Amazon is the world’s largest online marketplace. A recent study showed that 47% of all online shoppers start their initial product search on Amazon.com. Brands have a choice to “passively” or “actively” manage the Amazon sales channel. Active management requires a comprehensive understanding of how the Amazon marketplace operates and a detailed plan of action. An active management strategy gives you the ability to fully leverage the Amazon sales channel.
AMAZON 101
Amazon is an online marketplace that brings buyers and sellers together. The largest retailer on Amazon is Amazon themselves. However, there is an increasing number of third-party retailers that also sell products on Amazon.
Under the first scenario, Amazon Retail purchases goods from manufacturers at a wholesale rate through Vendor Central. The manufacturers fulfill these purchase orders and make bulk shipments to Amazon fulfillment centers where their products will be sold to consumers.
In the second scenario, third-party vendors use Seller Central to sell their products directly to consumers at retail prices. As sales occur, vendors have the option to fulfill these orders themselves or utilize Fulfillment by Amazon, also known as FBA. For a fee, third-party sellers can make bulk shipments to Amazon fulfillment centers where their inventory will be picked, packed, and shipped to end users. In 2018, sales generated by third-party sellers more than doubled Amazon’s direct sales.
Amazon’s revenue and customer base continues to grow year after year. This undeniable growth can be disruptive to existing distribution models, bringing about new questions and concerns. However, the major question for brands and manufacturers is - do you want to capture the sales on this evolving marketplace at wholesale or retail margins?
