Forbes Global 2000 has named Amazon the world’s sixth-largest corporation, making it a popular destination for brands pursuing online commerce. If you want to be one of those brands, you must understand Amazon 1P vs 3P.
Isn’t it just a matter of coming up with SEO-friendly product names and appealing descriptions to sell on Amazon? Sadly, the answer is NO. Choosing between 1P and 3P Amazon is critical since it will have a significant impact on your business operations and profitability.
This post will go over the distinctions between 1P vs 3P on Amazon. Continue reading to learn more about each business model and how Lab 916 helps select the best solutions for your brand.
Amazon 1P vs 3P: What Does It Mean to Become An Amazon 1P Seller?
When it comes to Amazon 1P vs 3P, many brands find it highly appealing to be a 1P seller. This is thanks to the fact that they are not required to deal with customers. Instead, they only need to sell their goods to Amazon, and the rest would be taken care of.
However, not everyone is cut out to be a 1P seller. To become one, you must first receive an invitation from Amazon. You will need this invitation to gain access to the Vendor Central platform.
The platform will then offer you a purchase order at a wholesale rate. Once you’ve settled on a price, you’ll send your products to the platform and it will immediately list them online. Having said that, you have no control over how Amazon markets and prices your things.
Yes, control is a key factor in the battle of Amazon 1P vs 3P. Consequently, as a 1P seller, you will have limited control over your own products. The platform will market your products as necessary and decide whether or not to place another order with you.
Being a 1P seller on Amazon is obviously not always a terrible thing. Below, Lab 916 will delve deeper into the subject and examine the upsides and downsides of being a 1P seller.
Benefits of Being An Amazon 1P Seller
One of the most fascinating features of becoming an Amazon 1P seller is that you won’t have to worry about logistics and distribution. You will also not be responsible for direct-to-consumer sales and customer support.
The platform will handle everything from marketing to advertising to scheduling. It also relieves you of all the legwork because other important details such as packaging, warehousing, and so on have been addressed.
Overall, you are virtually immune to inventory risk. In terms of customer convenience, all products sold under the 1P scheme are instantly eligible for Prime privileges. This includes two-day shipping, which is quite convenient for customers.
Drawbacks of Being An Amazon 1P Seller
Unfortunately, selling 1P generally results in significantly reduced profits for your products. Because Amazon buys at wholesale prices, you should expect to receive up to 30% less margin than if you sell retail.
Furthermore, Amazon may restrict your ability to sell on other platforms. This is especially true if it offers a discount on your product. For example, if the current price of your goods on Amazon is cheaper than the price on eBay, you cannot supply your product to eBay.
Another problem is that you will lose control over your products. The platform will have control over everything from listing details and product photos to selling prices and special promotions.
So, what are your thoughts on becoming an Amazon 1P seller? Of course, judging the winner of Amazon 1P vs 3P is still premature. Continue reading because we have a lot more to say about the two selling models.
Amazon 3P vs 1P: What about Becoming An Amazon 3P Seller?
Any entity selling on Amazon’s marketplace that is not Amazon itself is a 3P seller. In general, they are divided into two categories: private label sellers and merchants.
Private label merchants are those who also make the things they sell. Retailers, on the other hand, acquire the product from the producer and resell it on Amazon for the retail price. Manufacturers sometimes choose to engage with a 3P seller to sell their merchandise on Amazon. It is usually due to a lack of resources to simultaneously manufacture and sell things on Amazon.
You can, however, ignore whether a 3P seller is a private label or a retailer. What is important is that a 3P seller is anyone who sells THROUGH Amazon. What exactly does it mean? It simply means that these sellers are leveraging Amazon as a channel to obtain more exposure and make more sales of their products.
While 1P merchants have access to Vendor Central, 3P sellers have access to Seller Central. They can pick between two types of seller accounts: individual and professional. Without a doubt, with a more extensive list of features, the latter is preferred by the majority of sellers.
When a company decides to become a 3P seller, it must upload its products to Seller Central and list them for sale directly to customers. While it can earn more money, it must also invest more time and resources to handle logistics.
Furthermore, many 3P merchants use the Fulfillment by Amazon (FBA) approach to fulfill orders. This method is a kind of compromise between the other alternatives: Fulfillment by Merchant (FBM) and Seller Fulfilled Prime (SFP).
Benefits of Being An Amazon 3P Seller
The most obvious advantage of becoming a 3P seller is the ability to maximize profit per product. This is especially true if you are a private label seller because there is no middleman involved.
You also don’t have to be concerned if Amazon isn’t marketing your products as well as you would like. You can instead have complete control over product display and advertising, including working with Lab 916 to choose products to feature and promote.
And perhaps the freedom to extend into other channels is something you will never have as a 1P vendor. You can sell your products anywhere as a 3P seller without fear of getting delisted owing to Amazon’s regulations.
Drawbacks of Being An Amazon 3P Seller
But, don’t open another tab on your browser and google “How to become an Amazon 3P seller” just yet. To be fair in this Amazon 1P vs 3P battle, we must explain the disadvantages you may face as an Amazon 3P seller.
Being a 3P seller, on the other hand, demands a far more hands-on approach. You are solely responsible for listing creation and optimization, as well as advertisement management. You must also complete packing, shipping, and order fulfillment in a timely and efficient manner.
You should also not overlook client service. Keeping a continuous interaction with clients requires dealing with refunds, answering queries, and addressing concerns effectively.
Furthermore, Amazon FBA has stringent packaging and inspection regulations that you must adhere to. Thus, preparing and delivering things might add to the expense of your business. Luckily, many of these can be done easily by employing Lab 916.
Essentially, choosing to become an Amazon 3P seller brings new complexities. Of course, the FBA option comes with its own set of pluses, which you can factor into your margins. Still, your profitability as a 3P seller will depend on your sales volume and existing supply chain.
Amazon 1P vs 3P: Which Is Better for My Business?
To be honest, deciding between Amazon 1P vs 3P is not always easy. Your needs as a company will inevitably determine the arrangement you choose as a seller.
Apart from capacities and channel conditions, you must first evaluate revenue and profits. Your company’s profitability is made up of a variety of criteria, just as it is for all companies on and off Amazon. So, consider this: “What makes my business the most productive on Amazon?”
To make the best decision between 1P vs 3P Amazon, do a profit analysis and examine your average selling price. You should also examine your inventory capacity, as well as the weight and size of each of your merchandise.
Most brands would prioritize choosing a supply chain that will assist them to maximize their sales. This makes sense because revenue is certainly an important aspect of marketing anywhere online.
However, things on the platform have shifted slightly in recent years. Choosing between 1P vs 3P on Amazon used to have a massive impact on a business. This is especially true in terms of revenue, as Amazon offered a variety of programs tailored to each selling model.
Amazon has since discontinued many of the schemes. Instead, the platform focuses on developing basic and effective programs, many of which are obviously simpler to manage than others.
Eventually, your safest bet is to avoid oversimplification in your rational decision. Try to focus on your brand’s strengths, channel objectives, and overall profitability.
When selecting a supply method, try not to be overly concerned with revenue. Choose one that best fits your marketing techniques and supply capacity.
Only consider a hybrid option if you have a compelling reason to do so and can handle the added difficulties. Wait, what is a hybrid option? Don’t worry about it too much because we’ll go over it later.
How Can I Transition from 1P vs 3P Amazon?
Not all players in the Amazon 1P vs 3P battle are committed to one side. Some brands are questioning the 1P selling model because of several factors. Complicated seller negotiations, lower product assurance, and stringent price algorithms are some of the reasons.
The complexity of the 1P model is the main source of frustration for sellers. Understand that if you rely solely on crisis intervention in Vendor Central, you are managed by Amazon’s VSP. VSP is a service that helps vendors and Amazon with non-technical concerns. It addresses issues such as handling queries regarding purchases, payments, and shipping status via a web portal.
However, the team in charge of the VSP feature is often overburdened. They are constantly monitoring vendor insights and getting in touch whenever necessary. Furthermore, it is normal for them to manage hundreds of vendor accounts, making it hard for brands to receive dedicated help when needed.
The Amazon 3P program, on the other hand, gives sellers a more hands-on style of running their operations. They can interact with an account manager immediately and receive detailed instructions on how to handle inventory, marketing efforts, and so on.
Therefore, in order to maximize their Amazon potential, an increasing number of brands are opting to become 3P sellers and work with Lab 916. However, this does not entail that they have abandoned the 1P selling model entirely. Instead, they have chosen a hybrid method.
This hybrid strategy is gaining traction. It enables businesses to explore various pathways in various sectors without letting someone have complete control over their products.
Still, there are brands that are making a hard switch to becoming absolute 3P sellers. They are typically brands that sell in a wide variety of product categories and want more control over their supply chain. As an Amazon 3P seller, you have authority over practically every part of your branding and distribution process.
To get the most out of your selling experience and boost your sales, pay attention to crucial areas. Marketing, MAP policies, and maximizing product performance on Amazon are examples of these. And, if you want to boost your Amazon sales by becoming a 3P seller, make sure your items stand out from the crowd.
Because there are so many 3P sellers on Amazon, it’s tough to stay competitive across the board. Learn how to update and manage your Amazon product listings on a continuous basis. This is critical for attracting more attention from customers and increasing the credibility of your brand.
Our comparison of Amazon 1P vs 3P above should provide you with a fundamental understanding of the pros and cons of each option. Essentially, the major difference between these two options boils down to authority.
Nonetheless, Amazon offers a fantastic opportunity for a brand to meet its objectives while also increasing its customer base. Once you’ve determined the winner between Amazon 3P vs 1P, it’s time to plan your strategy on this massive platform.