As an Amazon seller, one of the most important decisions you will make is whether to sell on Vendor Central (1P) or Seller Central (3P). Both have their advantages and disadvantages, and determining which is right for your business depends on numerous factors including:
- Supply Chain & Logistics
- Pricing Strategy
- Goals & Success Metrics
Brands often begin their Amazon journey on Vendor Central. At some point, for reasons we’ll discuss, they often decide to transition to Seller Central. Under the right circumstances, this migration can unlock greater profit, but it’s not always the right move. Here Channel Key explores the differences between 1P and 3P, and how to determine which model will best position your business for success on Amazon.
Understanding Amazon 1P (Vendor Central) and 3P (Seller Central)
First, the basics. Amazon 1P stands for “first-party”. In this 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 Amazon, sign a Vendor Agreement, and sell your products to Amazon. All of this takes place through the Vendor Central portal. Amazon then becomes the retailer and sells these products to customers.
With Amazon 3P, or “third-party”, you become the retailer. In this model, you set up your own Amazon storefront and sell your products directly to consumers. After meeting certain requirements, sellers on Amazon have full brand authority and complete control over how their products are listed and marketed. Most importantly, 3P sellers make retail margins instead of wholesale margins.
Top 3 Reasons Why Brands Switch from Vendor Central to Seller Central
As a full-service channel management marketplace consulting agency, Channel Key has helped many brands 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, which is why it is important to first determine whether migrating to Amazon 3P makes sense for your brand. While this typically requires an in-depth analysis of your business, below are the most common reasons for transitioning to Seller Central.
- Channel Conflict & Pricing Control
In the 1P model, Amazon purchases products from you and sells them to customers on its marketplace. Unfortunately, Amazon will not sign a Minimum Advertised Price (MAP) agreement. This makes it difficult to control your retail pricing and often complicates your relationships with other retail partners.
- Purchase Order IssuesAs a vendor, your Amazon revenue depends entirely on purchase orders. As long as your products are selling and Amazon is making profit, you will continue to receive purchase orders. The moment your products stop selling, or if Amazon decides they can’t make a profit, they will stop ordering your products. This dependence creates a vulnerability and puts your brand in an insecure position.
- Lower MarginsAs discussed, Amazon purchases products from 1P vendors at wholesale prices that are negotiated during setup. Once the contract is in place, it is virtually impossible to negotiate better terms in the future. In fact, Amazon will do just about everything in its power to get a better price. This often leads to shrinking margins for 1P vendors.
Channel Key Takeaway
Determining whether 1P or 3P is right for your brand is a big decision, but it’s only the beginning of the conversation – especially for businesses that have decided to transition from Vendor Central to Seller Central. This is a major change that will impact both the short-term and long-term operations of your company. The good news is that 3P usually offers an opportunity to increase not just revenue, but net profits. The bad news is that if you don’t transition strategically, it will be much more challenging to succeed on Seller Central. The key to moving your Amazon business efficiently is to identify what hurdles you are likely to face and implement a strategy that will overcome these obstacles. For this reason, partnering with a marketplace channel management agency is often the best and most profitable way to transition from 1P to 3P on Amazon.
ABOUT CHANNEL KEY
Channel Key is a full-service channel management marketplace consulting agency that has helped generate nearly $500M in Amazon sales for brands around the world. Complete 360-degree services include marketplace strategies, content development, marketing and advertising, catalog management, marketplace and fulfillment setup, ongoing consulting, and much more. To learn about how Channel Key can help increase sales for your business on Amazon, contact us today for a free consultation.