Amazon is one of the world’s largest e-commerce platforms, and it offers two primary selling options for businesses: 1p (first party) and 3p (third party) selling. We’re breaking down the differences between Amazon 1p vs 3p selling options, with pros and cons for each….
Amazon 1p First-Party Selling
First-party (1p) selling is where Amazon purchases products directly from manufacturers and resells them on its platform. Amazon manages the product listing, pricing, and customer service for these products, which are sold under the Amazon brand. This is also known as a wholesale or retail relationship, and many would consider it to be the “traditional” approach to selling products.
You can only become a 1P seller through a direct invitation from Amazon.
Amazon 3p Third-Party Selling
Third-party (3p) selling, on the other hand, is where businesses sell products directly to customers on the Amazon platform. This option allows businesses to maintain control over their product listings, pricing, and customer service. 3p sellers have the ability to set their prices and are responsible for handling their own customer service, returns, and refunds. They also have access to various tools and services provided by Amazon, such as Amazon Advertising, which can help them promote their products and reach a larger audience.
To become a 3P seller, you start by setting up an Amazon Seller Central account.
Pros and Cons of Amazon 1p vs 3p
While both 1p and 3p selling options have their advantages and disadvantages, choosing between the two largely depends on a business’s goals and priorities. 1p selling offers businesses the convenience of Amazon’s customer base and streamlined selling process, but they lose control over pricing and customer service. 3p selling, on the other hand, offers businesses more control over their listings and pricing but comes with additional risk and responsibilities for customer service and returns.
Pros and Cons of 1P Selling on Amazon:
- Direct relationship with Amazon: As a 1P seller, you have a direct relationship with Amazon, and your products are listed as sold by Amazon. This may increase customer trust and lead to higher conversion.
- Products sold by Amazon are eligible for Amazon Prime and two-day shipping, which can increase customer satisfaction and sales. Your products may also be more likely to receive badges such as Amazon’s Choice and priority placement in search results.
- Access to Amazon’s logistics network: 1P sellers can take advantage of Amazon’s vast logistics network, which includes fulfillment centers, transportation services, and customer service.
- Because you are selling to Amazon wholesale, you don’t have to worry about inventory risk.
- Limited control: Since Amazon is responsible for managing the listing and sales process, you have limited control over pricing, inventory, and promotions.
- Because Amazon has control over pricing, they may sell your products below your established Minimum Advertising Price (MAP), potentially lowering your profit margins or upsetting other retail partners.
- Lack of control over product listings also means a potential lack of brand consistency across channels.
- Lower profit margins: 1P sellers typically have lower profit margins compared to 3P sellers, as Amazon takes a significant of the sales price, and controls product pricing (as stated above).
- Limited access to customer data: Amazon owns the customer data and does not share it with 1P sellers, making it difficult to develop targeted marketing campaigns and build customer relationships.
- Payment schedule: You may receive payments less frequently than with a 3P selling relationship.
- Amazon can terminate your 1P selling relationship at any time, leaving you without a platform to sell your products.
Pros and Cons of 3P Selling on Amazon:
- Greater control: As a 3P seller, you have greater control over pricing, inventory, and promotions, allowing you to optimize your sales strategy and increase profitability.
- Inventory control means you can share inventory across marketplaces, when necessary.
- Control allows for more strategic selling on Amazon, including the ability to adjust pricing, manage advertising, and run promotions. This can allow 3P sellers to have higher revenue and profit margins than through the 1p model.
- Branding: As a third-party seller, you manage your listings and storefront, giving you creative control to develop well-designed listings that will carry your brand messaging across channels.
- Access to customer data: 3P sellers have access to customer data (still limited), allowing them to develop targeted marketing campaigns and build customer relationships.
- Competition: 3P selling on Amazon is highly competitive, with many other sellers offering similar products at similar prices.
- Customer Service: 3P sellers are responsible for handling customer service inquiries and resolving issues, which can be time-consuming and in some instances costly.
- Inventory Management: Because you are not operating through a wholesale model, you take on inventory management and therefore inventory risks.
- Risk of Suspension: You must adhere to Amazon’s terms and services, and can be subject to account suspension.
- Fees Impacting Margins: Brands must pay additional fees to Amazon for being a 3P seller.
Amazon 1p vs 3p and Seller Central vs Vendor Central
Amazon 1P and 3P selling models are closely connected to the Amazon Seller Central and Vendor Central platforms.
- 1P selling model: Amazon purchases products from the vendor and sells them directly to customers. Vendors use Vendor Central to manage their products, pricing, and inventory. They have limited control over the sales process, but benefit from a direct relationship with Amazon.
- 3P selling model: Sellers list their products on Amazon and sell them directly to customers. Sellers use Seller Central to manage their listings, inventory, pricing, and order fulfillment. They have more control over the sales process, but also face more competition and are responsible for customer service and returns.
In conclusion, the primary difference between Amazon 1p vs 3p selling options is the wholesale model vs direct to consumer selling, as well as who is responsible for managing the product listing, pricing, and customer service. By understanding the pros and cons of each selling option, businesses can make informed decisions on which option is best for them and their products.