A Comprehensive Guide to Selling on Amazon

1P versus 3P FBA Pros and cons of being a first-party Amazon seller Pros and cons of being a third-party fulfilled by Amazon seller How and when to plan your account strategy The evolution of the Amazon Marketplace

In e-commerce, Amazon is the leader in sales for brands and mastering Amazon's marketplace is key to your success. Knowing the pros and cons of each model helps in making the right decisions for your brand(s). No matter the channel you choose, Amazon has become increasingly difficult to stand out on as a platform, with nearly 10 million seller accounts on Amazon. Furthermore, understanding the evolution of Amazon's supplier ecosystem sheds light on the transformation that has shaped the current landscape of Amazon selling. Here, we explore the nuances, strategies, and insights crucial for excelling on Amazon, both in the present and in the evolving future of e-commerce. 1P vs. 3P Sellers: Understanding the Dynamics Operating as a 1P or 3P seller on Amazon are two distinct channels, each with its own set of advantages and challenges. The 1P model involves a direct relationship between Amazon and the seller, where Amazon purchases inventory wholesale and sells it to their customers. While this model provides stability and ease of operation, it often comes with limited control over pricing and branding, as Amazon dictates these aspects. In addition, Amazon doesn't just let anybody sell 1st party, you must have provable success in the market for their consideration to go direct. Pros of Amazon 1P Selling:

• Trust from Customers: The "Sold by Amazon.com" label can build customer trust and confidence in the brands carried by Amazon.

• Direct Relationship: 1P sellers enjoy a direct relationship with Amazon, offering opportunities for better product placement and marketing, and maybe most importantly, for troubleshooting listing challenges.

• Reduced Responsibilities: Sellers can benefit from a hands-off approach as Amazon manages inventory and sales tax collection. This model also reduces some of the stress on your warehouse, given orders typically come in once per week in bulk.

• Access to Advanced Tools: Access to advanced selling tools is sometimes a perk. Before A+ content was rolled out to all sellers, we were a part of early access programs for features such as A+ or 360 degree photography. You can also sometimes negotiate free product reviews in their "Amazon Vine" program during your annual planning discussions. This can help springboard new products into the market quickly.
  

Cons of Amazon 1P Selling:

• Limited Autonomy: Amazon's control over product pricing, shipping, and inventory restricts a seller's ability to control many facets of the business. Price is notoriously a challenge with many brands, where internal sales teams often clash over price parity in the market.

• Narrower Profit Margins: Wholesale pricing from Amazon often leads to narrower profit margins compared to selling at full retail as a 3P seller. Vendor managers will also impose a "program" cost to you, such as co-op, defective allowance, and other aspects as a percentage of revenue that comes out of your sales.

• Delayed Payments: Amazon's payment terms, ranging from 30 to 90 days, can create challenges for sellers in terms of managing cash flow.
  

• Risk of Account Suspension: Amazon reserves the right to remove 1P sellers at any time, leading to potential business risks. For this reason, you should consider at least understanding how 3rd party seller accounts work and be prepared if negotiations on program are unsustainable.
  

Pros of Amazon 3P FBA Selling:

• Greater Control: 3P sellers have significantly more control over their products and listings, including pricing, optimization, advertising, and inventory management.
  

• Higher Profitability: Predictable Amazon fees and the ability to control product pricing can make 3P selling more profitable and predictable.

• Global Selling Opportunities: 3P sellers can expand their reach globally and list products on other marketplaces through programs like Amazon NARF.

• Unlimited Product Listing: There is no limitation on the number of products 3P sellers can list for sale on Amazon, unlike in the case of 1P selling, where Amazon may not order certain items for any reasoning like low ASP, overstock of adjacent categories, etc.
  

Cons of Amazon 3P FBA Selling:

• Full Responsibility: While having more control is an advantage, the responsibilities associated with managing various aspects of an Amazon business, such as creating listings, logistics, pricing, and customer service, can be overwhelming for new sellers.

• Challenges in Inventory Management: Effectively managing inventory, especially during a new product launch, can be challenging. Overstocking at FBA can result in additional fees if inventory remains unsold for a prolonged period.

• High Fees: Despite the predictability, the fees associated with using FBA on Amazon Seller Central can still be substantial, particularly based on the size and weight of the product, as well as if you have aged inventory.
  

These are your two primary options for selling on Amazon, but technically there are other methods of selling for more advanced sellers, or those with modern e-commerce logistics setup. This is known as Fulfilled by Merchant (FBM) or Seller Fulfilled Prime. In these scenarios, a seller ships their own products directly to the customer based on strict requirements from Amazon's shipping standards. In the case of a 1st party vendor, this can be used to avoid out-of-stocks if you fail to get wholesale orders in time, and instead, customer orders can be fulfilled directly out of your warehouse. The tricky part of this is Amazon will push you towards this strategy only to lighten their inventory burden on 1P, which reduces your weekly bulk reorders, and puts more strain on your warehouse. Strategic Planning for Yearly Sales Success No matter which seller model you choose, achieving remarkable sales growth on Amazon involves meticulous planning, especially during key sales events like Prime Day and Q4 holiday promotions often called "turkey 5". Developing an annual plan for the account is vital, looking at ASIN level data, aligning those with your supply chain teams, and properly budgeting Marketing investment as a management team. Once you have nailed your commercial strategy and budgeting exercises, we get to work on the tactical execution, building what it will take to elevate the product and enhance overall performance on Amazon. Focus on elements that influence search rankings and customer engagement, which include: Content Scores: Enhancing product content quality, including imagery, videos, and compelling copy, contributes to improved customer engagement and higher conversion rates. Leveraging tools like Jungle Scout can aid in evaluating content quality scores and identifying areas for improvement. Remember, over 50% of organic product search starts on Amazon, you need an SEO strategy that beats out the competition. Review Quantity and Quality: Encouraging genuine customer reviews and managing product feedback actively can positively impact product rankings and build trust among potential buyers. Emphasizing product quality and customer satisfaction can lead to higher review ratings and improved brand credibility. Product Features: Maintaining product quality standards is crucial for sustaining customer loyalty and positive brand perception. Emphasizing product differentiation and unique selling propositions can establish a competitive edge in the marketplace - but equally as important as great features is HOW you communicate it. Publicity and Press Coverage: Garnering off-site brand exposure through publicity and press coverage can drive external traffic to product pages - Amazon loves this! It's one thing to win with organic search on Amazon, but another for your product to bring new traffic to the site - for this, Amazon gives you bonus points. Establishing a robust public relations strategy can foster brand advocacy and broaden the customer base beyond the Amazon platform.

The Evolution of the Amazon Marketplace

Tracing the evolution of Amazon's supplier ecosystem provides valuable insights into the shifts and challenges that have shaped the contemporary landscape of Amazon selling. The evolution highlights the significant role of technology, data-driven strategies, and branding in navigating the competitive marketplace. "Competing on Amazon means providing an unparalleled commitment to beating the snot out of your competition in a fair and honest way - via product, content, and advanced advertising strategies." During the early days of Amazon's Fulfillment by Amazon (FBA) program, businesses faced a steep learning curve, with limited resources and guidance available for sourcing goods and navigating the intricacies of e-commerce. The focus was on leveraging automation techniques, data scraping, and expert knowledge to gain a competitive edge to a massively growing network of shoppers. Technological Advancements and Marketing Strategies: As Amazon evolved and competition intensified, sellers began adopting more sophisticated seller tools and marketing strategies. The launch of Amazon Advertising facilitated the implementation of keyword-driven marketing campaigns, enabling sellers to capitalize on their expertise in Google Ads and apply similar strategies to Amazon's platform. Emphasis on Branding and Merchandising: Between 2014 and 2018, Amazon and brands alike emphasized the importance of elevating brand representation and product experiences to meet specific merchandising standards. The emphasis on creating rich content, including multiple images, product videos, A+ content, and brand stores, became a standard requirement for maintaining a competitive presence on the platform. Rise of Gray Hat Tactics: With the intensifying competition and the scale of Amazon's marketplace, gray hat tactics emerged as a common strategy for some sellers to gain an edge. While not explicitly illegal, these tactics skirted the boundaries of Amazon's policies and often included practices like fake reviews, manipulation of advertising budgets, and malicious flagging of competitor products to undermine their rankings and credibility.

The Future of Selling on Amazon: Anticipating the Shifts

Looking ahead, we can anticipate certain things from the Amazon marketplace. For instance, a focus on integrating social commerce, enhancing shopping experiences, and advancing merchandising technologies available to sellers (especially in oversized goods like furniture). Social Commerce Integration: Amazon's initiatives, such as Amazon Inspire, signal a growing emphasis on integrating social commerce elements into the platform. Enabling customers to discover personalized products based on their interests, influencers' recommendations and diverse brand offerings will likely drive deeper engagement and foster a sense of community within the Amazon ecosystem. If we have seen anything over the years, it's that the scale of influencer communities is not to be underestimated. Enhanced Shopping and Payment Integrations: Amazon will prioritize streamlining the shopping experience and optimizing payment processes. Implementing seamless integrations and innovative payment solutions will boost customer satisfaction and encourage repeat purchases.

Merchandising Technology: Amazon focuses on enhancing merchandising technologies to provide a seamless shopping experience. Innovations in product recommendations, personalized ads, and augmented reality aim to increase engagement and conversions. Emphasis on Data-Driven Insights: Amazon has always been secretive with customer data but believe they will emphasize data-driven insights to optimize product recommendations, inventory management, and marketing strategies. Sellers who use data-driven decision-making will better understand consumer behavior and preferences, gaining a competitive edge. Sustainability and Ethical Practices: Amazon will continue to prioritize eco-friendly and socially responsible initiatives due to the global focus on sustainability. Consider this to have more impact on your packaging strategy in the future as they push for sellers to be carbon neutral.

ObsidianATG emphasizes the importance of staying attuned to evolving consumer preferences and market trends, enabling sellers to adapt quickly and meet changing demands. Want to learn more or get our service support? Let's chat!