Amazon 1P vs 3P is a foundational topic for brands looking to sell on the marketplace. It’s important to choose the right model that matches your brand’s needs. Making the wrong choice can result in long-lasting consequences later down the road.
1P is closer to a traditional retail channel relationship. The brand sells wholesale to Amazon, and then Amazon sells to the shopper.
It’s a straightforward arrangement. It doesn’t take a lot of work on the brand’s part. Amazon does all the heavy lifting — customer service, advertising, etc — and the brand just acts as a supplier.
Control is the biggest issue in a 1P relationship. Once the product is shipped off to Amazon, the brand has very little control over what happens next. For example, Amazon is highly competitive when it comes to pricing. If there is a lower-priced option available somewhere else on the marketplace, it may drop the price to match, even if that price falls below a brand’s MAP guidelines, which can create big problems for other retail relationships.
1P also comes with a lack of customization, and brands that choose this route may find themselves wanting more flexibility to determine content, set pricing, and plan for demand shifts.
In a 3P relationship, the brand uses the Amazon marketplace as a tool to sell directly to shoppers. There are a few different ways brands can sell via 3P:
- They can sell through the marketplace themselves.
- They can rely on existing retailers to sell on marketplaces for them.
- They can sell through a single trusted retail partner.
Managing 3P in-house
When brands manage their own presence on the marketplace, everything needs to be handled in-house — inventory management, listing creation, marketing, and most importantly, the management of unauthorized sellers. It’s a lot to handle, and many brands don’t have the resources to manage everything well on their own.
There is one perk, however. Brands that manage their own retail presence can sell at retail price instead of wholesale, which means there’s a slightly higher profit margin.
Relying on existing retailers
This is almost the equivalent of doing nothing. Most brands with a remotely popular product are already being sold on Amazon. Brands can passively rely on existing, unknown sellers to sell products on the marketplace, but that comes with a lot of risk.
Here’s the thing: Unauthorized sellers aren’t obligated to follow a brand’s MAP policy or marketing guidelines. Most brands don’t have any idea who is representing them on Amazon, and that can lead to problems like price erosion, loss of brand equity, and threatened retail relationships.
Selling through a partner
Selling through a retail partner carries many of the same perks as selling through 1P with fewer drawbacks. In this type of 3P relationship, the brand sells wholesale to the partner, and then the partner does all the heavy lifting on Amazon — inventory control, listing creation, marketing, and unauthorized seller management.
Unlike 1P, the relationship between a brand and a retail partner is a two-way street. Brands don’t have to give up control over how their products are represented, and they don’t have to worry about prices falling below MAP.
So, how do you choose?
Here’s our recommendation: If you’re a premium brand with a reputation you want to protect and commit to increasing customer lifetime value, go 3P and find a retail partner you trust. 1P has its perks, but it’s just too risky for established brands with a lot to lose. Managing your presence on the marketplace takes a lot of resources and specific expertise that most brands don’t have. Partnership with an online retailer gives brands more control over how they’re represented, and it gives them the teams, technology, and resources to reach their full potential on Amazon.