This post is by Matthew Ferguson of Emanaged and Rich Insight.
Business-to-consumer and business-to-business are old concepts in the retail industry. Stores sell to the final buyers, but themselves need to buy stock from manufacturers, suppliers and distributors. They buy from businesses and they sell to consumers. Historically, it’s always been done this way.
Direct-to-consumer, or D2C, is where brands cut out the middleman and sell their wares straight to the buyer. While this is great for us, as consumers, it’s causing alarm among many retailers and suppliers. If we can order online, why do we need to visit a physical store? If the brand or manufacturer is selling their product directly to us, what role do retailers and distributors have to play?
The last 5 years have been particularly dramatic. Amazon, once a humble online bookstore, has switched on its “beast mode”, causing competitors to adapt, adjust and at times simply freak out. Online marketplaces, led by Amazon, have changed the landscape and broken the conventional flow of products along a long supply chain from manufacturers to consumers.
In contrast to those traditional retailers and distributors, direct-to-consumer is a battle that Amazon just can’t lose. Here’s why D2C has Bezos laughing all the way to the bank.
View Top Amazon Seller ToolsA little history
We haven’t had the internet very long at all, considering that we’ve been on this planet for 200,000 years. On that timescale, ecommerce has barely been around for more than a blink of an eye. But in that blink, it has evolved beyond all recognition, becoming a widespread industry with ecommerce college courses, ecommerce job titles and all sorts of e-terms for your e-thoughts.
In barely the time it takes for a newborn baby to become a hormone-fueled teenager, we’ve gone from shopping in stores to ordering anything we want at the push of a button, sitting at home in our underwear. If you didn’t want to ever leave the house to shop, you don’t have to, in many parts of the modern world.
Amazon has been a key catalyst for this shift, and we’re witnessing the effects in the news every day. How many huge store names are going bankrupt, or closing a large proportion of their physical outlets? How many suppliers and distributors are now selling direct to consumers, or adding their own brand to products that previously bore their retail partner’s names?
Direct-to-consumer is a win for Amazon either way
Amazon has accounted for both profiles – suppliers selling direct, and suppliers developing their own brands – with its two different business models: Vendor and Seller. The Amazon website, despite its unified appearance, is fed by two quite different platforms.
Amazon, once a humble online bookstore, has switched on its “beast mode”.On the one hand we have Seller Central, where anyone can sign up, add or connect to product listings, and sell their products to the Amazon audience of buyers. Here, you are the seller of record and in control of listings, shipping and customer service.
On the other hand, there’s Vendor Central, a wholesale platform whereby you sell product directly to Amazon, and Amazon themselves handle selling and shipping it. They are the seller of record. Once you sell your product to them, the onus is on Amazon to sell the items and get them in buyers’ hands. Amazon is the online equivalent of a traditional retailer in this model.
If you want to manufacture or distribute product, Vendor is a great sales partner. If you want to sell your product directly to buyers, Seller Central gives you all the tools necessary to do so. Either way, Amazon has you well covered.
With direct access to Amazon, an ecommerce juggernaut with 44% of online sales in the US and still growing quickly, what will happen to traditional B2B supply chains? In my opinion, they are on borrowed time in many areas. Their days are numbered. It’s just getting too easy, too efficient and indeed too profitable for a company to not sell directly to the end consumer.
Amazon has a finger in every pie. Sometimes two.
If you think about it, Amazon is several very different companies under one name. They have a logistics department which you can use as a standalone service provider. They offer movies and streaming TV. They offer cloud computing, payment and marketing services. They are the manufacturer of products like the leading ebook reader, Kindle, and the leading smart speaker, Echo.
If you get caught in the middle, you might end up in a mini turf war.But the Amazon that most of us know best is seen through their retail website. It’s a place to buy all manner of things, ideally with “Prime”, and have them arrive in record-breaking time with no-hassle refund policies and great buyer protection. Who wouldn’t get excited about one-hour Christmas sock deliveries?
What about Amazon FBA? This world-leading logistics service is sandwiched between the retail website and third-party marketplace sellers, much like a slice of succulent tomato between the patty and the lettuce in your favorite burger. I must be getting hungry.
FBA is where you send your product to Amazon, but you aren’t “selling” it to them as a Vendor. They are providing third-party logistics (3PL) only, and will ship your product to buyers when orders come in, and charge you for it. You don’t have to use it, but sales will be higher if you do.
Vendor and Seller might seem similar, particularly as many marketplace sellers use FBA, but the two platforms don’t share the same goals. Seller Central is happy for you to sell product directly to consumers, as long as you provide a consistently high level of service. Amazon pockets a percentage of each sale as commission.
With Vendor, Amazon wants to buy product they think will sell well, at wholesale costs, thus securing deep margins to drive low prices for their customers.
