Amazon partners with you no matter the way you choose to grow your brand on Amazon. There are various ways by which you can sell on this platform including Amazon 1P, 2P & 3P. In this blog we are discussing the two of them; Amazon 1p Vs 3p. 1P is handling everything on single and seamless transactions with Amazon.com and it does look tempting. But most sellers prefer delivering products directly to the customers with 3P sales. The 3P model lays the groundwork for diversifying into other marketplaces, offers greater freedom, and can be much more profitable.
When it comes to Amazon 1P vs 3P, deciding between one depends on the infrastructure you establish, processes regarding how involved you want to be, and how you set up your logistics.
What Is Amazon 1P?
Vendor Central or 1P is considered the fastest as well as the most convenient way to sell on different marketplaces like Amazon or Walmart. It is also the most traditional method.
In 1P instead of creating listings on Amazon, you sell your products directly to the company. Amazon itself negotiates a wholesale price for your products, picks them up, and lists them. The platform controls the listings, sets up the price accordingly, and makes decisions regarding whether or not to make another purchase or when.
Pros
1P marketplace offers many benefits for manufacturers:
- Promotion, marketing, and slotting; Amazon handles everything.
- You will not have to handle customer service, direct-to-consumer marketing, or sales.
- As the marketplaces purchase large orders, so you can sell in bulk.
- Manufacturers don't have to worry about warehousing, packaging, etc.
- You don't have to deal with distribution or logistics.
Cons
- Amazon generally charges a 2% fee for freight allowance, a 4% to 10% fee for marketing costs, and other costs. These percentages fluctuate and Amazon negotiates overtime.
- You can't control the photos, listing, or pricing of your products on Amazon. For instance, Amazon negotiates a Minimum Advertised Price (MAP) with the manufacturers. But, it can still sell the goods for less than the price if there's another seller whether authorized or not, using a lower price. It is because the price-matching clause of Amazon outdoes the MAP clause. It is difficult to raise the pricing, once it is determined under MAP.
- Amazon often buys at lower negotiated rates, at wholesale pricing. There will be a nearly 20% to 30% reduction over the retail pricing at a minimum.
- There is no control over logistics. It means that fast-moving products can sell out frequently without being ordered in a timely manner. It costs a hefty revenue because fewer products will be sold.
- Pricing on Amazon might limit you to sell on other marketplaces. For instance, if Amazon is selling your products cheaper than Walmart, you won't be able to sell on Walmart.
What Is Amazon 3P?
Amazon 3P or Seller Central means selling directly to customers through the Amazon marketplace. It involves taking your products to Seller Central and listing them directly so that consumers can buy them. Using 3P, you can earn more but at the same time, you'll have to expand the infrastructure to handle logistics. Manufacturers today prefer to sell directly and 3P marketplaces are extremely vast.
Pros
3P sales offer more to manufacturers:
- You get more control over inventory and whatever stays in stock. You will not miss any sales because all the products were sold out.
- There is the freedom to expand to other channels without any risk that you will be delisted because of price variation.
- You get full control over the branding and presentation of your products, such as which products will be marketed and highlighted.
- As there is no middleman, you can make direct retail sales and get maximum profit per product.
Cons
For 3P you need a more hands-on approach which is the reason most brands avoid direct sales. Some of the challenges that manufacturers face with the 3P marketplace model are:
- There is still an Amazon fee to pay. On average Amazon, seller fee is 8% to 20% and is normally fixed per category. Charges are predictable.
- You need to meet all demands in a timely manner such as shipping, packing, and fulfilling orders. It means you'll have to adhere to the marketplace requirements, offer a satisfactory customer experience, and gather positive reviews.
- While shipping and prepping products, there will be additional costs. For instance, it's difficult to prepare for seasonal sales, you'll need extensive logistics to meet two-day shipping requirements.
Amazon 1P vs. 3P
Amazon 1P vs. 3P widely depends on your brand or organization and how much you want to be involved in the processes. 3P sellers have to handle things like direct marketing, logistics, and customer service. It needs greater business investment and things are also complex. However; in the long run, it can result in larger profits. Here’s all you need to know regarding Transitioning from 1P to 3P.
- Freedom to Diversity
Amazon 3P means you control being delisted and pricing. It means you can sell on other marketplaces. Diversifying across different marketplaces offers greater business security because if you face any issue regarding a marketplace or your seller account, you can still be secure on other sales channels.
Contrary to that 1P sellers are bound to a single marketplace, because there is a risk that you might get delisted elsewhere if you're selling the same products for a lower price on Amazon.
- Time vs. Money
With the 3P marketplace model the time expenditure goes up per sale, but with that profit per sale also increases. On the other hand, 1P reduces your hassle but cuts into margins simultaneously. Even if you're selling via 3PL like Amazon FBA, you still need to invest resources into building your infrastructure to prepare and ready your package for FBA.
- Control Over Brand
Selling via 3P means you have to handle product presentations, listing updates, or other alterations which need you to keep everything up to date, invest in merchandising, and create listings.
Contrary to that, if you sell your products directly to Amazon, you can provide marketing material. product descriptions, etc., upfront. After that, your product is in Amazon's hands. However, Amazon still charges for merchandising and you'll have no control over listing updates, product presentations, etc., even with the changes in your product.
Conclusion
1P focuses on seamless transactions with Amazon and there isn't any hassle as you give up almost all control of your sales to the marketplace. The 3P model needs more work to set up. However, there's freedom for expansion and you keep control of the business. Take the time to weigh the pros and cons of each model and then decide which one suits you the best.
Check our comprehensive guide on how you can easily grow your brand on Amazon with the expertise of SwiftStart.
Both Amazon 3P and 1P marketplace models have their own benefits and drawbacks, making them great options to sell on Amazon. The trick here is to evaluate each method and determine which one fits your requirements the best. You can always benefit from the new Amazon customer engagement tool to send email campaigns, keep customers engaged with your store, offer discounts & coupons, and educate customers about your brand.
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Related Questions to Amazon 1P vs Amazon 3P
What Is Amazon 1p Vs 3p?
In a 1P relationship with Amazon, your brand acts as a wholesaler selling products directly to Amazon as a retailer. It is basically a "Brand-as-Supplier" relationship in which Amazon buys products from you, sells them, and owns all the communication with the consumers to complete the sale.
Whereas in a 3P relationship with Amazon, your brand directly sells the products to the customers using the Amazon marketplace. You are responsible for everything including listing products, shipping to fulfilling orders to offer excellent customer service.
- 1P selling needs an invitation from Amazon vendor management. With 3P selling, there's no invitation needed.
- In 1P selling, Amazon takes care of optimizing your product pages. With Amazon 3P you take care of optimizing your product pages regularly.
- 1P selling offers you access to more Amazon advertising options, whereas in 3P you profit from higher profit margins.
- Amazon orders the products in bulk and sets the price in the 1P model. It takes care of fulfillment, customer service, and listing. On the other hand, in the 3P model, you take care of the shipping to the customers, customer interactions, prices, and listing content.
- With 1P, your products are automatically eligible for Prime benefits such as two-day shipping. While in 3P, you can only offer Prime benefits to customers if you use Fulfillment by Amazon (FBA) or Seller Fulfilled Prime.
Can A Seller Use Both 1P and 3P Selling Models?
Yes! sellers have the option to sell some products on Amazon and some products to Amazon. Many sellers on Amazon prefer a hybrid approach, where they benefit from both 1P and 3P features. Products that don't perform well in a 1P setup can do better under 3P. It is also an excellent way to test new products.
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