As a seller on Amazon, one of the most important decisions you will make is deciding whether to sell on Vendor Central (1P) or Seller Central (3P). A simple Google search will bring up an endless array of articles and blogs on this topic. Most of them say the same thing: Amazon 1P and 3P models both have their advantages and disadvantages, and deciding which is right for your business depends on numerous factors including:
- Supply Chain & Logistics
- Pricing Strategy
- Goals & Success Metrics
All this is true, but it’s only the beginning of the conversation – especially for businesses that have decided 3P is the right model for them. Transitioning to Seller Central is a major change that will impact both the short-term and long-term operations of your company. The good news is: 3P offers an opportunity to significantly increase not just revenue, but net profits. The bad news is: if you don’t transition strategically, it will be much more challenging to succeed on Seller Central.
As an e-commerce channel management agency with a proven track record on Amazon, we’ve helped many businesses make the change from Vendor Central to Seller Central. We know first-hand the common pitfalls that businesses often face along the way, and more importantly, how to navigate around (and sometimes through) them. It can be a complicated process. To help simplify it, we’re going to detail two primary challenges a Channel Key client faced during their transition from 1P to 3P, and most importantly, how we helped our client overcome them, checkmate their competition, and ultimately crush it on the Amazon marketplace.
Understanding the Amazon 3P Model
First, the basics. In the 1P model, you are the wholesaler and Amazon is the retailer. This follows a traditional 2 tier distribution model where you negotiate pricing and terms with your Amazon buyer, sign a Vendor Agreement, and ship your product to Amazon when sent weekly replenishment purchase orders. This business is run through the Vendor Central portal.
When you transition to 3P, you become the retailer. In this model, you set up your own Amazon storefront and sell your products directly to consumers. Sellers on Amazon have full brand authority and complete control over how their products are listed and marketed. Unlike 1P Vendors, 3P Sellers set their own pricing, determine which products to list and promote, and manage their own inventory. All of this requires much more work than the 1P model, but if done correctly, it can lead to higher profits.
Managing the Amazon Sell Down Period
Many businesses begin their Amazon journey on Vendor Central. When you transition to Seller Central, you need to build your storefront on the platform and create all-new listings for your products. Here’s the catch: Amazon probably still has items in their warehouse that you sold to them as a vendor. If you list these products on your new 3P storefront, you’ll essentially be competing with Amazon. Spoiler alert: they’ll win every time. You will need to wait for Amazon to sell the very last item of a particular SKU before you sell the same item on Seller Central. This is called the “sell down” period. Even when Amazon runs out of your product, there might be other resellers offering those items as well. Managing these conflicts is paramount to winning the buy box and controlling pricing for your inventory as a 3P Seller.
The following is an actual 1P to 3P conversion scenario for an active Channel Key client with a seven-figure Amazon business. They have 144 parent SKUs and 270+ total SKUs in their assortment. Not only did Amazon own some of their products during their transition, but there were also several resellers competing with Amazon for the buy box on these items. This is a precarious position to be in because not only was our client losing the buy box (and therefore not generating any new sales), but the competition between Amazon and 3rd party sellers were driving the price on these items down. Resellers were offering our client’s #1 product at a 42%+ discount off the MSRP and MAP.
Channel Key created our client’s Seller Central Account and implemented an aggressive, customized strategy to regain control of their brand on the Amazon marketplace. After changing their 1P status from Planned Replenishment to Obsolete in Vendor Central, we severed distribution channels to the brand’s primary 3rd party reseller. The 1P Amazon sell down period took approximately 120 days, during which Channel Key created a fully optimized 3P storefront (more on this below).
Through careful management of the sell-down period, Channel Key helped our client grow their percentage of the buy box win for their top ten products to 93%. Since then, their #1 product has not deviated from the MSRP/MAP. Their Vendor Central to Seller Central sales comparison- adjusted from July to December (YoY) resulted in a 17% Top-Line Decrease and a 151% Bottom Line-Increase.
The Power of Content and Inventory Control
Another important step of transitioning from 1P to 3P is optimizing your content. One of the main challenges for our client was not only the competition for the buy box against Amazon and resellers but also regaining control of the brand’s catalog and presence on the platform. Many of their products listed by resellers were disorganized and poorly optimized. While managing the sell-down period, Channel Key created an organized 3P storefront, secured Brand Registry, and created fully optimized listings with Enhanced Brand Content based on a detailed keyword search strategy.
Once our client had control over their brand listings, we leveraged aggressive and comprehensive Sponsored Products and Headline Search Ad programs for both branded and non-branded search terms to drive traffic to the storefront listings. Overall, Channel Key’s content optimization and advertising strategy achieved numerous measurable results including:
- Converting 100% to 3P with no degradation in revenue
- Doubling net margin profitability
- Driving 33.3% of sales from sponsored products at a 5% ACoS
- Increasing overall conversion rate from .57% to 7.95%
- Generating 50 seller reviews and 103 product reviews within 10 months
The Key to Transitioning from Vendor Central to Seller Central on Amazon
Transitioning from 1P to 3P is different for every brand. In the above scenario, our client’s primary challenges were: 1) regaining control of their brand, and 2) neutralizing 3rd party resellers quickly and efficiently. Remember, timing matters. When you’re no longer filling weekly Amazon replenishment purchase orders as you do with the 1P model, the longer it takes to win the buy box for your items means the longer you go without Amazon sales for those items.
Checkmating resellers isn’t the only challenge that can cause expensive delays during your 1P to 3P transition. The key to moving your Amazon business to Seller Central successfully is to identify what hurdles your business is likely to face, then implementing a strategy that will overcome these hurdles promptly. For this reason, partnering with an e-commerce channel management agency is often the best and most profitable way to transition from 1P to 3P on Amazon.