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1P Vendor or 3P Seller, Survival on Amazon Starts with these Seven Strengths
The Amazon marketplace is home to products from both first-party (1P) vendors and third-party (3P) sellers. A 1P relationship features items that Amazon buys and resells directly to customers. The 3P model is a direct-to-consumer sale using Amazon as the conduit between seller and buyer. While first-party arrangements with Amazon are less common since they are by invitation only, third-party selling is open to virtually any company willing to do the work required to list their product on Amazon.
It’s clear that each approach comes with pros and cons for the brand. But regardless of how a company’s products are sold on the platform, success can depend on how well they manage each of these critical aspects of Amazon survival.
Keeping products in stock is vital for both vendors to Amazon and the sellers utilizing the platform to reach consumers directly. As a 1P Vendor, brands are invited to supply products to Amazon that the company subsequently sells in its marketplace. In this scenario, Amazon manages the inventory in its fulfillment warehouses and places orders to its 1P partners via a purchase order when it wishes to re-stock. While this may seem simpler than the responsibilities of a 3P Amazon seller, it does come with some drawbacks to keep in mind. For example, payment for product orders can take longer, 60 to 90 days in some cases. In addition, access to vendor managers at Amazon can be inconsistent, making it more difficult to manage the relationship.
In the case of 3P sellers, they retain complete control of their inventory management and have the flexibility to choose the best approach for their business. Many opt for the Fulfillment by Amazon (FBA) model and pay for space in Amazon’s warehouses to store their products, as well as paying fees to have the company ship to Amazon customers. Others keep their inventories stored elsewhere. Regardless, products have to be in stock to fulfill customer orders. Companies using FBA face steep fees for inventory that sits in an Amazon warehouse for too long or can risk losing a hard-earned Buy Box if products are unavailable for purchase. This delicate balance makes inventory management one of the most important aspects of a successful Amazon relationship.
While the fulfillment process is drastically different for 1P and 3P relationships, it’s still equally important. Since 1P vendors are fulfilling a bulk order from Amazon rather than a small order from the end user, the focus shifts to meeting the guidelines placed on vendors by the marketplace. It’s critical that the companies supplying Amazon with products understand the labeling, packing and shipping requirements to avoid expensive chargebacks that can be hugely detrimental to profits.
Alternatively, a third-party seller may have an array of fulfillment responsibilities to consider. Direct fulfillment by the company will require close attention to shipping and tracking options and ensuring the packaging used is appropriate to keep items in good condition during transit. If a company chooses to use Amazon Fulfillment Centers for Amazon orders and a traditional approach for sales that originate elsewhere, they will need to be concerned with complying with Amazon’s FBA requirements, similar to 1P Vendors. Whether an Amazon Vendor or Seller, companies can simplify their fulfillment logistics by using Amazon’s Multi-Channel Fulfillment for all of their customer orders.
Once a first-party vendor delivers their products to Amazon, control of the marketing is limited. However, 1P brands are eligible to complete the Amazon Brand Registry process, giving them access to A+ Content to support their products on the platform. Vendors also have access to Amazon advertising, such as Product Display Ads, Sponsored Product Ads, and Sponsored Brand Ads to attract customers to their products. Beyond the in-platform content control and advertising options available to some brands, the marketing focus for 1P growth should be on developing the vendor relationship with Amazon and maximizing the wholesale orders.
Third-party sellers, on the other hand, are responsible for the entirety of their marketing efforts. From product listing optimization and customer-facing efforts to pricing and Amazon Storefronts, there is a much more robust menu of options to ensure brand protection. While there’s much more potential to drive sales via a well-executed marketing strategy, doing so can be overwhelming for companies without the in-house expertise to design and implement a successful plan.
The simplicity of a 1P relationship may be most evident when it comes to pricing. As an Amazon 1P vendor, products are sold to the online retailer at a wholesale price. Amazon can then set the retail price that customers will pay without consultation or approval from the vendor. Typically, this lack of price control is less attractive for products with high retail margins.
3P sellers have complete control of their pricing strategy on Amazon. However, their decisions can impact a product listing’s performance within the platform’s algorithm and, in the case of products with competing sellers, the likelihood of capturing the Buy Box. Therefore, managing price effectively as a third-party marketplace seller requires a clear understanding of your margins and the ability to maximize both profits and Amazon optimization.
The rapid growth of the e-commerce industry and the dominance of Amazon has made it more important than ever for both 1P and 3P partners to stay aware of changes to the platform’s policies and be vigilant for threats from competitors, legitimate and otherwise.
First-party vendors have experienced difficulty ensuring that Amazon complies with its MAP policies. Since Amazon places a substantial emphasis on offering shoppers a competitive price and has total control over pricing in 1P arrangements, it’s not unusual for them to discount items below a brand’s declared minimum advertised price.
Meanwhile, Amazon 3P sellers need to be particularly aware of the problems they may face from opportunistic and unauthorized retailers. These competing retailers can also undercut an otherwise effective MAP program, use fraudulent reviews to gain an algorithm advantage, or harm the brand by selling counterfeit products. Third-party partners need to have a process in place to identify these types of activities and be deeply familiar with the tools available to combat them.
Customer service can make or break a brand in the highly-competitive world of e-commerce. While a positive customer experience can create loyalty and repeat buyers, a negative review can have repercussions that extend well beyond the unhappy buyer.
A first-party relationship with Amazon can allow a company to minimize customer service duties since the role of fulfillment, contact and returns processing becomes the domain of Amazon. Still, a 1P seller should plan to monitor product reviews closely to catch product quality issues or other problems before the damage to the brand is too severe.
Like so many of the aspects covered here, 3P selling is more involved. Often, it means facing the daunting task of meeting customer expectations alone. While third-party retailers can share customer service via an Amazon FBA agreement, they will otherwise have to manage inquiries, refunds and returns independently. Regardless, creating the best possible customer experience should be a priority for brands seeking growth.
Unfortunately, a vendor relationship with Amazon can be even more unpredictable than direct-consumer sales. Re-orders are often based on the company’s demand algorithm, which can change quickly. In a worst-case scenario, 1P brands could be dropped from the platform with little or no notice. Data on consumer sales through Amazon are also more limited for vendors compared to third-party sellers, and the availability of data reporting via Amazon Vendor Central has declined in recent years. In addition to the usual difficulties in forecasting what lies ahead for a brand, 1P suppliers these circumstances can create even more hurdles than other direct-to-consumer brands.
3P sellers with the capacity and capability to analyze it effectively have a wealth of data available to them to help plan for the future. While the usual caveats that accompany the fast-moving e-commerce industry apply, it can be easier for third-party partners to access the resources necessary to identify and address threats to their sales. As mentioned, forecasting can also be critical to minimizing warehouse costs for FBA participants due to Amazon’s efforts to discourage slow-moving products. Similarly, understocking can lead to a loss of sales and optimization if a product is out of stock for prospective buyers.
Make Amify your brand’s strongest asset
1P and 3P businesses in every product category face hurdles when trying to grow on the Amazon platform. Find out what’s holding your brand back and let the experts at Amify create a plan to streamline your responsibilities and increase profitability. Start a conversation that can enhance your company’s future on Amazon today.