Editor's note (March 2019): This blog was originally published in April 2017. It has been updated to include new insights and information regarding Amazon's rumored One Vendor.
When it comes to Amazon, every online seller seems to want a piece of that pie. After all, Amazon flaunts over 100 million subscribers in the US and billions of visits each month.
But every Amazon journey begins with an important question: Should you sell first-party to Amazon, or third-party through its marketplace? This blog covers the difference between the two and why many companies choose to take a hybrid approach. Discover which path is right for you and how to make Amazon work for your brand.
Vendor Central, 1st Party, 1P
Under this approach, Amazon sells your products via a wholesale relationship. Amazon sends you a purchase order, and you ship your inventory back. Amazon gains ownership of your products and controls the pricing thereafter. Every associated ASIN will display "Ships from and sold by Amazon.com."
Seller Central, 3rd Party, 3P
Under this arrangement, you stay in control of your products. Amazon's marketplace simply acts as another sales channel through which you can list, price and sell items. You're in charge of shipping and inventory. You're also responsible for maintaining a high seller score to earn your right-to-sell. Note: You can choose to lean on Amazon to fulfill orders through its Fulfillment by Amazon (FBA) program. Alternatively, you can fulfill orders from your own warehouse or a third-party warehouse (Fulfillment by Merchant, FBM).
Let's Recap: 3P vs. 1P Key Traits
<th class="tg-38kr">Third-Party Marketplace (3P)</th>
<th class="tg-3yha">First-Party Marketplace (1P)</th>
<td class="tg-ibqw">Professional Selling Plan for $39.99 monthly subscription fee, or Individual Selling Plan for $0.99 fee for each item that sells. Both plans are subject to variable closing fees.</td>
<td class="tg-gxsv">Invitation only. Participating merchants are subject to variable vendor fees (a.k.a. terms, or percentages taken on the Purchase Order amount) and potential chargebacks</td>
<td class="tg-ibqw">Sell direct to consumer (D2C)</td>
<td class="tg-gxsv">Sell to Amazon at a wholesale price (subject to negotiation)</td>
<td class="tg-ibqw">Responsible for listing, pricing and fulfilling orders (though Amazon FBA is also available)</td>
<td class="tg-gxsv">Amazon lists, prices and fulfills orders. Amazon can and will adjust pricing any time, even if it falls below your Minimum Advertised Pricing (MAP) guidelines.
<td class="tg-ibqw">Access to Seller Central for creating and publishing product listings, receiving orders, monitoring inventory, handling pricing, advertising and reporting </td>
<td class="tg-gxsv">Access to Vendor Central for handling purchase orders from Amazon, providing product information, merchandising, viewing payment, advertising and reporting </td>
To Sell, or Not to Sell 1P to Amazon...That Is the Question
A 1P relationship often catches the eye of brands and sellers who want to wash their hands clean of operating another sales channel. Other times, Amazon will take notice of a 3P seller and propose a wholesale relationship regarding a certain SKU or group of SKUs.
But as with anything, selling direct to Amazon has its pros and cons. Below is a quick rundown. For more details, check out this article on 1P vs 3P by our friends at Buy Box Experts.
Amazon 1P Pros:
- Bulk purchase orders from a retail giant
- ASIN (listing) optimization by Amazon's internal merchandising team
- Listing priority since Amazon is incentivized to sell through your inventory
- Brand credibility, since your products are sold directly by Amazon
Amazon 1P Cons:
- You lose control over your pricing since Amazon has the right to sell at whatever price their automated system decides -- even below your MAP policy
- Your margins are reduced since you're selling at wholesale prices, not retail prices
- Your payment terms are longer than the 14 day disbursement cycle on the marketplace
- Amazon gains leverage as you become more reliant on your relationship with them. This leads to lower margins and longer payment terms.
Hybrid Selling on Amazon: 1P and 3P Merger
To avoid becoming too reliant on Amazon, many successful sellers (including brands and manufacturers) maintain a hybrid arrangement with Amazon. They'll sell a portion of their SKUs directly to Amazon (1P) and the rest via the marketplace (3P). Amazon's merchandising teams are selective about the SKUs that they decide to carry 1P, too—the math needs to make sense—so some SKUs may be left alone for 3P selling.
We believe that a hybrid model is the safest approach if you're not already selling 3P. By selling 3P, your brand can stay in control of pricing and the customer experience, plus increase your chances of landing a sale beyond 1P availability by extending your inventory.
With all the activity surrounding Amazon One Vendor, it's especially important to safeguard your business. Small suppliers and brands have seen purchase orders vanish overnight, and have scrambled to open a Seller Central (3P) account to continue selling on Amazon. Don't wait until it's too late to strengthen your Amazon strategy. Consider how you can reap the benefits of 3P, even as a 1P seller.
Adding 3P (Marketplace) to Amazon If You Already Sell 1P to Amazon
- You can open up a marketplace account and safely sell products that Amazon 1P is not selling.
- You may be able to sell your 1P ASINs through your own marketplace account, but we recommend asking your Amazon rep first if they have any objections. We recommend telling them that you want to have products available via FBA in case 1P runs out of inventory.
For questions or support shifting from 1P to 3P, contact our team.
Zentail is a multichannel software platform that makes it easy to sell on Amazon, eBay, Walmart Marketplace, Jet.com, Google Shopping, Google Shopping Actions, Shopify, BigCommerce and a growing selection of channels. Centrally manage product information, listings, inventory, orders, business analytics and reordering from one beautiful interface.
Schedule time with a Zentail expert to see how we can transform your Ecommerce business.