B2B sellers on Amazon who go the 1P route—i.e. Vendor Central where you sell on Amazon using a traditional wholesale model—often feel a lot of pain around sales on Amazon. They frequently find that the lack of control over brand and product presentation, along with a host of issues around pricing, results in lower profit margins. And they’re not wrong.
What’s worse, though, is that this relationship tends to be very adversarial. Amazon is not their partner, but rather a buyer that competes with their other sales channels.
What most suppliers fail to understand is that Amazon’s business is entirely customer-driven, and that dictates every aspect of how they manage wholesale relationships. It’s both a blessing and a curse that Amazon sees suppliers as a means to an end: Delivering value to the customer. This is often a pain point for many suppliers, who feel like they’re being squeezed in a race to the bottom in terms of pricing. As a result, many B2B suppliers wonder whether or not selling on Amazon is worth it.
However, there is another way to sell on Amazon. The 3P model allows suppliers to sell directly to customers using the Amazon platform. This model, called Seller Central, gives sellers significantly more control over their pricing, inventory, content, and more. They can manage their entire presence on the Amazon platform without having to rely on Amazon itself.
Now, you may be wondering, if the 3P model is so great, why don’t more suppliers make the change? The answer is simple: It requires significantly more work. What’s more, Amazon doesn’t always want 1P sellers to convert to the 3P model. They will often tell 1P sellers that the 3P option isn’t open to them.
But we’re here to tell you: THIS IS NOT TRUE.
The truth is that Amazon needs your products. They are the “everything store,” and they need every product imaginable to be that. That goes for B2B, too. It is entirely possible to not only switch to 3P if you’re already a 1P seller, but you can develop a hybrid program that lets you get the best of both worlds. Here’s how to do it.
(NOTE: Before you read further, we highly suggest you check out our primer article on 1P and 3P selling.)
Creating a Hybrid Presence
Your next steps toward creating a hybrid presence on Amazon will greatly depend on your sales volume. The truth is that if you’re under $10 million in sales, it’s likely Amazon is not paying very close attention to you. Amazon is enormous, and they can’t keep tabs on every single seller. As mentioned, Amazon wants your products and is unlikely to care too much if you’re relatively small and running both a 1P and 3P program.
Shifting over to 3P is relatively straightforward, but time-consuming. Here are the steps you’ll want to follow:
Start by creating a new 3P account.
Shift products to 3P and maintain Fulfilled by Amazon (FBA) to ensure you meet fulfillment requirements.
Map out inventory flow and let Amazon sell its inventory before moving it to 3P.
Once the inventory in the 1P account is sold, discontinue the products there, permanently deactivating them.
Inventory your resellers on Amazon. When you shift to 3P, you are less likely to win the buy box because you’re now competing with these resellers. You will need a channel control program (a topic for another article) to ensure you only have the sellers you want.
Now, if your sales volume is over $10 million, it’s a little more complicated than the above. You most likely have a Vendor Central representative who manages Amazon’s wholesale relationship with you. And they’re probably not going to want you to shift to 3P. After all, losing a supplier looks bad, even if that seller isn’t leaving Amazon entirely.
To achieve the hybrid model in this case, you need to escalate your case and demonstrate alignment with Amazon’s business interests. You also need to be prepared to walk away from Amazon entirely. Other brands have done this before and succeeded, and that needs to remain an option for you. This is your main source of leverage.
When you escalate your case, you will need to think about what resonates with Amazon. This includes:
Understanding the additional value you bring to customers by selling in 3P, where you have more access to who the customer is, service requests, delivery, offering better service, etc.
Making the case for higher profit margins. There is a lower margin in the 1P model, and earning higher margins needs to be a requirement for your participation on the platform. It just so turns out that 3P selling offers higher margins.
Be willing to invest in advertising. You can’t advertise in 1P, but you can in 3P. Amazon wants those dollars, and showing a commitment to advertising will go a long way.
Gaining support from and alignment with your company’s senior leadership. It’s generally more convincing to say to Amazon that your board has requested a different approach on the platform where the firm can control sellers and prices better.
Lastly, there’s another approach altogether that you may want to explore if you want a hybrid Amazon presence. That is developing and selling different product lines—sometimes under different brand names—through a 3P account while also keeping some products in 1P. A great example of this is when you have products that are simultaneously low in price but difficult to fulfill, such as large, bulky items. If the cost of fulfillment kills your profitability, it can be best to leave them in 1P while exploring other products in 3P.
Just remember, when it comes to 1P vs. 3P, it’s not all or nothing. There are options available to you. Of course, it’s always best to have an expert in your corner. That’s where Enceiba can help! Contact us to discuss what the right approach for your business may be.