What Amazon business model should you pick in 2021? Amazon Wholesale and Amazon Private Label are great options, but which is better?
If you’re seriously thinking of getting into Amazon selling, you are most likely considering 2 potential business models: Amazon wholesale or Amazon private label. While both models can be profitable, they have vastly different strategies and logistics to scout, source, and sell their respective products. In this article, we’ll be breaking down the two to see which one would be best suited for your needs and why you should ultimately pick Amazon wholesale over Amazon private label. Before we can compare these two types of Amazon businesses, let’s do a quick rundown of each business model.
Amazon private label is the high-risk, high-reward model for Amazon selling. It starts with a seller finding a white label product, which is usually a generic product without any branding or labeling that can be bought in bulk from a manufacturer. Private label sellers take these unbranded products at low cost, slap their own brand name on them, and then resell the product on Amazon for a higher price. Amazon private label relies heavily on finding high-quality, generic products that can be rebranded and then market their products to be sold. Most private label sellers choose this model because it provides sellers with the most power and control of their products. They get to choose which products to sell, how much to sell products for and control their brand marketing.
Amazon wholesale is a medium-risk, high-reward model for Amazon selling. It starts with a seller finding an established product, which is usually a brand name product and buying these products in bulk from a manufacturer or brand owner. Wholesalers take these branded products and then resell them on Amazon for a higher price. Amazon wholesale relies heavily on finding well-established, branded products with a high return on investment and profit margins. Amazon wholesalers pick this model because it provides safe, consistent, and strong brand-name products that are guaranteed to have strong brand identities and established customers. While sellers have less control, working with brand-name products often leads to more consistent sales and revenue over time.
Now that you have a general understanding of both of these models, let’s start comparing to see why you should use Amazon wholesale.
Wholesale vs. Private Label: Brand Recognition
One of the biggest benefits of Amazon wholesale over Amazon’s private label is the established brand awareness, recognition, and reputation of their products.
Private label sellers gain more agency for their products, but an issue with starting a branded product is that it is simply too new. New products have no existing customer base and therefore have no brand recognition whatsoever. Marketing your brand can be extremely difficult and may require a ton of pay-per-click ads to gain traction for your generic products. In addition to the brand being new, another issue is the overall trust for the brand and product. New brands are essentially unknown, and therefore customers are less likely to purchase your products because they are unfamiliar with their quality and simply do not trust them enough to buy them immediately. If you decide to use private label selling, be sure to have a concrete marketing strategy upon branding your products.
Compared to private label, wholesale has a ton more brand recognition and awareness. Wholesalers can basically resell any existing product or brand on the market. Many brands already have dedicated consumer bases that trust a particular brand or product, meaning there are already customers willing to buy from wholesalers. Brand name products have set expectations in terms of product quality and value. This means wholesale sellers and their products have an inherent advantage over private label products without having to further market their products. With brand-name products, they market themselves.
If you do not plan on marketing your products or do not have any experience in growing a brand from the ground up, we highly suggest the Amazon wholesale model. This will allow new and inexperienced sellers to make a ton of sales and revenue without the need to grow a new brand or market products themselves.
Wholesale vs. Private Label: Buy Box and Pricing
The unfortunate truth about private label selling is that you can choose the selling price for your products, but Amazon will heavily regulate your prices to meet their requirements.
If you shop often on Amazon, you should be very familiar with the Amazon Buy Box. When you shop, your Buy Boxes most likely look like this photo below. The box will include the price and allow you to easily add the item to your cart or even buy the product now.
But once in a while, you may run into a suppressed Buy Box, which will look like this. Suppressed boxes are not a coincidence, these boxes are intentionally suppressed by Amazon.
When a product gets listed to sell on Amazon, Amazon will compare the listed selling price across the entire web, to see if that product is priced accurately. But, if the price is too high compared to prices on the internet, Amazon will suppress the Buy Box to make it harder for customers to check out your products. For private label sellers, this is a huge issue because you have no control over your selling prices. You may want to sell an item at a premium price, but if you decide to do that, Amazon will intentionally suppress your listing so customers will be deterred from buying your product. What does this mean for private label sellers? Well, it simply means that your products have a maximum selling price, at least on Amazon. If you decide to sell your products for too high, you’ll be penalized with a suppressed Buy Box, and if you sell too low, you’ll lose out on potential profits. While you want to have complete control over your private label products, Amazon makes it essentially impossible to have full control over the price.
Amazon wholesale is a lot simpler. For branded products, most manufacturers will have a minimum advertised price (MAP) that indicates the minimum selling price that all sellers must meet. If a seller goes under the MAP, they may be penalized by the manufacturer and lose access to the products. Amazon also regulates the maximum selling price for branded products but in a different way.
While wholesalers can set a premium price, they won’t suppress your Buy Box unless you are the only seller selling for an extremely high price. If other sellers are selling the same products, Amazon will prioritize sellers with the lowest price in the Buy Box so the customer gets the best deal. What does this mean? It means that wholesale sellers should try to match the lowest price possible if they want to maximize their sales and time in the Buy Box, but, will not penalize the entire listing if you decide to sell your products for a higher price. While private label selling gives more control over pricing, it also increases the risk of being suppressed by Amazon.
Wholesale vs. Private Label: Copycat Products
A problem that you may come across as a private label seller is competing with duplicate or “copycat” goods.
Looking back at the private label model, private label sellers purchase bulk unbranded products from a manufacturer and then add their brand names to those products using logos, labels, and other brand identifiers. But, what is stopping anyone from going to the same manufacturer and buying the same products then adding their brands to compete with your products? The answer is virtually nothing. It is quite impossible to purchase a generic product and expect no other competitors to enter your market, especially if they see your product is selling well.
Essentially, Amazon private label leads to a plethora of similar or identical products with different brand names. This is extremely problematic for any private label seller since there will always be other sellers entering your market segment and there are little to no barriers to entry. What’s worse is that these other sellers do not have to have the same manufacturer as you. They could find a different manufacturer that produces similar products but with poor materials and worse quality. Copycat goods can also reflect poorly on your products, even it is a different brand. If a customer buys a copycat’s product but the product is extremely worse, they may leave bad reviews for your products because they look similar! Bad reviews weigh heavily on Amazon sales, since most potential buyers may be deterred from buying your product due to another copycat good ruining your reputation.
Look at this photo from Amazon. By simply typing in “water bottles” to Amazon’s search bar, the first 4 products that appear are all private label products selling similar or identical products. Each of these products could come from different manufacturers, with some having better quality than others. This is just one example of how competitive the private label market is with copycat products.
In comparison to private label, Amazon wholesale virtually negates this entire issue because all sellers are selling the same product and brand. With wholesale, all the sellers selling the product have to source their products from authorized brand manufacturers. Every time you source a product, the supplier must be approved by the brand owners (or is the brand owner) and they undergo strict quality assurance processes to ensure all their products are of similar, high quality. In addition to quality, all of the same branded products are sold under the same listing and Buy Box on Amazon, which means that the competition is much lower. We cover this topic in detail in our blog on 6 Strategies to Win the Amazon Buy Box, but, if you are selling a brand-name product on Amazon, you just need to match the lowest prices within the Buy Box and Amazon will automatically give your listing sales. In doing so, wholesale sellers never have to worry about copycat goods or other sellers selling the same products.
When deciding your Amazon business model, keep this problem in mind before you start sourcing your products. If you do not want to have to compete with copycats or the risk of low-quality duplicates, we highly recommend using the wholesale model.
Wholesale vs. Private Label: Defect Rates and Product Quality
Like we mentioned in the previous section, a benefit from using Amazon wholesale and selling branded products is that their quality assurance process is usually a lot higher than the standards of private label manufacturers. As a result, branded products have better quality and build, and tend to have lower defect rates for their products.
With private labels, defect rates can be substantially higher. Defect rates can be extremely detrimental to your brand and product. Not only does Amazon penalize sellers with high defect rates, but unsatisfied customers may leave negative seller reviews on your profile or leave poor ratings and reviews on your private label products. Customers with defective products may also request refunds which may incur service fees on your Amazon account and lower inventory levels substantially. All these aspects considered, defective private label products can easily destroy your brand and ruin your sales.
Something that also happens within the private label space is competitors intentionally buying your products to leave bad reviews or claim your products are defective. Other private label sellers who are selling similar items as you may want to take your product down. So, these competitors will buy your products, then claim the product was defective and leave a negative review on the product and your seller account. While this practice may not be common, the potential threat from other private label sellers reveals a weakness within Amazon private label.
To be extra safe, sellers worried about defective products or competing sellers can mitigate this risk with Amazon wholesale. As mentioned, the branded products have a lot less competition and lower defective rates, making this issue is practically non-existent.
Private Label Sabotage Tactics
Fake reviews and ratings are not the only tactics that competitive private label sellers will use to take down your product or hurt your business. There is a multitude of other sabotage tactics they can take that every private label seller or potential seller should know. Here are some of the other harmful methods sellers will use to hurt your Amazon private label business:
- Steal your product information: competitors selling duplicate products will try to take your sales by stealing your product information. They would essentially take anything from your listing and copy it for theirs including titles. descriptions, visuals, keywords, and more.
- Steal your product photos: this is a common tactic from copycat goods, where they will find your private label listing, and take the product photos and use them for their own listings. This is quite common within Amazon and other e-commerce platforms where your product photos are stolen and used for a competing product.
- Report your seller account: competitors may report your account to Amazon to get your account suspended. This happens after they submit a ton of fake defect reports or bad reviews, which leads to Amazon suspending or banning your seller account for selling fake, defective, or counterfeit products.
Amazon Wholesale or Amazon Private Label?
If you decide to pursue Amazon selling, keep these advantages in mind. We want to note that we have nothing against Amazon private label. It provides a ton of agency for sellers to control their products and the direction of their brand that is unmatched. But, it is very important that account for the potential risks that come with private label selling. If you are a new seller or inexperienced at building a brand, we highly recommend the Amazon wholesale model because it mitigates all the risk that comes with private label selling. Amazon wholesale provides high profitability without any of the issues that come with private label selling. At this point, we think the choice is pretty obvious.
The next step is to pick your model and start selling, and we can help! For starters, check out our Beginner’s Guide to Selling Wholesale Products on Amazon and our blog on 7 Steps to Activate Your Amazon Seller Account. After you get set up, we can help your business off the ground with our FBA tools to help you scout, source, and sell wholesale products that will grow your inventory and increase your sales. What are you waiting for? We’ll see you on Sellgo.com!