Run AMZ helped a consumer electronics company transition from Vendor Central to Seller Central resulting in a 64.4% revenue increase! The shift helped them gain more pricing control and long-term profitability on Amazon.
The Problem
Midland Radio is a consumer electronics company leveraging Amazon Vendor Central to reach a new audience. Although Midland joined the Amazon 1P platform hoping to increase sales, the brand quickly realized a biproduct of the relationship was decreasing margins for their Amazon business and retail price erosion across ecommerce and brick and mortar channels.
The issue started with an unsecure distribution network. Sellers were sourcing product directly through Midland and through 2 step distribution. The result was up to 30 sellers competing for buy box on the same Midland products and the brand had little to no knowledge of who was selling the product or where they received it. With multiple sellers competing for the buy box, ASPs were driven down and product pages became unstable due to multiple contributions. Declining ASP and eroding margin for Amazon as they matched reseller price. Brick and mortar chains also took notice. One large national retailer pulled Midland SKUs from their assortment, siting lack of competitive pricing.
On top of all this, Midland Radio was dealing with increasing allowances from Amazon 1P. With lower ASPs and margins eroding, Amazon was forced to push back on Midland for increased allowances, turning Amazon into one of Midland Radio’s least profitable channels.
In addition to declining margins on Amazon, brick and mortar stores took notice. On one occasion, a large national retailer pulled Midland SKUs from their assortment, sitting lack of competitive pricing as the reason. It was clear arbitrage pricing on Amazon was impacting the entirety of Midland’s distribution network.
The Solution
After meetings and discussion with Run AMZ, Midland’s leadership team decided that the Amazon Seller Central, or 3P, platform would be a better fit for the brand due to all of the challenges they were facing – especially those around pricing. In shifting to the opposite side of Amazon, Midland could manage product pricing and increase profitability significantly versus their 1P model.
To determine whether a 3P transition would work for Midland, Run AMZ conducted a profitability analysis and feasibility study to ensure it would be a profitable shift for the brand. The study compared net revenue of selling a given product on Vendor Central versus Seller Central. Understanding profitability by channel was a key decision factor for Midland. While either channel could be used to increase sales volume, Midland wanted to assure the business on Amazon could grow net revenue for the company.
The calculation Run AMZ used was:
| Seller Central | Vendor Central |
| Retail Price on Amazon: $117.00 • Less Amazon Referral Fee 15%: ($17.55) • Less Amazon Fulfillment Fee: ($5.40) • Less Inbound Shipping Cost: ($0.27) • Less Monthly Storage Fee: ($0.14) • Less Returns lost value: ($2.93) • Less Run AMZ Management: ($4.68) Net Revenue: $85.95 |
Amazon Acquisition Cost: $82.00 • Less Terms Discount and Allowances 16%: ($13.12) Net Revenue: $68.88 1P = 24.7% More Profitable |
A crucial part to the comparison of using a 1P vs 3P model required considering every step a product goes through from purchase to delivery. For Seller Central, this includes often overlooked costs, such as storage, which must account for Q4 storage cost increases, inbound shipping, returns, and Run AMZ’s management fee.
Once Run AMZ calculated the net revenue figures for each platform, it became obvious that a Seller Central account would be a financial benefit to Midland Radio. However, Run AMZ also knew that product revenue was only half of the equation – and also needed to consider the resellers who had already gotten their hands on Midland’s products.
To truly be a successful Amazon 3P Seller, the brand needed a strategy to manage existing resellers and tighten up their distribution network to avoid any more from emerging on the Amazon marketplace. To combat this and prepare Midland for Seller Central success, Run AMZ helped the brand develop a new UPP pricing policy and reseller agreement that allowed the company to easily manage resellers on the Amazon platform. Midland Radio also leveraged a partnership with Trackstreet to monitor resellers and enforce the policy.
The last step to a successful transition from Vendor to Seller Central was building out a timeline for when and how the transition would take place. Amazon has a strict policy against selling products to both 1P and 3P at the same time, so Run AMZ helped select a proper cut-off date for when purchase orders would no longer be accepted on Vendor Central. The entire process typically takes 1-5 months, depending on how many products a company wants to sell. For Midland Radio, after 5 months their Amazon Seller account sales eclipsed what they had been making on the former Vendor Central platform.
Once Midland Radio stopped accepting orders on Vendor Central, Run AMZ began building the brand’s presence on Seller Central. This process included setting up a Seller Central store, discussing logistics and inventory, publishing high-value content to generate traffic and conversions, and launching marketing campaigns.
Below is an overview of Run AMZ’s Seller Central Action Plan:
| Content • Conduct keyword research to optimize for search • Produce and implement A+ Content and other copy • Design creative images aligned with target customer |
Marketing • Set up, launch, and monitor new campaigns on an ongoing basis • Modified the marketing structure to improve efficiency and reach |
| Logistics • Inventory preparation (on time and in proper quantities) • Create order plans including shipment creation and scheduling • Inventory forecasting plan that projected which ASINs were expected to be low stock and when |
Reporting • Regular reporting cadence to ensure KPIs were being hit • Conduct weekly, monthly, and yearly Amazon Seller Central reports to compare growth to the previous period • Quarterly review audits |
The Results
Thanks to Run AMZ, Midland Radio executed a seamless transition from Vendor Central to Seller Central. As a result, Midland Radio saw a 64.4% net revenue increase on Amazon! This is a result of both increased margin and increased volume driven by Run AMZ’s actions. Reseller management and enforcement also resulted in 93.6% within the first 5 months of the transition. Furthermore, the inventory forecasting process Run AMZ executed allowed Midland Radio to maintain a 94% in-stock rate during Q4, the busiest time of the year.
The average sales price of Midland’s products also improved, showing a dramatic increase in the revenue per unit sold. Because of this, a major big box store that previously dropped the brand due to price cutting margins brought Midland’s products back in-store.
By working with Midland Radio, Run AMZ demonstrated that transitioning from Vendor to Seller Central can help increase ASPs, grow sales volume, and ensure long-term profitability on Amazon.
Looking to achieve the same results? Talk with a Run AMZ expert today: https://runamz.com/contact/
