You can accuse Amazon.com of many things but complacency isn't one of them. The eCommerce giant continues to lead with new business models and approaches. Last week they did it again with the introduction of a new selling model, SBA ("Sold by Amazon") which, in many ways, is a hybrid approach combining elements of today's 1st and 3rd party selling. Is it right for your business? Let's find out...
Prior to SBA, there were two primary ways to sell on Amazon:
- Vendor: This is a traditional "wholesale / retail" relationship. Amazon buys inventory from the brand and then resells to the consumer at a profit. Amazon is the seller of record and has full control over inventory levels, pricing, and other variables. In addition to unit margin, Amazon collects a variety of other fees including co-op, data access, and more.
- Seller: In this model, the brand or distributor is the seller of record and gets to control nearly every element of the selling process including pricing, content, inventory levels, and more. Amazon is a passive service provider that takes a commission (a.k.a. "referral fee") of up to 15% for the privilege of selling in their marketplace. Sellers can also pay Amazon to warehouse and fulfill their goods through the FBA ("Fulfillment by Amazon") program.
In general, the Seller has much more control than the Vendor but that control comes at a cost. Sellers are responsible for setting purchase price and that can be a big challenge, especially when the brand is competing with its own resellers for the coveted Buy Box. If the brand holds their price at MSRP, there's a good chance they'll lose sales but if they go below MSRP, they may find other retailers following suit.
SBA is a twist on Seller that is only available to registered brand owners (not resellers) who own the trademarks for their brands. It represents a middle-ground between the two current options. Specifically:
- Amazon prices the product BUT the brand sets "Minimum Gross Proceeds" (MGP) which is the minimum gross margin that it will accept
- When a unit is sold to a shopper, Amazon instantaneously buys that unit from the Seller's inventory on-hand at Amazon's FBA warehouse - the product shows as "Ships and Sold by Amazon"
- As the seller, Amazon collects and is accountable for paying sales tax on the transaction
Benefits to the brand are (potentially) more competitive pricing without severe margin erosion and the elimination of sales tax compliance hassles, which can be a challenge both for small companies and large ones. There are, however, some important drawbacks:
- Sponsored products advertising, the foundation of most brands' Amazon growth plans, is unavailable in SBA
- Lightning deals are also unavailable although Amazon claims to be working to fix this
Who is this for?
To some extent, SBA is a "watered down" version of today's Seller Central experience. The brand gets to hand off pricing and sales tax compliance to Amazon but gives up significant control including, at least for now, some very important marketing and promotional vehicles.
Who is it NOT for?
Brands that need to rapidly drive awareness, trial, and overall sales momentum will find the lack of marketing tools in SBA very limiting. In addition, most established brands that are sold at multiple retailers will be highly reluctant to hand pricing to Amazon and risk erosion as other retailers (like Walmart) match new and likely lower SBA pricing.
Why is this being introduced?
Amazon continues to prioritize the Seller platform over Vendor. We expect more brands, especially small and mid-sized brands, to be notified in coming months that they are no longer welcome on Vendor central and they may choose to use SBA as they migrate since it will make their transitions easier. See our article about "The Vendorpocalypse" for more information about this trend.
If you're already an established Marketplace Seller, there's almost certainly no value to moving to SBA, at least not now given current limitations which are significant. If, however, you're a brand selling in Vendor Central and you're looking for a way to experiment in the Marketplace, SBA could be "training wheels" as your organization works toward a more complete marketplace selling approach.