When brands first start dipping their toes into the vast ocean that is selling on Amazon, it can be more than a little exciting. Amazon, one of the world’s largest companies, makes it easy for brands to feel comfortable selling on their platform, and sometimes this sense of ease can come at a price for brands that aren’t paying attention.
As a first step, many brands decide to enter into a first-party vendor relationship with Amazon, or 1P, where Amazon acts as the wholesaler and sells the products directly on the marketplace. In a 1P relationship, Amazon controls the inventory, listing description, displays, and even the price. Amazon sells products at wholesale prices, which can be substantially lower than market prices, lowering the overall profit margins for some brands. To keep up with these diminishing profit margins, brands have to move more units, which can be counter-productive in the long-run when taking into account Vendor Central fees and inventory issues.
With Amazon acting as judge and jury over a product listing in 1P relationships, there is little brand control over pricing. Amazon automatically adjusts product prices to meet the lowest recorded price, meaning that if someone else is selling your products below MAP price, it will autocorrect to a lower price. Amazon isn’t as quick to adjust mistakes either, so a brand’s products could be listed at a lower price for quite a while before the error is corrected.
Even after understanding the downside of 1P selling on Amazon, many brands still find it easier than taking on the responsibility themselves. There are a couple things brands should keep in mind when it comes to deciding between 1P and 3P (or third party) selling. First, even though it’s called third party, 3P really just means a brand is not relying on Amazon to actually sell product on Amazon. Even brands who use FBA services are considered 3P sellers and can still control product listing attributes such as the description and images.
Next, the business terms of service are much different for a 1P seller than a 3P seller. For 1P sellers, Amazon pays out monthly vendor payments, minus any fees that are immediately deducted. These fees include anything from shipping damage to marketing campaigns and programs. For 3P sellers, Amazon pays out every 14 days on schedule, with few hidden fees compared to 1P terms.
Often, the best answer for brands trying to build an Amazon selling strategy is to partner with a single vendor who can manage and streamline all 3P shipping details on their behalf. Partners like SupplyKick purchase products up front from a brand and are wholly responsible for moving them via the Amazon marketplace. This also means that SupplyKick absorbs all fees, deductions, and chargebacks when selling and marketing products on the Amazon platform. Build your winning Amazon strategy with SupplyKick – get started today!
Photo by Raquel Martínez