Defining Your Amazon Strategy – 1P to 3P Transition
Your supply method selection is a very important part of the foundation of your Amazon business. Although Vendor Central (1P) and Seller Central (3P) provide similar marketing capabilities there are still many factors to acknowledge with your supply distribution relationship.
Companies operating as first-party vendors sell their products to Amazon, and Amazon then sells these products to consumers. Many companies begin their Amazon journey as Vendors however, as a seller you do business directly through the Amazon marketplace.
For brands and manufacturers who are new to the Amazon marketplace, navigating the platform at times can be overly perplexing. There is no way to know for sure what will be the right move for your business. Both 1P and 3P have advantages and disadvantages. Depending on your goals, your choice should reflect your resources and proficiency.
Factors to Consider
- Supply Chain & Logistics
- Funding
- Inventory
- Pricing Strategy
- Distribution
- Assortment
- Goals & Success Metrics
Amazon is a platform that is forever changing. At one point in time, 1P may have been effective for your business however, that does not mean that 3P may be the right transition for your business today.
Amazon 1st Party (1P)
In this model, you choose to sell your assortment to Amazon at wholesale pricing and allow them to be your 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 POs. This business is run either through the Vendor Central portal.
Amazon 3rd Party (3P)
In this model, you set up your own Amazon storefront and choose to sell your assortment direct to consumers becoming the Retailer. This business is managed through the Seller Central portal. Sellers on Amazon have full brand authority which gives them the freedom to control their own products while 1P vendors give Amazon the authority to sell and manage their products.
Over the years the number of 3rd party sellers on Amazon has increased significantly. Brand control is one of the main reasons why companies are choosing to transition from 1P to 3P.
In the long run, the benefits of switching to 3P are increased profit margins, pricing control and more. Seller Central requires more demanding work on the part of the seller however, it also brings a higher probability of opportunities.
Conclusion
In conclusion, the best Amazon brand strategy for your company ultimately depends on how you want your products to be displayed and what level of control you seek. If you care more about driving top-line sales and less about your retail price points, maybe the 1P model is right for you. If you have a large assortment and want to better control your retail price points than maybe the 3P model is right.
If you need a winning Amazon strategy or have any additional questions, please don’t hesitate to contact one of our Channel Key Amazon consultants. As a Full-Service Amazon Agency, we are dedicated to helping you increase your sales. Talk to our Channel Key team.
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