Amazon Marketplace Strategy

March 2017
Amazon Marketplace Strategy - Goat Consulting March 2017

© 2017, Goat Consulting, or its affiliates. All rights reserved.

Notices

This document is provided for informational purposes only. It represents Goat

Consulting’s current product offerings and practices as of the date of issue of this
document, which are subject to change without notice. Customers are responsible for
making their own independent assessment of the information in this document and any
use of Goat Consulting’s products or services, each of which is provided “as is”
without warranty of any kind, whether express or implied. This document does not
create any warranties, representations, contractual commitments, conditions or
assurances from Goat Consulting, its affiliates, suppliers or licensors. The
responsibilities and liabilities of Goat Consulting to its customers are controlled by
Goat Consulting agreements, and this document is not part of, nor does it modify, any
agreement between Goat Consulting and its customers. Amazon® and Amazon.com®
are Registered Trademarks of Amazon.com. Goat Consulting is an independent
consulting firm and is not affiliated with, owned by, nor endorsed by Amazon.com.

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Amazon Marketplace Strategy - Goat Consulting March 2017

Table of Contents

Contents 3

Introduction 4

The Amazon Marketplace 5

Amazon Keyword Search 5

Product Detail Page 6

Buy Box 7

Amazon Business Models 8

Third Party Selling Business Models (Seller Central) 9

Seller Central - Fulfilled by Amazon 9

Seller Central - Merchant Fulfilled 11

First Party Business Models 13

Vendor Central 13

Vendor Express 15

Beta and Future Business Models 16

Next Steps 17

Conclusion 17

Contributors 17

Notes 18

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Amazon Marketplace Strategy - Goat Consulting March 2017

Introduction

In 2015, Goat Consulting began offering Amazon Marketplace business services to

brands and manufacturers selling on the Amazon.com marketplace. One of the key
benefits to bringing on a partner like Goat Consulting is that it gives brands and
manufacturers the opportunity to work with experts who devote their entire focus to
the Amazon Marketplace.

This white paper is an introduction to selling on the Amazon.com selling platform. It

discusses what the Amazon Marketplace is, how customers shop on the platform,
competition for the Buy Box and the different business models for selling on
Amazon.com.

We hope that by the end of reading this you have a better understanding of:
● The opportunity of selling on Amazon.com
● How Amazon.com customers shop on the platform
● The different business models for selling on Amazon

By the end of this you will be able to confidently discuss how your business can benefit
from the Amazon.com sales channel. If you have any questions regarding this white
paper or anything Amazon related, please reach out to us at
https://www.goatconsulting.com/contact-us.

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Amazon Marketplace Strategy - Goat Consulting March 2017

The Amazon Marketplace

Amazon.com was founded by Jeff Bezos on July 5, 1994 with the vision to be the
world’s most consumer-centric company, where customers can come to find anything
they want to buy online.”1. What started as an online book store has evolved into a
multifaceted company that runs the world's largest retail marketplace. Amazon proudly
proclaims to be the everything store. Products are listed for sale from all categories
including2: books, B2B business products, electronics, art, home and garden, industrial
and scientific, music, office products, outdoors, software, toys and wine — to name a
few of the large, small, heavy and light items that can be bought on Amazon.com.

Amazon not only has a large base of customers, but that customer base is growing.
The current 63 million3 prime customers in the United States each spend $1,624 a year,
according to a research note published by the Deutsche Bank in June 20164.
Amazon’s 300 million5 customers easily browse through this immense catalog thanks
to Amazon’s easy-to-use keyword search. A major factor for how Amazon has reached
this point of leadership among online marketplaces is its dedication to developing
systems for increasing competition between sellers of similar products. We will explore
this in the next section.

Amazon Keyword Search

A customer’s purchase pathway on Amazon.com begins with the keyword search. In

the search bar a customer types what they are looking to buy.

Amazon’s algorithm takes the key word and loads products that are associated with
that keyword. Amazon then ranks product listings based on the relevance to the
keyword and their popularity as a product. This is called the “Search Results Page.”
It’s imperative that sellers on Amazon know what keywords Amazon.com customers
are using to search for their products so they are able to construct their product listing

1
https://www.entrepreneur.com/article/197608
2
https://services.amazon.com/services/soa-approval-category.htm
3
http://www.geekwire.com/2016/new-study-amazon-reaches-63m-u-s-prime-members-surpassing-half-
of-customer-base-for-first-time/
4
http://www.businessinsider.com/how-much-amazon-prime-customers-spend-every-year-after-they-
become-members-2016-6
5
https://www.statista.com/statistics/237810/number-of-active-amazon-customer-accounts-worldwide/

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Amazon Marketplace Strategy - Goat Consulting March 2017

to be included in that list, or “indexed.” On this search page, each product’s title,
image, brand name and customer reviews are displayed.

This is the first stage of competition. Different vendors and sellers targeting similar
keyword searches are constantly competing to be the highest-ranked product listing.
The average Amazon shopper never goes past the first page of the search results.
Amazon keeps the keyword search algorithm a secret, but some factors that help in
your product ranking are: Sales velocity (selling more than your competitors),
converting highly (when a customer searches a keyword, clicks on your product listing
and makes a purchase). Note that these factors are updated constantly and sellers
must think about their product relative to their competition.

When the customer finds an item they’re interested in they click on the product to bring
them to the item’s “Product Detail Page.”

Product Detail Page

The Product Detail Page is where Amazon shoppers educate themselves about the
product.

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The page contains the product’s retail price, title, images, brand name, bullet points
and a brief description of the product. The amount of characters you can use for title,
bullet points and description is limited, so it is important to carefully craft these points
so your customers can find your products easily and understand their value. Once a
customer has decided to make a purchase, they generally go to the Buy Box to begin
the checkout process.

Buy Box

The Buy Box is the next stage of competition on the Amazon.com platform. One of the
things that makes Amazon’s marketplace different than others is that on Amazon more
than one seller can sell the same item as long as it has the same UPC, EAN or GCID. If
more than one eligible seller offers a product they may compete for the Buy Box for
that product, pitting different vendors of the same product against each other.

To give customers the best possible shopping experience, sellers must meet
performance-based requirements to be eligible to compete for Buy Box placement. If
more than one seller is eligible, then they will compete for the Buy Box. Three factors
go into winning the Buy Box:
● Sold By - if Amazon.com is directly selling the product, they will win the Buy Box
the majority of the time
● Prime Eligibility - will win the Buy Box over anyone who is not Prime Eligible
considering all other factors equal
● Price - If all other factors are equal, the seller with the lower price will win the
Buy Box
● Seller Rating - tiered system where the seller with the highest seller rating will
win the Buy Box, if all other factors are equal

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Amazon Marketplace Strategy - Goat Consulting March 2017

Now that you have a complete understanding of how customers shop, let’s take a look
at the different selling options on the Amazon marketplace.

Amazon Business Models

Amazon.com offers multiple different business models for businesses that want to sell
their products on Amazon. Product ownership and fulfillment method are the main
differentiation factors for selling on Amazon. For ownership of the product, the
business models break into two groups. Third Party selling, which is direct to
consumer retail selling, and First Party, which is selling your products at wholesale
prices to Amazon, and Amazon is the end retailer. Both of these selling models have
pros and cons and should be considered carefully. Amazon Prime is Amazon’s two-
day shipping service that has become extremely popular and plays a heavy role in
Amazon customers’ shopping decisions. The business model you choose affects your
eligibility for Amazon Prime as well as costs of doing business on the platform. Here is
a diagram outlining the different business models:

Amazon Selling
Business Models -
Overview

1st Party Selling - 3rd Party Selling -

Vendor Selling to Consignment
Amazon selling on Amazon

Vendor Vendor Seller Central - Seller Central -

Central Express Merchant Fulfilled by
Fulfilled Amazon

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Amazon Marketplace Strategy - Goat Consulting March 2017

Both Seller and Vendor Central have secure online platforms which allow you to
manage your catalog, edit price points, upload new products, open support cases with
Amazon.com and track important retail metrics. First we will look at the Third Party
Selling business models that include FBA and merchant fulfilled. Then we will look at
First Party Selling that includes Vendor Central and Vendor Express.

Third Party Selling Business Models (Seller Central)

There are two different Seller Central business models offered by Amazon that allow
your company to sell directly on Amazon: Fulfillment by Amazon (FBA) or Merchant
Fulfilled. Selling through Seller Central, regardless of the distribution model, requires
the seller to pay an Amazon Referral Fee. This fee is for utilizing the Amazon channel
and selling to Amazon.com customers. The fee varies based on the product category6
but typically is between 15 to 20 percent of the product’s retail price on Amazon. Let’s
first look at Fulfilled by Amazon and then compare that with Merchant Fulfilled through
Seller Central.

Seller Central Fulfilment by Amazon (FBA)

In this business model you sell your products directly to the end customer and you
retain ownership in the product until the product is sold. With Amazon FBA you send
inventory into Amazon’s fulfillment centers for warehousing and order fulfillment7.
Amazon takes care of all fulfillment, returns and general customer service on your
products. There are multiple fees associated with using Amazon.com’s FBA service.
Amazon FBA fees are priced based on a tier system that groups products based on
product weight and dimension.

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https://www.amazon.com/gp/help/customer/display.html?nodeId=1161240
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https://services.amazon.com/fulfillment-by-amazon/benefits.htm

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Amazon Marketplace Strategy - Goat Consulting March 2017

Here are the current costs associated with utilizing the Fulfillment by Amazon services8:

Seller Central FBA - Fulfillment Fees per unit: Includes picking and packing your orders, shipping and
handling, customer service, and product returns

Product Tier Name Max Size Cost Monthly

Inventory
Storage

Standard Size - Packaged item that is 12 oz or less with its longest side 15" $2.41 $0.64 per
or less, its shortest side 0.75" or less, and its median side 12"
Small (1 lb or less) cubic foot
or less.

Standard Size - Any packaged item that is 20 lb or less with its longest side $2.99 $0.64 per
18" or less, its shortest side 8" or less, and its median side
Large < 1lb cubic foot
14" or less.

Standard Size - Any packaged item that is 20 lb or less with its longest side $4.18 $0.64 per
18" or less, its shortest side 8" or less, and its median side
Large 1- 2 lb cubic foot
14" or less.

Standard Size - Any packaged item that is 20 lb or less with its longest side $4.18 + $0.64 per
18" or less, its shortest side 8" or less, and its median side
Large > 2lb $0.39 lb over cubic foot
14" or less.
first 2 lbs

Small Oversize - Any packaged unit that is 70 lb or less with its longest side $6.85 + $0.43 per
60" or less, its median side 30" or less, and its longest side
Over 2 lb or $0.39/lb cubic foot
plus girth 130” or less.
exceeds standard above first 2
size lb

Medium Oversize Any packaged unit that is 150 lb or less with its longest side $9.20 + $0.43 per
108" or less, and its longest side plus girth 130" or less.
$0.39/lb cubic foot
above first 2
lb

Large Oversize Any packaged unit that is 150 lb or less with its longest side $75.06 + $0.43 per
108" or less, and its longest side plus girth 165" or less.
$0.80/lb cubic foot
above first
90 lb

Special Oversize Any packaged unit that exceeds one or more of the following: $138.08 + $0.43 per
Over 150 lb (dimensional weight or unit weight), over 108" on
$0.92 lb cubic foot
its longest side, or over 165" when longest side is added to
girth. In addition, products that we determine require special above first
handling or delivery will qualify for Special Oversize. 90 lb
*Note: Amazon.com Fulfillment Fees are subject to change. October-December are calculated at a
different rate than January-September which is listed above.

In this business model you are in full control of your product’s listing and the retail
price at which you set it. By utilizing this method you are responsible for setting the
price, sending in inventory, advertising your product and editing or creating the listings

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copy and images. Amazon pays your account’s sales balance to your business every
14 days. All Amazon FBA fees and charges are taken out of this balance before it is
paid out to your company.

By outsourcing your order fulfillment to Amazon, your products get the all important
Prime designation which guarantees two-day delivery to customers. Some additional
services offered by Seller Central FBA include FBA label, prep, repackaging and
inventory placement services. These additional services are packaging and shipping
preparation solutions for your company.

Seller Central - Fulfilled By Amazon (FBA) - Pros/Cons

Pros Cons

● Amazon Prime eligibility ● Could lose the Buy Box to “sold

● Outsourced Fulfillment by Amazon.com”
● No internal Returns management ● Multi-warehouse inventory
● Amazon holds inventory management
● Retail Price Control ● Assorted Amazon FBA Fees
● Self-Service Product Listing
Editing

Companies It Works Best for: Any size company with a supply chain, inventory or
logistics that can’t support Amazon.com order fulfillment. Also great for companies
who want to free up warehouse and inventory storage space. However, companies
need to carefully consider FBA’s many fees and how they will apply to their products in
order to truly know if Seller Central FBA will be a good fit for their company or not.

How to Get Started:

1) Create a Seller Central account
2) Write effective product copy
3) Upload catalog
4) Send inventory into Amazon's fulfillment centers
5) Run marketing to drive traffic to listings

Seller Central (Merchant Fulfilled)

Seller Central (Merchant Fulfilled) is similar to FBA in that you are selling on the
Amazon marketplace. Like in the Seller Central FBA business model you are in total

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control of your product listing. You are in charge of setting the price, creating your
product listings and advertising your product. This business model differs from
Fulfillment by Amazon because your business is responsible for fulfilling, processing
and returning orders. You do not send inventory into Amazon.com’s fulfillment centers.
Your company fulfills all orders as they come in from Amazon.com. One benefit of
Seller Central (Merchant Fulfilled) is the ability to personalize your packaging, include a
personalized note and provide added customer service. Depending on your product
and category, this can drive customer engagement, increase brand loyalty and set you
apart from other brands and products sold on Amazon. The only fees associated with
doing business through Seller Central (Merchant Fulfilled) is the Referral Fee mentioned
in the “Third Party Selling Business Models” section which ranges between 15 to 20
percent of a product’s retail price based on the product category.

Seller Central - Merchant Fulfilled - Pros/Cons

Pros Cons

● Lower Fees relative to Seller ● No Amazon Prime Eligibility

Central FBA ● Lose the Buy Box to prime eligible
● Retail Price Control products
● Easiest business model to start ● Seller is responsible for
selling on Amazon warehousing product
● Self-Service Product Listing ● Order fulfillment and returns
Editing provided by seller
● Ability to personalize packaging, ● Returns and customer service
add personalized notes and offer provided by seller
added customer service

Companies It Works Best for: Any size company that has a supply chain, warehouse or
logistics in place that can support Amazon.com order fulfillment. Also work well for
companies whose catalogs contain large or oversize products that are expensive to
hold in Amazon’s fulfillment centers. Companies interested in Seller Central Merchant
Fulfilled need to take a critical look at their supply chain, fulfillment capabilities to make
sure it is a good fit for them.

How to Get Started:

1. Create a Seller Central account
2. Write effective product copy
3. Upload Catalog

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Amazon Marketplace Strategy - Goat Consulting March 2017

4. Share fulfillment/shipping information

5. Run marketing to drive traffic to listings

First Party Business Models (Vendor selling to Amazon)

There are two different business models offered by Amazon that allow your business to
establish a vendor relationship with Amazon, Vendor Central and Vendor Express. As a
vendor, Amazon buys products directly from you in bulk. Pricing is negotiated with
Amazon at the beginning of the vendor relationship.

Vendor Central

In this business model you sell your products wholesale to Amazon. Amazon then turns
around and sells your product on Amazon.com as Amazon. Pricing for your products is
negotiated before they are uploaded to Amazon. You also send Amazon the MSRP
pricing for your products so they can be priced correctly on Amazon.com. The product
title and brand name is retained but Amazon is the seller of the product. Amazon will
place POs with your company weekly or biweekly.

Amazon pays invoices for the POs between 30 to 60 days. Pricing for products are
negotiated with Amazon as products are uploaded. Vendor Central is invite only.
Occasionally, Amazon will pair your business with an Amazon.com buyer who will
negotiate pricing with you and assist in some of the tasks associated with the
migration of your product catalog onto Amazon. Sellers who use the Vendor Central
business model enjoy increased sales velocity and their products receive great
placement in the Amazon.com marketplace.

There are unique fees that can be incurred when using the Vendor Central business
model. The most common fees incurred on Vendor Central are called chargebacks.
Chargebacks can be seen as deductions on PO payments made by Amazon.
Chargebacks can result from problems with either the shipping or receiving processes
in transit from your location to Amazon’s fulfillment centers. Chargebacks can also
occur if your products are not properly packaged or labeled. Chargebacks claimed by
Amazon can be disputed for 30 days following the initial claim. A chargeback can be
disputed twice. If the dispute fails twice it can no longer be disputed.

The cost of doing business on Vendor Central is the Co-Op fee which covers damages,
marketing, and pre-paid freight.

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Amazon Marketplace Strategy - Goat Consulting March 2017

Vendor Central Co-Op

Fee Purpose

Damage Allowance Covers returns and damages, can be opted out and
receive returns instead

Marketing Co-Op Fee Covers some admin costs

Pre-Paid Freight Covers sending products to Amazon

You are also responsible for creating and managing content for your listings and
marketing your products on Amazon.com. Your business pays for all marketing and
advertising expenses on Amazon.com. However, Amazon will occasionally offer
promotional marketing and ad pricing. Amazon’s Vendor Central partners also get first
access to Amazon’s new services and programs, giving them a competitive edge on
many non-Vendor Central sellers.

The process of editing listing, product and pricing information is another point that
differentiates Seller Central from Vendor Central. In the Seller Central business model
you can log onto the Seller Central and manually edit any listings information directly
from the platform. In Vendor Central any edits must be made by opening cases with
Amazon.com customer support and submitting product edit forms and templates. This
results in extended product upload and edit time. Pricing is also much less flexible in
Vendor Central. Once product pricing is negotiated with Amazon, increasing it can be
an arduous process and can take months to go into effect.

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Amazon Marketplace Strategy - Goat Consulting March 2017

Vendor Central - Pros/Cons

Pros Cons

● Amazon Prime Eligibility ● Limited Price Control

● Increase Sales Volume ● Longer Edit and Upload Process
● No Order Fulfillment for Listings
Responsibilities ● Vendor Central Co-Op Fees
● No Returns or Customer Service ● Invite Only
Responsibility
● Amazon Holds Inventory
● First Access to New Amazon
Programs & Services
● EDI Compliance

Companies It Works Best for: Works best with large companies and manufacturers.
Great for manufacturers who are set up in a wholesale business model. Vendor Central
is compliant with most EDI systems used by business. When setup correctly, Amazon
syncs perfectly with your EDI and their POs are taken and fulfilled like anyone of your
other wholesale accounts.

How to Get Started:

1. Get invited to join Vendor Central by Amazon.com
2. Negotiate pricing
3. Write effective product copy
4. Upload catalog
5. Run marketing to drive traffic to listings

Vendor Express

In this business model you sell your products wholesale to Amazon. Amazon then turns
around and sells your product on Amazon.com as Amazon. The product title and brand
name is retained but Amazon is the seller of the product. This business model differs
from traditional Vendor Central because it is not limited to invite only. However,
because it is open to all businesses, pricing negotiation is less flexible. Initially there is
a trial period where Amazon will ask for your company to donate products for Amazon
to test your products in their market. While your products may test favorably resulting

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in POs from Amazon in the future, there is the chance the products do not sell on
Amazon resulting in no future POs and your company has to carry the cost of the
donated product. Vendor Express often acts as a feeder program for Vendor Central
and businesses that do well on Vendor Express are often invited to Vendor Central.

Vendor Express - Pros/Cons

Pros Cons

● Amazon Prime Eligibility ● Limited Price Control

● Increase Sales Volume ● Potential for Smaller Margins
● No Order Fulfillment ● Chargeback Fees
Responsibilities ● Trial Program Risk
● No Returns or Customer Service
Responsibility
● Amazon Holds Inventory
● Feeder Program for Vendor
Central

Companies It Works Best for: Large to medium-sized companies that are interested in
Vendor Central but have not been invited to the program. Sellers has less leverage in
this business model to negotiate favorable pricing with Amazon.com compared to
Vendor Central. Companies also carry some risk while going through the trial period for
this business model.

How to Get Started:

1. Create a Vendor Express Account
2. Go Through Trial Period
3. Negotiate Pricing
4. Write effective product copy
5. Upload Catalog

Beta and Future Business Models

Amazon is an innovative company that continues to provide new ways of getting

products to customers. Just as ecommerce has disrupted traditional brick and mortar
shopping, there will be new business models and fulfillment methods that will disrupt
the current sales and distribution methods. We are already seeing this with programs

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Amazon Marketplace Strategy - Goat Consulting March 2017

such as: Ordering through voice-activated devices like the Amazon Echo9, just walk out
grocery store Amazon Go10, and drone delivery through Amazon Prime Air11. New ways
of getting products to customers will continue to be developed. Amazon’s new
business models, services and programs are typically rolled out as betas and offered
to vendors before being available to all sellers.

Next Steps

Goat Consulting offers Amazon Marketplace business services to brands and

manufacturers selling on the Amazon.com marketplace. Whether you are just
expanding to the Amazon channel or you have been selling for some time but are in
need of some assistance, we are here for you. We hope that after reading this white
paper you have a better understanding about the opportunity of selling on Amazon and
you are able to confidently analyze which business model works best for your
business. If you have any questions regarding this white paper or anything Amazon
related, please reach out to us at https://www.goatconsulting.com/contact-us.

Conclusion

We have covered what the Amazon Marketplace is, how customers shop on the
platform, competition for the Buy Box and the different business models for selling on
Amazon.com.

We hope that you have a better understanding of:

● The opportunity of selling on Amazon.com
● How Amazon.com customers shop on the platform
● The different business models for selling on Amazon

Thank you for taking the time to learn more about the Amazon sales channel.

Contributors

Will Tjernlund, Reed Thompson, Eric Sutton

9
https://www.amazon.com/gp/help/customer/display.html?nodeId=201807210
10
https://www.amazon.com/b?node=16008589011
11
https://www.amazon.com/Amazon-Prime-Air/b?node=8037720011

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Notes

This document is provided for informational purposes only. It represents Goat

Consulting’s current product offerings and practices as of the date of issue of this
document, which are subject to change without notice. Customers are responsible for
making their own independent assessment of the information in this document and any
use of Goat Consulting’s products or services, each of which is provided “as is”
without warranty of any kind, whether express or implied. This document does not
create any warranties, representations, contractual commitments, conditions or
assurances from Goat Consulting, its affiliates, suppliers or licensors. The
responsibilities and liabilities of Goat Consulting to its customers are controlled by
Goat Consulting agreements, and this document is not part of, nor does it modify, any
agreement between Goat Consulting and its customers. Amazon® and Amazon.com®
are Registered Trademarks of Amazon.com. Goat Consulting is an independent
consulting firm and is not affiliated with, owned by, nor endorsed by Amazon.com.

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