Amazon

When to Consider a Hybrid Selling Model

Seller vs Vendor Central

Most sellers are aware that Amazon provides two primary methods in which you can sell on the Amazon marketplace: Seller Central and Vendor Central. We often work with brands who have either considered or sold using both “centrals” and have helped them develop what is called a “hybrid selling model.” Although this post is focused on the strategy and analysis of both platforms, let’s begin by quickly outlining the difference between vendor and Seller Central.

VENDOR CENTRAL

Commonly referred to as “1P” or first-party, the primary differentiator with Vendor Central is who your ultimate customer is — in this case it is Amazon. Amazon will issue purchase orders (POs) to your brand with products being purchased at a predetermined fixed rate. You will then ship to one or many Amazon fulfillment centers and boom, the process is complete. Registration for Vendor Central is by invitation only.

SELLER CENTRAL

Think old-school eBay. You are a “3P” or third-party seller with products to sell and are simply leveraging Amazon’s various global marketplaces to sell your goods. In this scenario, your customer is the individual buying your products. Products can be either FBM (fulfilled by Merchant) or FBA (Fulfilled by Amazon). Amazon collects a variety of fees for allowing you this privilege. As a 3P seller, you are completely responsible for all aspects of your Amazon channel: inventory management, advertising, listing management and SEO, proper tax setup, etc. Registration for Seller Central is open to all eligible businesses and individuals, no invitation is required.

THE HYBRID MODEL

Now that you understand at least the basics of Seller and Vendor Central, let’s take a look at how — and why — you would consider a hybrid selling approach for your brand. This analysis makes two big assumptions: (1) you have received an invite to Vendor Central and Amazon is actively purchasing inventory from you, and (2) you have a seller account in good standing. 

The name “hybrid” in Amazon’s case essentially means you are actively selling products through both your vendor and seller accounts. Certain products may be exclusive to one platform or you may have duplicate offers on each.

RETAIL PRICING

Many brands are worried about enforcing MAP (minimum advertised price) guidelines, and Amazon should be no different. Amazon is notoriously nonchalant about enforcing MAP policies, and this nonchalant-ness is typically mirrored on Vendor Central (VC). Remember, when you sell on Vendor Central, Amazon is your customer and they are able to (and typically do) set whatever retail price they want, as long as it provides them the margins their algorithm needs.

Seller Central (SC), on the other hand, allows you to set whatever retail price you want and can be changed in an instant. Sure, you may not get the sell-through you want with a higher price point, but hey, that is your call as a brand owner.

PROFIT MARGINS

In the VC model, brands negotiate wholesale or distributor pricing with Amazon for their products. In SC, you are left to your own devices to make sure you maintain the profit margin you need. Here is a side-by-side comparison on a widget with an MSRP of $20 and a wholesale price to Amazon of $14:

You can see in this very oversimplified example, the Vendor Central option would make sense for this particular product on a pure margin basis. As a 3P seller, you are charged a per unit FBA fee and a referral/commission for selling on Amazon — as a vendor you are not.

When working with brands that have the ability to adopt a hybrid model, we always begin by performing the 2 financial analyses above on a SKU-by-SKU basis. A smart business always knows their numbers.

CATALOG MANAGEMENT

After a profitability analysis has been performed on each of your SKUs, we can start deciding which products should be sold on which platform. Let’s take a look at 5 different SKUs, lovingly titled product “A” through “E,” where we have performed a profitability analysis:

In order for the hybrid selling model to work, we look to see which platform provides the highest net margin for each SKU. We see that products D and E make the best financial sense on VC, products A and B do the best on SC, and product C is platform agnostic. If this were a client of ours, we would setup hybrid offers on products C, D, and E. Why? Inventory management and advertising.

INVENTORY FORECASTING AND MANAGEMENT

Despite all of Amazon’s intelligence, marketplace data, and high-tech infrastructure, they will never know your business as well as you do. This includes the ability to forecast inventory needs. Remember when you are selling via Vendor Central, Amazon is solely responsible for issuing POs and maintaining sufficient inventory of your products. Unless you can negotiate larger POs with a buyer/vendor manager, there may be instances of sales surges that can wipe out Amazon’s inventory. Nothing is worse than running out of stock. 

In the hybrid model you will have an offer for products C, D, and E, but price them in such a way so as not to steal the buybox from Amazon. The trick here is to make sure your SC offer is second in line for the buybox (usually based on pricing). This allows you to continue selling at a more profitable level through VC, while ensuring you have a secondary/backup offer from SC.

ADVERTISING CONSIDERATIONS

Sponsored Products, as you may know, require you have the buybox in order for the ads to be eligible to run. When you have a hybrid setup for multiple SKUs, it is imperative that you duplicate your Sponsored Product campaigns in the event of a buybox “swap.” You’ve worked hard to setup duplicate offers, sent inventory to FBA, but don’t want to stagnate total sales by forgetting the advertising component. 

While it requires you to duplicate your advertising efforts, it is well worth the peace of mind knowing that your brand will continue to thrive despite changes in buybox or shortcomings in Amazon’s PO system (remember the PO scare from 2019?).

FINAL THOUGHTS

For the sake of simplicity we chose to focus on the few variables above we feel are critical to the hybrid model. However, every brand is different and considerations should be made depending on your unique business position. We have seen, through experience, this model can provide both financial strength and insurance knowing your brand will continue to grow. 

Jeff Bezos stated in the 2018 Amazon Letter to Shareholders, “To put it bluntly: Third-party sellers are kicking our first party butt. Badly.” (2018 Letter to Shareholders) As an agency, we advocate strongly for brands to utilize Seller Central as much as possible, but also recognize the advantages of Vendor Central. We believe a brand will always care and invest more in its own success than anyone else. Do not let the growth potential of your brand be completely in the hands of another.

Pitted Labs has expertise in developing successful hybrid selling strategies for brands, both small and large. Whether it be an onsite executive strategy session or over-the-phone planning call, we’d be happy to discuss your specific needs and determine how to best position your brand for success. Click this link to contact us and schedule a free initial call with a member of our Account Management team!