Amazon sellers can be divided into one of two types – first party (1P) or third party (3P) sellers.
1P: Sell wholesale directly to Amazon Retail, using the Vendor Central interface. You send your inventory to Amazon, they control your pricing and your listing displays as “Ships from and sold by Amazon.com”
3P: Sell third-party to consumers through Amazon using the Seller Central interface – either through your own account or via a partnership with other 3P sellers who are selling your brand/product
There’s been a significant increase towards sellers setting up their own 3P seller account or working with existing sophisticated 3P sellers who use the FBA program, rather than using the 1P model. Let’s have a look at both options more closely.
So who should you be on Amazon?
Generally, the number of benefits of selling as a 3P seller outweigh selling directly to Amazon, particularly if you go the FBA route. That said, if you’re a bigger or quickly growing business, have a lot of product, happy for Amazon to manage everything for you, and have been invited by Amazon to be a vendor, going with the 1P model is most suitable.
Basically, we think the 3P model is best and easiest to use if you:
Are a new Australian business entrepreneur
Have a smaller existing brand
Want to launch and introduce new products, generate more reviews, and quickly move discounted or discontinued items
Want to pick up incremental sales for products when Amazon is out of stock
Already have an existing website with social media presence – you can more easily use the 3P platform to support your marketing efforts
Are an existing Amazon 3P seller with products processed through the FBA program – it’s not likely that more incremental sales will happen if you move to 1P and customer conversions will likely remain similar
Let’s have a closer look at the advantages and disadvantages of both approaches to selling product on Amazon.
1P: Vendor Central
Amazon’s Vendor Central is where companies act as a wholesaler and have a direct relationship with Amazon Retail. It is by invitation-only. Amazon issues purchase orders to these vendors, the vendors fulfil those purchase orders and ship their products directly to Amazon’s fulfilment warehouses, where Amazon stockpile all the goods and distribute.
You can tell which items on Amazon are provided by Vendor Central partners because there’s usually a blurb in the description that reads “Ships from and sold by Amazon”.
Below are a summary of advantages and disadvantages.
Economies of scale – bulk purchase orders from a retail giant i.e. Amazon
Amazon A+ content – multiple product images, product videos, product review videos, but it comes at a cost
ASIN (listing) optimisation – listing priority since Amazon is incentivised to sell your inventory
Amazon Prime – access “free” 48-hour shipping incentivises buyers to purchase those products
Credibility – for your brand among skeptical and careful consumers since your products are sold directly by Amazon
Support – dedicated access to Amazon’s customer service staff, but only if you are a big client
Amazon Retail takes the burden of forecasting and creating replenishment orders for wholesale suppliers
Vendor Central – access to marketing and seller promotions as well as control over listings and shipping options
Customer challenges – no need to ship directly to customers and deal with customer returns
Amazon takes care of fraudulent customer or competitor situations
Loss of control – Amazon set sales targets, but if sales aren’t making target you need to spend more on incremental merchandising or you will get less attention from Amazon to drive sales
Loss of pricing control – Amazon has the right to sell at whatever price their automated system decides – can be below your minimum advertised price (MAP) policy
Reduced margins – your margins are reduced since you’re selling at wholesale prices, not retail prices. Amazon will negotiate hard and ask payment of 4-10% to help cover marketing costs and other ‘chargeback’ costs
Paid support – you need to spend to gain attention from Amazon Retail – they may also increase fees at any time for ongoing costs
Inflexible content – all images and content need to be approved by Amazon, which is often a lot more conservative in what it allows
Longer payment terms – Amazon typically offers 2% Net 30 day, Net 60 day, or Net 90 day terms
Paid Analytics – now that you’re making more money you need to pay for your data
Packaging Requirements – shipping to Amazon warehouses are your responsibility & may not be accepted if incorrect
Location – US sales only, but you can gain separate approval to sell into Mexico and Canadian markets
3P: Seller Central
You’ll probably be a third-party (3P) seller and you’ll use Seller Central, which is open for anyone if you’re first setting up. You can still choose to use Fulfilment by Amazon (FBA) so that Amazon processes and ships all your orders. Alternatively, you can handle shipping all by yourself. Or you can work closely with an existing trusted 3P seller.
When you set up as a 3P seller you can choose between an “Individual” (listing under 40 items per month) or “Professional” (list over 40 items) seller, which will impact your selling fees and Amazon tools available.
Here are some more specific advantages and disadvantages you should be aware of.
Control – you decide what you are selling, when, and for how much
Brand control – you can list your products accurately and ensure products are represented the way you want
Flexibility updating product images, titles, bullet points, description
Greater profit margin for retail – up to you what you want your pricing to be and adhering to your own MAP policy
Free analytics – but not as in depth as you really need it to be if you want your business to grow
Seller support – responds and fix problems with your listings and inventory and payments
Costs – cheaper than the 1P option. Fixed by category as a percentage of the selling price (typically between 8%-20%), and there are no additional selling fees to consider (unless using FBA)
Quick payments – you get paid within 14 days
Fulfilment By Amazon – you don’t need to worry about shipping, returns, or customer service. Pricing is also competitive with the costs a seller might incur themselves fulfilling an order
Paid advertising available – Sponsored Product Ads and Headline Search Ads using campaign management tools
International access – everyone who has internet access can buy your products
Lack of brand awareness – unless you’re using content marketing, product ads, or social media strategies your customers may not find your product
Smaller volumes – this may be a positive at first, because you will be selling less product and making a profit, but might change over time
Enhanced Brand Content (EBC) – only permitted for sellers who have setup on Brand Registry plus approval required
FBA Shipping Fees – Shipping to the Amazon Warehouse is your responsibility and if you do not sell your items quick enough you may have to pay Amazon storage fees
Variability on customer service, the onus is on the seller to deal with customer complaints plus fraudulent customers and competition
So now that you’ve decided who you are or who you want to be, the next step is to look at your choice of distribution.
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