Selling on Amazon – the 1P vs 3P dilemma

02/12/2020

Marketplaces By ChannelAdvisor

Whether you’re a shopper or a retail brand, Amazon needs no introduction.

Already a global juggernaut, Amazon has soared to even greater heights in the COVID-19 era, with a huge new audience shopping online and transaction volumes at record highs. 

For many brands, selling on Amazon has become a critical part of their online strategy. But there is a vast delta between just selling on Amazon and really maximising the potential value of Amazon to drive sales and profit for your business – and it all starts with your relationship with the global giant.

 1P vs 3P – what does it all mean?

There are two key classifications for brands selling on Amazon:

First-party (1P)

A 1P relationship with Amazon means the brand acts as a wholesaler and sells directly to Amazon as the retailer. This is a traditional ‘brand as supplier’ relationship, with Amazon buying products, selling them and owning all communication with the consumer to complete the sale.

First-party relationships with Amazon are managed via interaction with the Amazon vendor management team and online via Vendor Central. One important note however – a 1P relationship with Amazon requires that the brand receive an invitation from Amazon’s vendor management team.

Third-party (3P)

A 3P relationship means the brand sells direct to Amazon customers via the Amazon marketplace. The brand is responsible for listing products, as well as fulfilling sales and providing customer service. Third-party relationships are available to almost anyone without invitation though certain product categories require Amazon pre-approval.

Brands should be aware that highly successful third-party Amazon sellers had to move to a first-party relationship or to stop selling on Amazon altogether on rare occasions.

A hybrid approach

Retailers may also choose to take a hybrid approach, combining both 1P and 3P relationships with Amazon. For instance, assuming you’ve secured a first-party invitation and that Amazon chooses not to sell your entire range, your brand may be allowed to sell non-overlapping lines under a 3P arrangement.

Limitations for Australian retailers

Before considering the differences between 1P and 3P relationships, it’s important to note that brands selling in the Australian market do not have access to a 1P relationship with Amazon through ChannelAdvisor.

1P v 3P – 5 things you need to know

There are a multitude of considerations for brands seeking to develop a relationship with Amazon.

How you interact

First-party relationships are managed via Amazon’s default user interface known as Vendor Central or via comparable services provided by suppliers such as ChannelAdvisor. These services are made available via a web portal with functionality for order management, sales reports and more. 

Third-party interactions with Amazon occur online via Amazon’s Seller Central portal. Companies such as ChannelAdvisor provide e-commerce solutions for managing and optimizing merchandise sales across hundreds of online channels including Amazon.

Managing your inventory

As a first-party supplier to Amazon, the brand has little control over the SKUs that Amazon sells. As a third-party seller, the brand maintains complete control over what products are listed and when they’re listed.

 Warehousing & fulfilment

In the first-party model, Amazon purchases and takes control of your inventory and therefore is responsible for warehousing products and shipping orders to customers. In the third-party model, the seller is responsible for warehousing products and fulfilling customer orders. The one exception to this is where retailers use FBA (Fulfilment by Amazon). FBA means Amazon manages these services on behalf of the retailer for a fee.

Payment terms

Amazon’s standard payment terms for first-party brands are Net 90, which may cause a cash-flow problem for smaller companies. For most third-party sellers, funds are transferred from the Amazon Seller Account to a bank account every 14 days.

 Marketing services & analytics

Amazon offers a range of powerful marketing and analytics services for both first and third-party sellers. These include:

Third-party sellers on Amazon also have access to the Sponsored Products program for any items featuring the Amazon Buy Box (the white box on the right side of the Amazon product details page where customers can add items for purchase to their cart).

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