As covered in one of our previous articles, Amazon provides two distinct platforms for selling products: Amazon Vendor Central or 1P – for first-party; and Amazon Seller Central or 3P – for third-party.
The goal of this article is to break down the differences between Amazon Vendor Central and Amazon Seller Central. We’ll also cover some the similarities between the two platforms. By the end of the article, we aim to have persuaded you to consider the merits of using both selling platforms (we call it the “hybrid strategy”) as you and your products embark on your quest for domination of the digital marketplace.
Amazon’s Vendor Central is the first-party platform where Amazon places weekly purchase orders for a vendor’s products at a wholesale cost. This direct relationship in Amazon Vendor Central is contrasted by a third-party relationship in Amazon Seller Central, where Amazon is merely a channel through which the merchants sell their products directly to the customer.
If you are the owner of the “brand” and/or you directly represent the manufacturer, Amazon Vendor Central/First Party (1P) is likely your best option, but you must be aware that this platform is invitation-based only. Amazon’s Vendor Central is where companies that enjoy a direct relationship with Amazon go to conduct their daily business, but only after they’ve received a vendor invite and agreed to Amazon’s terms of direct business.
Difference #1: Pricing and Economics
Merchants of Seller Central (3P) list their products at a retail or list price and then pay Amazon for the use of that virtual real estate and the related costs of the actual physical real estate in a warehouse when that seller uses Amazon’s fulfillment services (known as Fulfillment by Amazon or FBA).
Basically, Vendor Central pricing and economics are based on wholesale costs, while Seller Central is focused on retail prices. So you see, Vendor Central control rests with Amazon, while Seller Central control is mainly determined by the sellers/merchant. Amazon Vendors sell products directly to Amazon at a wholesale price. Then Amazon issues purchase orders to these vendors and the vendors fulfill those purchase orders and ship their products directly to Amazon’s ever-growing assortment of mega-warehouses.
In Amazon parlance, these are known as Fulfillment Centers – and if you ever get the chance to tour one of these, do it! But whatever you, do bring comfortable walking shoes. These Amazon FCs are massive! In case you’re curious as to how you can quickly learn to spot a First Party offer, it’s simple, just be on the lookout for the words “Ships from and sold by Amazon.com.”
Difference #2: Who Receives Purchase Orders, And How Often
Vendors receive Amazon wholesale purchase orders for their products weekly (usually several every week, 52 weeks a year), while Seller Central merchants (especially those who fulfill their own orders instead of using FBA) must be equipped to receive customer orders constantly. This makes the situation for Vendors a bit more stable than for Sellers, as they receive more regular purchase orders.
Difference #3: Amazon Business Terms for Vendor Central and FBA for Seller Central
Vendors must adhere to a range of Amazon “business terms” which are deducted monthly from Amazon-to-vendor payments, besides the wholesale pricing arrangement. On the other hand, Sellers pay Amazon $40 per month for their storefront as well as a simple category-based referral fee and/or an FBA (Fulfillment by Amazon) fee when Amazon manages fulfillment.
The 1P Vendor’s business terms, which are updated annually, are essentially comprised of four key elements: Base Accrual; Damage Allowance; Freight Allowance and Payment Terms. We’ll quickly break down and define each “term”, so we’re all on the same page.
Base Accrual – sometimes (depending on the product category) also known as MDF (Market Development Funds) or co-op marketing, the base accrual is defined by Amazon as the dollars that help cover “activities that drive impressions and sales to your products such as in-store promotions, PR pitches, merchandising activities, emails, paid search and sponsored links to your products, associate referrals from external websites, basic site placement, and improvements on your catalog.” Amazon expects vendors to support their efforts to grow the vendor’s brand and to fully support their marketing programs.
Damage Allowance – also seen in many agreements as just the simple acronym “DA” is essentially the costs Amazon incurs for items that may not survive the journey from your shipping department and loading dock to the destination Amazon FC. In lieu of actually returning damaged items back to the vendor when forklift “incidents” happen, 1P vendors are required, as a result of their “DA” terms, to provide Amazon with an allowance of a negotiated percentage of net receipts from the vendor and based on cost price.
Amazon measures virtually everything, and if your business is known to have weak or ineffective packaging or a propensity for dented/torn packages or issues with forklifts or pallet jacks, you can expect to see your damage allowance increase annually.
Freight Allowance – Amazon’s cross-dock (aka IXD) Fulfillment Center network offers the easiest method for 1P vendors to get their freight to Amazon each week and in some instances, even more frequently. Over the past several years, Amazon has made massive investments to this IXD network. What it means to and how it translates to vendors, is fewer, but larger, purchase orders going to fewer Amazon fulfillment centers.
From Amazon’s perspective, and ideally from a vendor’s as well, this means less time and less effort spent processing orders which in turn enables faster replenishment, lower out of stock rates for vendor’s products and considerably more sales opportunities.
Payment Terms – Pay attention here, because this is where you, as a potential new vendor, may have the most flexibility to get Team Amazon to “bend” a bit. Amazon Vendor Central typically offers a 2% early discount and Net 30, Net 60, or Net 90 terms whereas third-party sellers are typically paid every other week and in some categories once a week.
That means that if Amazon does not pay the vendor early – in these examples that would be by day 29, day 59 or day 89 and where they get a 2% discount, then Amazon would pay the net amount of products purchased – minus terms deductions.
Difference #4: Frequency of Payment
Amazon pays vendors monthly. As noted earlier, depending on payment terms of their agreement, vendors get paid within 30, 60 or 90 days after they’ve submitted the invoice. Merchants in Seller Central are paid twice per month, every 14 days.
Difference #5: Marketing, Promotions and Website Merchandising
In addition to the larger sale volumes, it’s been our experience over the years here at Zanoma that there is a distinct advantage with Vendor Central when it comes to marketing tools, merchandising and promotional opportunities. Vendor Central is capable of affording more “marketing levers” and outshines Seller Central for promotions and merchandising opportunities.
The potential of much larger sales volumes (than Seller Central) also exists in the Vendor Central paradigm. Which means if you, as the 1P direct vendor, have a proven product with demonstrated, ongoing Amazon customer demand, you could be eligible for the Direct Import program.
Through this program, Amazon orders containers of products intended to be shipped (on cargo ships, no less) from the manufacturing location directly to a targeted US-based port, near an Amazon Fulfillment Center. This program bypasses the vendor’s warehouse and shipping teams and can really save a huge amount of time and headaches. To be clear, the Direct Import program is a coveted opportunity and typically not an option until a vendor has truly earned the respect of the Amazon buying team.
As noted in the terms section, that base accrual percentage can be steep, but those terms also unlock a range of Vendor Central marketing and merchandising tools which are either not available or are in a more embryonic phase within Seller Central.
Those Vendor Central/1P tools are, as follows: AMS (Amazon Marketing Services), A+ detail pages, vendor powered coupons, best deals, lightning deals and Amazon Vine (their quasi-curated product reviews program) as well as a never-ending list of special and seasonal website placement opportunities such as holiday gift guides, dads & grads, mother’s day, etc.
Difference #6: Control Over Pricing
Seller Central (3P), as noted earlier, delivers faster payments than Vendor Central and also enables a great deal more control over both retail and MAP (also known as “minimum advertised price”) pricing. The user-friendly interface of Seller Central makes it easy to update retail pricing, which means that you, as the seller, can run price discounts and adjust pricing on the fly (generally within 15 minutes). In a nutshell, Seller Central offers greater control over retail pricing and MAP enforcement policies, while 1P vendors have virtually no control over either.
Another incredibly valuable piece of the Seller Central value proposition is the customer data, which is necessary for the fulfillment and customer service elements of the selling experience. And although Amazon essentially controls or filters access to the customer’s actual email address, (death to spam!) sellers do have access to delivery addresses and phone numbers. Of course, those pieces of data can be especially insightful when it comes to retargeting, remarketing, geo-targeting, direct mail, television advertising or social media campaigns.
As mentioned earlier in the context of wholesale pricing within Amazon Vendor Central, Seller Central can afford a better profit margin, since decisions on the potential markups between the cost of the product and its retail selling price are made by you as the seller.
The economics of the Seller Central/3P platform are based on the referral fee that Amazon takes off of the retail price (ranging from a low of 6% for personal computers to high of 20% for gift cards and jewelry), the monthly storefront costs (a modest $40) and finally, the accumulated charges when or if, FBA is leveraged as part of the equation. The good news, from Amazon’s perspective, is that they get paid regardless.
Difference #7 Inventory Control
Seller Central makes SKU-level inventory control easier for the seller, which is not the case in Vendor Central, where inventory is completely controlled by the weekly Amazon purchase order process. Seller Central sellers have greater control over their inventory levels via FBA. For instance, 3P sellers can allocate inventory from FBA for other online or offline channels and/or even pull inventory back from an Amazon FC when and if there is a shortage elsewhere.
Difference #8 – Customer Service Expectations
We briefly touched upon customer service three paragraphs back, but let’s consider that once more. On the customer service side, 3P management requires resources and active account oversight for buyer messages and response. On 1P, vendors seldom communicate directly with the actual Amazon customer.
Since we all know how important customer reviews are for the long-term success of products on Amazon, another important difference is the flexibility to use third-party customer review “friendly reminder” applications (APIs) like FeedbackFive or Feedback Genius.
Here at Zanoma, we encourage all of our 3P clients using Seller Central to take full advantage of these services and to customize their messages to ensure any feedback-related email going to an Amazon customer matches the brand tone or “vibe” of the client. Of course, customer service via Seller Central can also cut both ways. One crucial aspect that many rookie Seller Central sellers fail to consider is the critical nature of timely responses when a customer has a question related to a listing.
Amazon requires that sellers respond to customer queries within 24 hours. This is across the board, and holidays are not an acceptable reason for a delay – in fact, the 24-hour expectation is for every single day of the year! You’ll need to either assign an employee, take it on yourself or consider an outside resource that offers customer reply services. Seller Central’s user forums are full of sad stories of sellers that have had their scorecard dinged because of just one late response. Forget caveat emptor; this is seller beware!
Considering what we just covered, another difference is that customer service is not a headache or even an issue that Vendor Central direct vendors need to worry about. Since Amazon purchases and then owns the product in Vendor Central, all customer service is managed directly by Amazon; this is contrasted by several customer communication and service expectations in Seller Central. As part of the business terms with Amazon, and because Amazon owns the product after they place the Purchase Order (PO) Amazon handles all customer inquiries.
We Can Help!
In summary, there are several differences between the two “centrals” – and if you’re still a bit confused, don’t sweat it. We are happy to help! The team at Zanoma has vast experience in both Vendor Central and Seller Central – and we are always comfortable working with clients or potential clients, to consider and review all pieces of necessary data based on the goals and fundamentals of your business.
Please visit our website for even more details about the work we do, who we are working with and/or to learn more Amazon Vendor Central and Amazon Seller Central.
Thanks for your time reading this article, we hope you found it informative! If you have specific questions or would like to see a deep-dive on other Amazon-related topics for a future blog, please contact us today.