Does your business manufacture goods and sell them directly to Amazon (1P) but has recently been considering becoming a 3P seller? If the answer is yes, welcome to the manufacturer’s dilemma.
As a manufacturer of a product and 1P seller, your focus has been on doing what you do best — making products that solve problems for people and providing a way to get the product to them. There’s no doubt that as a 1P seller, that strategy has been working for you. But now it’s time to consider if that is the best option for your brand.
This article will help highlight the manufacturer’s dilemma when considering migrating from 1P to 3P.
1P and 3P Sellers
In simple words, 1P sellers have a first-party relationship with Amazon, which means they sell their products to Amazon wholesale, and Amazon manages all the selling from there. And 3P sellers have a third-party relationship with Amazon, selling their products directly to consumers through the Amazon marketplace.
Pros and Cons of selling 1P vs. 3P
Knowing the pros and cons of 1P vs. 3P selling helps determine why migrating to 3P would be a good idea.
- The Benefits of 1P
Being a 1P seller has its benefits. For one, you’re focused on making products and getting them into the hands of the people who need them. As a 1P seller, your job is done once the product is positioned for people to buy it and you sell it to Amazon. After that, you focus on making your next batch of products for wholesale or improving or adding to the product line, keeping you focused on what you do best.
As a 1P seller, you have a more clear understanding of the cost of doing business through Amazon because you understand their purchase price, and Amazon handles the costs for logistics, delivery, and customer service. Also, you’re not as focused on marketing or building your brand on Amazon (outside of potentially paying some MDF costs with Amazon); since Amazon itself takes care of managing your brand. Lastly, you have some peace of mind knowing your products display on Amazon as “Ships from and Sold by Amazon” which provides trust to consumers.
- The Disadvantages of 1P
While staying focused on what you do best is a good thing, it does have its limitations. 1P sellers have very little control over their products once it has been sold to Amazon. You have no control over the pricing or the condition in which the product is packaged or delivered. All of that is in the hands of Amazon, and the final reputation of the product is now in their hands as well. Plus, if you don’t have control over your brand, you cannot be protected from unauthorized sellers that could ultimately damage your reputation inside and outside Amazon.
- The Benefits of 3P
As a 3P seller, you have complete control of your brand management. You can work on your content to make it A+, work on your ratings and reviews based on your customer service and pull off a great advertisement strategy. Your brand reputation on Amazon relies on you.
As a 3P seller, you also control your pricing and logistics (through FBM), allowing consistent pricing across your sales channels and complete visibility of your supply chain.
- The Disadvantages of 3P
Having more control comes with its responsibilities, and that’s where you might double-think this. By becoming a 3P seller, you are doubling your work on Amazon since you need the resources (talent and facilities) to manage your products and logistics. Plus, you will be exposed to other fees, including referral fees and fulfillment.
Is it Hard to Migrate From 1P to 3P?
It’s understandable if you’re considering migrating to 3P; after all, your product is sold out there, and your brand is on the line. However, one thing you need to have clear is that migrating takes time!
Migrating from 1P to 3P is not an overnight process. Some companies have claimed that it took them six to nine months to make the transition. So, continue to work as you are, but also plan for the migration. Putting the policies in place and ensuring you have the inventory you need to fulfill orders on your own will take time. So, give your business the time it needs to migrate successfully without headaches. The stress of breaking out on your own is already enough.
But remember, you’re never on your own. If you’re currently a 1P seller, keep their contract and work around the inventory you have on hand. Also, review the platform’s policies to know that the migration to 3P can happen. Some marketplaces block certain manufacturers from becoming 3P sellers. If you need to shop around for a new marketplace, use this time to do so.
Here are some tips for a successful migration from 1P to 3P:
- Know Your Inventory: As a 3P seller, you’ll be responsible for having ample inventory on hand to ship out to your buyers. You’ll also be responsible for shipping that product to your buyers.
- Return Policy: Have solid customer service and returning items policies in place.
- Marketing Strategy: You’ll need a strategy for marketing your products. Put a solid plan in place and ensure you have the workforce to adhere to that plan. You will be a new seller on the market. So, make sure people know who you are.
- Unique Value Proposition: Don’t put a marketing plan in place that doesn’t point out what makes you different from your competitors. Make sure everyone knows your unique value proposition.
In conclusion, migrating to 3P can be challenging but worth it in the end, since you gain control of your brand. You can consider other options to accelerate your eCommerce growth, like partnering with an eCommerce expert like Phelps United eCommerce that can take the burden of migrating from 1p to a 3P seller. We will take care of your brand as our own and help you with all the distribution.