
discussions.
Fortunately, if you are selling through a third-party account (whether with FBA or merchantfulfilled orders), you can create a unified North American account (covering Canada, Mexico
and the US) and a unified European account, and sell into multiple marketplaces from those
accounts.
Advantage: Third-Party
17. Pay-Per-Click (PPC):When a product starts being sold on Amazon (whether through Amazon
Retail or third-party sellers), Amazon will start bidding on pay-per-click keywords that it
believes will drive customers to the Amazon site.
If a brand owner sells only through their own website, they will face new competition for
the keywords on which they spend PPC money once the brand is being sold on Amazon.
However, these same keywords are likely already being bid on by Amazon for competitive
products, so we do not see this as a big deciding factor.
Advantage: EVEN
18. Cannibalization of Sales from Own Domain: Brand owners that sell on their own websites
worry that selling on Amazon (either through Amazon Retail or third-party) will decrease
the sales on its own website.
It is usually the case that some sales decrease will happen, but there is usually a big increase
in overall sales, as the brand is now exposed to more than 160+ million US customers that
are already shopping for competitive products on Amazon.
Advantage: EVEN
So Who Wins: Vendor Central or Seller Central?
Today, the number of benefits of selling as a third-party through Seller Central outweigh selling
directly to Amazon Retail via Vendor Central.
While any one benefit of selling through Amazon Retail may carry enough weight for a brand
owner to select it over a third-party seller relationship, the choice of distribution is a
complicated one to make – and will have ramifications across a brand’s whole distribution
strategy.
This material was originally published in Web Retailer in January 2016.
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For more details on how to drive your brand through a third-party Amazon seller position
(providing you the ability to build and control your brand equity, product sales and pricing,
product marketing & optimization, all while capturing retail margins), then please contact:
Joseph Hansen
Founding Partner, Buybox Experts
[email protected]
(801) 787-0880
James Thomson, Ph.D.
Partner, Buybox Experts
[email protected]
(206) 999-0109
This material was originally published in Web Retailer in January 2016.
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