What should your selling strategy for Amazon be? It’s a crucial decision and it likely depends on your brand and your omnichannel strategy. Here are the primary ways to sell on Amazon, how it works, and the benefits, and downsides of each strategy.
1P: Selling Direct to Amazon
In this situation, Amazon purchases products at wholesale prices directly from your brand. In this case, you will be using an Amazon 1P account or Vendor Central. The primary benefit of this is usually the financial benefits of the purchase order (PO) that Amazon will place. But, keep in mind that this is more of an invite-only type of relationship. You must first obtain an invitation from Amazon’s vendor management team. The downside that we usually hear from brands is the lack of control and the misaligned strategy. Amazon is going to purchase your highest velocity items and focus less on new products that may be key for your brand. Also, Amazon's contributions to the content and your catalog will override other contributions. This makes it harder to make changes to how your brand is represented on the platform. The hardest part, moving away from 1P. Once you try to depart from your Amazon Vendor relationship you'll likely run into a plethora of logistical headaches down the road when you pursue on of the other following Amazon selling strategies.
2P: Sell as the Brand
A 2P strategy allows your brand to sell directly to the consumer via an Amazon Seller Central account. Opening an Amazon Seller Central account has a very little barrier, so getting started on this route is much easier. You’ll be able to control the platform, pricing, content, and strategy as the sole seller. That gives brands the advantage to gather more data, launch new products, and properly represent their own brand. Certain brands may avoid going this route because of the additional accounting work and sales tax requirements. Not to mention the lift in work that it will take to do it effectively
3P: Sell via Wholesale Partners
Brands with a 3P selling strategy will sell products wholesale to a variety of 3P partners who then sell the products on the platform. This allows brands to diversify risk and puts the inventory risk on the partners. If you have a well-known brand that has a significant amount of consumers looking for your brand, then this may be the way to go. If you don’t have a significant amount of branded search and you need a cohesive growth strategy, then a 3P selling strategy can become a blockade to that growth goal. In a 3P environment each partner has their own margin and inventory turn incentives, so it may be difficult to boost less discoverable products or launch new products. You’ll also run into some of the same contribution issues you see in a 1P strategy because there is usually not one sole seller with control over all aspects of the platform.
2PxP: Sell via Wholesale Partners
2PxP is a bit of a hybrid approach that gives you the benefits of the direct-to-consumer experience, without taking on the risk, and effort, involved in opening up your own 2P Seller Account. We have seen great success in a 2PxP model for brands that want to gain control of the platform and their strategy, but want to put the execution on our Ridgeline Insights team to manage the day-to-day via our own seller central account. If you’re looking to understand more about 2PxP you can see our case study here.