5 Ways to Use the Hybrid Model to Maximize Profitability
When brands sell on Amazon they may have a choice between utilizing either Seller Central or Vendor Central. Each option operates under completely different business models. But, there are exclusive benefits to each many brands like to tap into. In this blog post, we explain the main differences between Seller Central and Vendor Central. Continue reading to evaluate whether using the hybrid model is the best way for your brand to maximize profitability on Amazon.
Control and Maximize Profitability with the Hybrid Model
Two frequent concerns for brands on Amazon is decreasing the value of items and the rising cost of Vendor Central. The latter concern is due to terms set by Amazon and potential vendor chargebacks. Brands must understand the profitability of each ASIN in their catalog on Vendor vs. Seller Central. Upon first exploring a hybrid model, many find a strong majority of their catalog would be more profitable on Seller Central. Meanwhile, many brands have been able to resume the sale of can’t-realize-a-profit (CRAP) items after moving to Seller Central.
Overcome Pricing and Minimum Advertised Price (MAP) Issues
Amazon continues to fluctuate price points by matching third party listings to win the Buy Box. It also often matches prices with Walmart’s and Target’s e-commerce websites. For products and brands with a strict MAP policy, moving products to Seller Central is often the only way to gain control over retail pricing on Amazon, and better protect prices from being driven below MAP.
Stocking out is almost certainly one of the cardinal sins on Amazon. Stockouts halt precious sales velocity, which is the main driver of Amazon’s product search algorithm.
Products at risk include those coming from unstable supply chains, high seasonality, as well as new products not yet ordered in sufficient quantities by Amazon.
Brands can use Fulfilled by Amazon (FBA) as a safety net strategy for high velocity or frequent stock-out ASINs. This involves having FBA inventory in Amazon’s warehouses to serve as a backup and ensure sure the product never stocks out.
Access to Reporting, Marketing, and Troubleshooting Tools
Selling on a single platform limits the tools your brand can access. There is minimal insight provided by Vendor Central if a brand does not subscribe to Amazon’s premium reporting tool. As a result, there is little data to help brands make informed decisions about the channel. The Seller Central platform provides far more in-depth reporting metrics that can be used to better understand the shopping behavior of a brand’s consumers.
Vendors also may have trouble gaining control over third party listings. Surprisingly, the process of managing third party content is easier through Seller Central combined with Amazon’s Brand Registry program.
Seller Central also has a specialized team to handle ad hoc issues in a more timely manner, whereas a vendor’s contact with Amazon is often limited to its vendor manager (if they even are in contact with one.)
Launch New Products
The difficulty of launching new products has been a common pain point in Vendor Central. It often takes weeks to create an ASIN and have it accepted by Amazon. It can then take even longer to receive an initial purchase order. Then, based on the sales of the first product order, Amazon makes an estimate of future sales and reorders based on results.
Seller Central allows brands to set the price for products, and the responsibility to send inventory to Amazon’s warehouses (through FBA) can also be handled by the brand. This takes out much of the wait time for POs. These capabilities lead to a greater likelihood of attaining consistent sales velocity. The product can also be moved to Vendor Central once the demand is established so Amazon Retail can take over if that’s the brand’s preferred route.
Once your brand becomes comfortable with the nuances of the Hybrid Model, it's time to take action. The first step is to create a Seller Central or Vendor Central account. Next, analyze your catalog, product-by-product, and determine which items benefit most on either platform.
Marketplace Strategy recommends examining the top 20% of your catalog and determining which products would be more profitable on Seller Central.
From there, brands can take into account any additional considerations and identify a list of initial products to test.
It’s vital to make sure to handle any transitions carefully as to not lose sales velocity in the transfer. If your brand could use the support of a strategic partner, schedule a free consultation. And, as always, we're here to answer any questions.
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