Amazon sellers have a lot to consider when deciding how to sell their products. Should you use a 1P model, where you sell directly to retailers like Amazon? Conversely, a third-party relationship (3P) can allow you to sell via Amazon (as a platform) while retaining control over branding and pricing.
Luzern eCommerce explains the main things you need to know when comparing Amazon 1P vs 3P. At the end of the article, we share the benefits of a hybrid business model, which can help your eCommerce business drive sales and build brand presence.
First-party sellers (1P) sell directly to Amazon — as a wholesale supplier. The process is as follows:
You can, however, still edit and promote your listings so Amazon buys more of your best-selling items. Advertising tools can help you grow your brand, as you create product display ads, sponsored product ads or brand ads. For 3P sellers which we’ll explore down below, only Buy Box winners can access these features. Note that Amazon may charge additional fees relating to advertising, merchandising, co-ops and chargebacks.
1P sellers use Vendor Central—a portal Amazon uses to process transactions, and for sellers to search for purchase order statuses, product information and analytics insights.
While Amazon takes ownership and assumes control over your products, you are still fully liable for your products—and should take out liability insurance as a requirement by the platform.
Overall, the 1P approach is much more hands-off - requiring limited time and effort for the seller. Its key benefits include:
The biggest disadvantage with first-party selling is the fact that you can't control pricing or branding on your products. This means profit margins may be lower; as you may not comply with your Minimum Advertised Price (MAP) policy. Other downsides include:
3P sellers operate on the Amazon marketplace: merely using it as a channel. Your store retains its branding, and you gain the business of Amazon’s global customer base. Via Seller Central, you can:
Pricing and inventory management are key aspects of any 3P Amazon store. 3P sellers can choose to fulfil orders in three ways:
The main advantage of the 3P business model is its flexibility: giving you control over the most important aspects of your business. You can control your products and pricing via one of two seller accounts—Individual and Professional. Other benefits for third-party sellers include:
The main disadvantage of the 3P model is that it is time intensive. It takes significant effort and resources to market products and maintains inventory. Other disadvantages include:
With a hybrid approach, you can reap the best features of both models. Many successful businesses do this: selling some products to Amazon, and some directly to consumers.
But what does this look like in practice? A blended Amazon 1P and 3P model can take many shapes; it depends on the needs of your business, and the level of control you would like. There are some products that will do better under one model compared to the other - making this a great option for businesses looking to test new products or marketing material.
There are many benefits associated with a hybrid business model—the main one being its flexibility. For example, you may want to control pricing and inventory for certain items with the 3P model, while Amazon takes care of your best-sellers through the 1P method. Other advantages associated with the hybrid model include:
The benefits of a hybrid model are appealing to most business owners, but there are a few things to consider before jumping in. Most importantly, know this: with greater customisation comes greater time and effort on your part. To successfully meet the requirements of both models, you will need to manage the following through both Seller and Vendor Central, on a daily basis:
To summarise, Amazon sellers have three choices:
There is no one-size-fits-all strategy for every business; your objectives are unique and should be weighed against the pros and cons of each model above. From the checkout experience through to supply chains and fulfilment, it’s important to consider your needs as a business, as well as the amount of time and budget you’re willing to invest.
Luzern offers a managed eCommerce platform that optimises sales, margins and inventory across channels and geographies for leading brands across the globe. We have a proven track record of dramatically growing online revenues for brands and we are trusted by household names such as Philips, Fossil, JDE coffee, Panasonic, Petsafe, HTC and Nestle.
By using our deep expertise and technology, we extend your eCommerce capabilities to attract and convert buyers, boost margins and improve customers’ experience of your brand. Our technology enables us to excel at the execution-end of eCommerce, bringing you speed and agility across channels (Amazon & other Marketplaces, Webstores) and geographies.