Mars United analysts examine the ramifications of the ecommerce giant’s decision to drop an unknown number of brands from the platform
By Michella Chiu & Michael Tennant, Mars UnitedSM Commerce
Amazon this week announced a major shift in its partnership strategy by terminating hundreds of Amazon Vendor Central accounts.
The move comes just weeks before the crucial holiday shopping season at a time when most vendors are busily planning for Amazon Prime Deal Days in October, Halloween later that month, and Black Friday/Cyber 5 in November. It undoubtedly impacts many brands that have relied on the Vendor Central program as a key sales channel.
Many brands have received abrupt termination notices from Amazon that end longstanding Vendor relationships. The notices state, “We’ve decided to stop sourcing products from your company as part of our regular review of product offerings and a strategic realignment to optimize operations and better serve customers.” The terminations are effective Nov. 9; Amazon does not intend to extend current agreements or enter any new ones beyond that date.
Amazon’s decision to eliminate many small vendor accounts is part of a broader strategy to streamline operations and optimize its resource allocation. What many people might not realize is that, behind the scenes, some of these vendors are small family businesses whose value can be significantly higher with a Vendor Central account. This move by Amazon does not just impact their day-to-day operations, it will also hurt the overall value of their business.
Transition is Possible, But Complicated
A direct first-party relationship with Amazon through Vendor Central has been a particularly good opportunity for smaller brands because Amazon buys product in bulk and then handles the consumer-facing transaction. This includes tasks such as order processing, customer service and returns, which allows smaller brands to focus their resources on other areas.
The alternative method of selling on the Amazon channel, which many brands either utilize or have transitioned to, is through its third-party Marketplace using the Seller Central platform. Some brands even prefer that option to a Vendor relationship with Amazon due to several key benefits:
- Greater control over pricing and brand management.
- Enhanced SEO opportunities that can improve visibility and performance.
- Access to comprehensive analytics that vendors otherwise may not get.
However, the transition isn’t always smooth because Amazon doesn’t provide the same tools to Vendors and Sellers. While there are similarities, the experience is not directly transferrable. Any brand transitioning to a Marketplace account will essentially need to relearn Amazon’s platform to maximize effectiveness.
In addition, current Vendors need to understand that the transition doesn’t just involve a platform change, but requires a completely different business model. Amazon’s Marketplace (utilizing Seller Central) is a retail model where brands sell directly to consumers — as opposed to the wholesale setup of Vendor Central.
While any change can be hard for an organization, Amazon in this case is presenting Vendors with a real challenge: to adopt a new business model that requires different infrastructure — even a paradigm shift in what selling on Amazon means.
Action Items for Affected Vendors
Vendors will need to take quick action to set up a Seller Central account and start maintaining full ownership of their inventory until the products sell. The actual setup on Seller Central can be accomplished within one or two months, but new users may face inefficiencies around invoicing, logistics, and customer support. During the transitional period, they should carefully select a partner that can assist with these tasks.
Based on Mars United’s experience helping clients launch a Marketplace business on Amazon, there are several potential pitfalls for brands making the transition. These include developing and implementing a logistics and fulfillment model, which many smaller brands don’t have the infrastructure or established third-party partnerships to handle. We often recommend that Amazon Seller brands use the separate Fulfillment by Amazon (FBA) offering, which handles customer service and returns, too, rather than trying to manage logistics themselves or through another third party.
Another tricky area will be Brand Registry setup, which requires careful management to ensure the continuity of brand protection. There also is the need to integrate with the Seller Central platform and gain an understanding of the various self-service tools available. And don’t forget the need to properly understand the new cost structure and P&L that comes along with the switch to a Marketplace business.
Ultimately, these steps require experts with ecommerce, IT, marketing, finance, and even legal backgrounds. Unfortunately, for those affected by Amazon’s purge, the alternative would mean giving up on the second-largest retail channel in the world.
About the Authors
Michella Chiu is Director of Ecommerce Strategy at Mars United Commerce, where she uses her background in marketing and academic research to lead global ecommerce strategy, activation, and program management for clients such as Mars, Inc., Campbell Soup Company, and Crayola. Her core functions include catalog support, operations, content development & optimization, and analytics. She can be reached at [email protected].
Michael Tennant is Director, Amazon Commerce at The Mars Agency, where he focuses on driving profitable online growth for brands. Based in Chicago, he is a 15-year veteran of the ecommerce world with a wide range of CPG and brand experience.
To learn more about how Mars United can help your brands win at ecommerce, contact Michella at [email protected] or Michael at [email protected]. Or set up time to meet with our experts at Amazon Accelerate or Amazon UnBoxed to discuss strategies for building brand success at this critical ecommerce giant.
