Amazon 1P vs 3P: Know the Difference

The decision between Amazon 1P vs 3P models can be a critical turning point for businesses hoping to go into the ecommerce marketplace. 

Understanding the nuances of each approach helps sellers to optimize their product offerings, brand positioning, and overall profitability within the Amazon ecosystem. 

By carefully weighing factors such as core distinctions, advantages, and disadvantages, businesses can better make informed decisions that align with their long-term objectives and target markets.

 

amazon 1p vs 3p

What is Amazon 1P (First-Party)?

Amazon 1P, also known as Vendor Central, is a business model where Amazon acts as a traditional retailer. 

In this scenario, Amazon purchases products directly from sellers (vendors) and takes ownership of the inventory. Amazon then sells these products to customers on its platform. 

This model offers sellers the potential for higher sales volume but often involves stricter terms and conditions imposed by Amazon. 

Pros of a 1P Business Model

By using Amazon’s wide customer base and established brand reputation, sellers can gain access to a massive pool of potential buyers. 

Amazon’s sophisticated marketing and advertising infrastructure can drive significant product visibility and sales opportunities, potentially reaching a much wider audience than the seller could achieve independently. 

This can be particularly advantageous for new or lesser-known brands seeking to establish themselves in the marketplace. 

Amazon’s marketing efforts can drive sales without the need for extensive advertising by the seller. 

Amazon handles inventory storage, fulfillment, and returns, reducing the seller’s operational burden. 

Cons of a 1P Business Model

Sellers have less control over pricing, product listings, and promotions compared to the 3P model. 

Amazon imposes strict performance metrics and penalties for underperformance. Due to Amazon’s purchasing power and market dominance, sellers may face lower profit margins in comparison to the 3P model. 

What is Amazon 3P (Third-Party)?

Amazon 3P, or third-party selling, is a marketplace model where independent sellers can list and sell their products directly to customers on Amazon’s platform. 

Unlike the 1P model where Amazon purchases products from sellers, in the 3P model, sellers retain ownership of their inventory and manage their own sales. 

Sellers operate their businesses through Amazon Seller Central, a platform that provides tools for managing product listings, inventory, orders, and customer communications. 

By leveraging Amazon’s vast customer base and established marketplace infrastructure, 3P sellers can reach a wide audience and potentially increase sales. 

Pros of a 3P Business Model

3P sellers have complete autonomy over product pricing, marketing strategies, and customer interactions. This allows for greater agility in adapting to market trends and consumer preferences. 

By setting their own prices and managing their inventory, 3P sellers can potentially achieve higher profit margins compared to the 1P model. 

Sellers have more opportunities to build their own brand identity and customer loyalty through direct interactions and customized marketing efforts. 

Many 3P sellers leverage Amazon as one of multiple sales channels, diversifying their revenue streams and reducing reliance on a single platform. 

Becoming a 3P seller typically has lower entry barriers compared to the 1P model, making it accessible to a wider range of businesses. 

Cons of a 1P Business Model

The 3P marketplace is highly competitive, requiring sellers to differentiate their products and implement effective marketing strategies to stand out. 

Sellers are responsible for managing inventory, shipping, and returns, which can add complexity and operational costs. 

Providing excellent customer service is essential for success in the 3P model. Managing customer inquiries and resolving issues can be time-consuming. 

Amazon charges various FBA fees, including referral fees, closing fees, and storage fees, which can impact profitability. 

Amazon’s search algorithms and policies can change, affecting product visibility and sales. 

What are the differences between Amazon 1P and 3P?

The fundamental difference between Amazon 1P and 3P lies in the seller’s relationship with Amazon. 

  • In the 1P model, Amazon owns the inventory, while in the 3P model, sellers retain ownership. 
  • Sellers have full control over pricing in the 3P model, while Amazon sets prices in the 1P model. 
  • Amazon handles fulfillment in the 1P model, while sellers bear the inventory risk in the 3P model. 
  • The 1P model is more of a vendor relationship, while the 3P model is a marketplace seller relationship.

Amazon 1P vs. 3P: Pricing Structures

1P Pricing: Amazon sets the selling price based on its purchasing costs and desired profit margins. Sellers receive a wholesale price for their products. 

3P Pricing: Sellers have complete control over product pricing, allowing them to set competitive prices, offer discounts, and experiment with different pricing strategies. 

Amazon 1P vs. 3P: Inventory and fulfillment

Here are the differences between 1P vs 3P Amazon are the following: 

Inventory Management

1P Inventory: Amazon assumes full responsibility for inventory management, including forecasting, purchasing, and storage. Sellers ship products to Amazon fulfillment centers based on purchase orders. 

3P Inventory: Sellers retain ownership of their inventory and are responsible for managing stock levels, replenishment, and storage. They have the option to use Amazon’s Fulfillment by Amazon (FBA) service or manage their fulfillment independently. 

Fulfillment

1P Fulfillment: Amazon handles all aspects of order fulfillment, including picking, packing, shipping, and returns. Sellers benefit from Amazon’s vast fulfillment network and efficient logistics operations. 

3P Fulfillment: Sellers have two primary options: 

  • Fulfillment by Merchant (FBM): Sellers manage their own order fulfillment, including picking, packing, and shipping directly to customers. 
  • Fulfillment by Amazon (FBA): Sellers can leverage Amazon’s fulfillment network for order fulfillment, similar to the 1P model, but with greater control over pricing and promotions.