From our Depsters December 13, 2019
The Amazon hybrid model: combining vendor & seller central
Manufacturers and retailers have multiple options for selling their goods via Amazon. Two forms of cooperation with the retail giant are available: Vendor Central and Seller Central.
More and more suppliers are opting for the Hybrid Model and are acting both as vendors and sellers. So what do you need to keep in mind when choosing this model? We will give you answers to these and other questions:
- What is the Hybrid Model?
- What are the advantages of the Hybrid Model?
- What are the pitfalls of the Hybrid Model?
WHAT IS THE HYBRID MODEL?
With the hybrid sales model, the manufacturer acts simultaneously as vendor and seller. Vendors sell their goods to Amazon and take on the supplier role. The e-commerce giant then owns the products and takes care of logistics, distribution and shipping. In this case, Amazon is also responsible for pricing and returns management, including customer support.
Sellers are responsible themselves for selling their goods. They use Amazon as a marketplace and are product owners at all times. Users of the Seller Central benefit from complete control over the selling prices and inventories. They get in direct contact with end customers and manage shipping and returns. Optionally they can book Fulfillment by Amazon (FBA). In this case, Amazon manages shipping and returns, among other things.
The Hybrid Model combines both forms of distribution. This type of business relationship has both advantages and risks.
ADVANTAGES OF THE HYBRID MODEL
Basically, the Hybrid Model promises more flexibility and greater safety to the manufacturer. With the help of a well-wrought marketplace strategy, you can profit from the model’s advantages:
- Ensure product availability
- Better price control
- List products faster
- Obtain specific analysis data from Seller Central
- Logistical advantages
- Avoid profitability problems
Ensure product availability
Vendors rely on Amazon to order goods from them to ensure availability. There can be many different reasons why Amazon does not place orders, such as low demand, insufficient profitability or poor performance as a supplier.
If Amazon loses the Buy Box due to lack of product availability, you have the option to “move up” with your seller account and avoid an out of stock situation since sellers have full control over their stock. In order to end up with the Buy Box, a good seller performance is also essential. Influencing factors for this are, for example, price, delivery conditions and customer evaluations.
In the vendor program, Amazon acts as a retailer and executes price adjustments independently. Sellers have price autonomy over their products. Therefore, they are more flexible and independent when it comes to pricing.
List products faster
Sellers can make their products available on Amazon in a shorter time. They are able to put products online immediately and this applies to all country marketplaces. Vendors usually must wait several weeks for Amazon to upload an item.
To some extent vendors do not have access to particularly meaningful analysis data, and only receive relative values or index values. With a seller account you receive meaningful information on important key figures, such as the Conversion Rate.
Amazon classifies some products as problematic for several reasons and refuses to store them. These are, for example, articles that are declared as dangerous goods.
In the Hybrid Model, you have the option to distribute these products via your seller account, as the products you offer via Fulfillment by Merchant (FBM) do not have to be stored by Amazon.
Avoid CraP status
Products whose sale Amazon classifies as non-profitable are internally referred to as CraP products. Amazon will not reorder these Can’t realise any Profit items. The most common reasons for the CraP status are price pressure and high shipping and storage costs in relation to the value of the goods.
POSSIBLE RISKS OF THE HYBRID MODEL
A combined sales strategy should be well designed, as the Hybrid Model also has some pitfalls. Amazon may not accept the seller account or may block individual products from being sold through it.
The Hybrid Model presents a series of challenges for brand manufacturers:
- Higher workload
- Customer satisfaction
- Country-specific laws
- Competition with own wholesale clients
The Hybrid Model involves the management of Seller and Vendor Central. The prerequisite for this is a basic understanding of both systems. In addition to your vendor account, as a seller you are responsible for storage (including personnel costs), inventory management, customer orders, customer support and taxation.
Amazon focuses on being the most customer-friendly company in the world. Vendors benefit from this, as the giant retailer is particularly customer-oriented when it comes to shipping, customer support and returns processing.
With the seller model, these tasks are one’s own responsibility. Sellers are also forced to meet Amazon’s high demands regarding customer satisfaction. If returns processing or customer service do not work satisfactorily, the seller is rated badly by Amazon customers. This in turn has a negative impact on the overall seller performance. In the worst case, Amazon blocks the seller account.
For the vendor program, Amazon as the distributor is responsible for the legal issues arising from international sales. In the case of a seller account, however, companies must familiarise themselves with the country-specific laws, such as the VAT Directive. As a seller, you are bound by all legal requirements of the country in which you are selling.
Competition with own wholesale clients
The Hybrid Model results in a direct and obvious competitive situation with your distributors. Your seller account competes with your wholesale clients for the Buy Box.
The choice of the right model depends on the overall e-commerce and distribution strategy of the company and must be revised in each case. When choosing the Hybrid Model, brand manufacturers must be aware of the amount of work involved. There is also the danger that Amazon blocks the seller account and does not give a valid reason for such action.
In some cases, the Hybrid Model offers a reasonable sales alternative and you can benefit from the advantages of both the vendor and seller program. However, the differences between the two models are increasingly blending into each other.
In addition, Amazon is progressively limiting the freedom of choice between the two models and is specifying suppliers whether they should act as sellers or vendors. It even looks as if both programs will be merged into a “One Vendor Model” in the foreseeable future.