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How to sell on Amazon: Wholesale vs Marketplace
Sell Online

How to sell on Amazon: Wholesale vs Marketplace

Vallabh Daga
February 1, 2021
mins read

Selling your products on Amazon comes with a multitude of choices — the first of which is deciding whether you want to sell to Amazon on wholesale or you want to sell directly to Amazon customers.

In other words, you have two outright options — selling as a First-Party (1P) vendor or as a Third-Party (3P) seller.

In this blog, you will learn what Amazon wholesale model and Amazon marketplace model entails, the pros and cons of both the models, and how Eshopbox supports your Amazon business.

Amazon wholesale model: Selling as a First-Party (1P) vendor

If you choose to take the 1P approach, Amazon will act as the retailer and you will be the wholesale supplier.

In the 1P model, your products are listed as 'Sold and Fulfilled by Amazon' — i.e Amazon places a purchase order for your brand merchandise and your brand account is managed on the Amazon Vendor Central platform.

Amazon marketplace model: Selling as a Third-party (3P) seller

If you choose to take the 3P approach with Amazon, you are considered as an independent seller— where you sell your products directly to Amazon customers.

In the 3P model, your products are managed on the Amazon Seller Central platform where you can manage inventory, import products, provide customer service, and more.

This article will explain the full scope, pros and cons of both the operational models of Amazon — wholesale and marketplace so that you can choose which model best suits your business needs.

Pros and cons of Amazon wholesale model

Pro: Sold by Amazon tag

When you're selling to Amazon on wholesale, your products will be listed as "Sold by Amazon" — which is likely to instil trust and boost customer confidence while purchasing your products.

Pro: Access to powerful marketing tools

As a vendor to Amazon, you can leverage enhanced marketing opportunities through Amazon Marketing Services (AMS). You get access to powerful advertising tools such as headline search ads, sponsored products and product display ads which help differentiate your products from the competition.

Amazon marketing tools
Amazon marketing tools

Pro: Simplified business model

The process of doing business with Amazon is much simpler. The main focus as a vendor is on filling Amazon purchase orders, billing, and avoiding penalties due to breach of Amazon guidelines. You don't have to dedicate resources to tedious and time-consuming tasks such as order processing, fulfilment, sales reconciliation, tax calculations and more.

Con: Lack of control over pricing

A Minimum Advertised Price (MAP) is a minimum amount that resellers agree not to advertise below. Amazon does not strictly follow Minimum Advertised Pricing (MAP) guidelines, this means that Amazon can adjust the retail prices of the products at any given time based on their internal algorithms.

Con: Brand image dissipation

Branding can be a huge differentiator, setting your products apart from the competition. Once you sell your products in bulk to Amazon, you lose control of how your products are represented on the Amazon marketplace. Additionally, your brand image dissipates further since your products are shipped in basic brown Amazon boxes. In conclusion, when selling to Amazon as a vendor, you have a very limited ability to brand the customer experience.

Con: Logistical requirements

Amazon has very specific and stringent guidelines for their purchase orders. If you commit to a purchase order and fail to provide the required inventory, it can result in hefty penalties which can quickly eat into your profits.

Con: Hefty margins

When you're selling your brand merchandise on wholesale, Amazon charges hefty margins on the purchase order. This inhibits your ability to maximise profitability and caps it at a certain level.

Pros and cons of Amazon marketplace model

Pro: Analytical data

When you're selling on Amazon, Seller Central will provide you with extensive consumer data at no extra cost. Amazon customer data helps you become well versed with the current consumer and product trends — like who is purchasing the products and where they are located.

This will help you make informed decisions regarding which products you should be selling, what prices you need to set and how much inventory you need to hold.

Additionaly, this data is crucial when making a lot of business decisions such as choosing a third-party logistics (3PL) provider, deciding where to ship products from, and splitting inventory across multiple fulfilment centres to increase your reach.

Pro: Pricing control

As a seller, you have complete control over your product pricing. This will help you set prices that are high enough for you to be profitable but competitive enough for your customers to see the value. Additionally, if you sell on other channels apart from Amazon, you can set your prices uniformly to maintain consistency.

Pro: Inventory control

When you're selling on Amazon, you can adapt to your customer demands and be in complete control of your inventory levels. Since you don't need to commit to all your inventory at once, you can acquire inventory based on the market scenario — replenishing inventory when it is required.

Pro: Branded experience

When you're selling directly to Amazon customers, you have the opportunity to create a unique brand identity. You have complete control about how your products are represented on Amazon. In addition to this, you can further differentiate your brand from the competition by shipping your orders in custom packaging.

Con: Fulfilment operations

As a seller on Amazon, you need to take care of the entire order fulfilment process. You can either set up your entire fulfilment operations in-house, leverage the Fulfilled by Amazon (FBA) program, or outsource to a third-party logistics (3PL) provider. The managemnent of fulfilment and shipping operations wil drain a lot of time and resources of your business.

Con: Marketing and sales

You are responsible for all your marketing endeavours when selling on Amazon. While this is a preference for a lot of the enterprise-grade sellers on Amazon, most small and mid-sized businesses don't have the resources or the expertise to do so.

Additionally, you will also have to constantly manage your products listed on Amazon by updating your product descriptions, images, and content to enable your customers to make an informed purchase decision.

How Eshopbox supports your Amazon business

While selling to Amazon as a vendor and selling on Amazon as a seller are two completely different models, you can leverage Eshopbox to support either of them. A reliable 3PL like Eshopbox will provide you with the expertise, infrastructure, and operational efficiency to scale your Amazon business.

Here's how Eshopbox supports both business models:

Wholesale model

As a buyer of your products, Amazon operates similar to other large retailers — buy in bulk to get wholesale rates and then set a competitive retail price.

Eshopbox allows you to centralise, store, and distribute your inventory to Amazon. Unlike other wholesale buyers, Amazon has very specific requirements when buying and receiving your products. Eshopbox will also help you adhere to these stringent requirements and avoid penalties.

Additionally, Eshopbox will help you set up and maintain your EDI integration — providing you with an overview of your retail operations. Managing multiple EDI integrations requires technical expertise, and isn't a simple task.

Marketplace model

Sellers on Amazon have three choices when it comes to fulfiling orders: Fulfilled by Amazon (FBA), Seller Fulfilled Prime (SFP), and Merchant Fulfilled Network (MFN). Eshopbox can help you with all the three options — reducing your workload and your costs.

Fulfiled by Amazon (FBA)

You must be wondering why a seller would use Eshopbox for Amazon FBA, however, it can be extremely beneficial.

Amazon has very strict requirements when receiving products from a seller — from the arrangement of Universal Product Code (UPC) to how products are packaged to Amazon's bulk shipping requirements.

Additionally, when products are not sent as per Amazon's requirements — you are subjected to monetary penalties known as chargebacks. Chargebacks are usually a predefined flat fee penalty or a percentage of your gross sales on Amazon. These chargebacks could be because of anything from lack of product preparation, missing the designated delivery window, not sending an advanced shipping notification, submitting the incorrect purchase order information, and so on. Eshopbox can help minimise these chargebacks.

Apart from this, Amazon has a monthly storage fee for storing your products in their fulfilment centre. This fee is very expensive when compared to Eshopbox and increases exponentially as the inventory ages. Sellers can leverage the low storage fees of Eshopbox and only ship products to Amazon's fulfilment centre when their inventory is running low. This ensures your products aren't sitting in Amazon's shelves for a long time and results in a lot of cost savings in the long run.

Read our blog to understand the alternatives to FBA

Seller Fulfilled Prime (SFP)

For Amazon sellers, SFP is a great alternative to FBA because you get Amazon Prime badge without losing control of your inventory. However, it can get very difficult to maintain Amazon's performance requirements.

A tech enabled 3PL like Eshobox who is well versed with Amazon's requirements can help you manage and maintain the entire selling workflow: from setting up the Amazon Prime integration to meeting every performance requirement like the delivery times and order accuracy. Eshopbox will keep your Amazon business buzzing and let you scale with a peace of mind.

Additionally, if you have partnered with Eshopbox who has a distributed network of fulfilment centres, you can split your inventory to store it close to your customers. This will enable faster delivery times, reduce shipping costs, and improve your regional utilisation.

Merchant Fulfilled Network (MFN)

As an operational model, MFN is similar to SFP with the exception of getting the Amazon Prime badge for your products. The operational requirements are flexible, unlike the SFP program. Sellers are responsible for managing and fulfiling orders from Amazon customers.

Eshopbox can help manage your entire Amazon operations — storing, picking, packing, and shipping your products to Amazon customers.

How Eshopbox supports your Amazon business

Bottom line

Selling on Amazon on each model wholesale and marketplace have their own set of benefits and drawbacks, but when managed properly, either one can become a huge growth driver for your business. To overcome the unique operational challenges of each model, consider partnering with a 3PL like Eshopbox with an extensive experience of working with Amazon.

Connect with our fulfilment expert today.

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