As you can imagine, there are many pros and cons to consider when identifying the right fulfillment strategy on Amazon. There may not be a right or wrong answer, but each brand has a “best answer” scenario:
- As a 1P (first-party) Vendor, brands and manufactures sell product directly to Amazon at wholesale prices, and Amazon resells the product to the consumer at a marked-up price – much like traditional retailers.
- As a 3P (third-party) Seller, brands, manufactures, resellers and distributors sell product on Amazon directly to consumers through the Amazon marketplace.
- A Hybrid model allows businesses to implement both 1P and 3P across their product catalog.
As a 1P Vendor, you have limited control over the sell price and inventory levels, however Amazon handles a majority of the responsibility on the backend including fulfillment to the customer, returns, customer service. 1P is typically more ideal for brands with richer margins.
As a 3P Seller, you have significantly more control over price and inventory levels, however you handle for all backend responsibilities (that is unless you participate in Fulfillment By Amazon). 3P allows you to maintain control of the full supply chain but can be difficult to scale if there are others selling the same product. Also, with 3P, there are restrictions to which Amazon channels 3P Sellers can sell on, restrictions on available marketing programs and placements, and hurdles to winning the Buy Box (more on winning the Buy Box to come later in this series).
With a Hybrid model, businesses are able to supplement additional available inventory for any inaccurate Amazon demand forecasts as well as leverage 3P for pricing terms and negotiations. Hybrid models are often used to build demand for newly launched products that Amazon or other retailers may not yet take.
As outlined by CPC Strategy, there are multiple fulfillment models for Vendors and Sellers.
A quick audit of your internal capabilities and the setup of your warehouse logistics will help determine which business model and fulfillment options are available to you and which are ideal to implement in your current structure. Note, it is possible to move from 3P to 1P and vice versa.
To summarize, 1P and 3P FBA provides the largest opportunity for volume and scale by increasing chances to win the Buy Box, however 3P provides the highest level of control over price and inventory.
Velocity Knows Amazon
At Velocity, we have a simple framework that can help you asses if 1P, 3P or a Hybrid model is right for you. Please reach out to Christa Klausner or Rami Odeh if you are interested in hearing more about Amazon fulfillment or how Velocity can help you get up and running on Amazon.