1st Party vs. 3rd Party: What is Best for your E-Commerce Business?
November 30, 2022
E-commerce is booming. For businesses looking to capitalize on digital marketplaces, Amazon and Walmart are obvious online marketplace choices. With the option to sell via these platforms in two primary ways – 1st Party (1P) and 3rd Party (3P) – you might be wondering which model will best serve your brand.
In short, 1P turns the business into a wholesale vendor. The marketplace, i.e. Amazon, purchases your product in bulk; they then control and sell the product directly to consumers. With 3P, brands sell products directly to consumers, listing products with increased control.
Though the 1P model seemingly offers more logistical support in the e-commerce ecosystem, this setup essentially grants product ownership to Amazon or Walmart, trapping you into rigid pricing structures and significantly reducing brand control.
On the other hand, 3P grants sellers control of pricing and marketing. But more control leads to more responsibility, a reality that often pushes brands towards a 1P relationship to outsource intimidating e-commerce logistics.
However, a dedicated partner like ZQUARED can help your brand navigate the e-commerce marketplace and maximize profits without losing ownership.
Amazon 1P vs 3P
Amazon 1P is an invite-only club. To be invited to “Vendor Central” (the 1P seller’s portal), your brand must be established on the marketplace and recognized as a trusted brand. Though Vendor Central does not require a membership fee, Amazon takes a “referral fee”, which typically runs between 8% and 15% of each transaction. Sales are subject to a slew of additional fees that stack up quickly, including marketing costs, freight allowance, and chargebacks on orders for problems with labeling, packaging, and carrier mistakes even though Amazon handles the orders. As a 1P seller, you are paid within Net 90, which can cause a cash-flow problem for small companies.
On the other hand, 3P sellers use a “Seller Central” portal. This portal provides open access but requires a membership fee in addition to similar referral fees and add-on expenses. As a 3P seller, the brand takes responsibility for marketing and ensuring professional, timely delivery. Sales funds are transferred to 3P sellers every 14 days.
As a 1P vendor, Amazon will negotiate a minimum advertised price (MAP) for your product. However, Amazon’s price-matching clause overrides MAP should competitors offer a lower price. Once a price for your product is set, Amazon typically won’t raise it and generally negotiates pricing only once a year. This policy can cause issues when prices rise due to supply chain or macro-economic events, as evidenced in recent inflation fueled by the pandemic. On the other hand, the 3P model grants brands full control over pricing and allows for adjustments to market fluctuations with flexibility, ensuring profit margin protection.
Under a 1P arrangement, Amazon will place wholesale orders for your product based on demand. Though bulk product orders may be convenient, wholesale pricing is often much lower than standard pricing, and vendors should expect a 20%-30% profit reduction. While 1P qualifies brands for Amazon’s logistics systems (including free two-day delivery), relinquishing logistics may lead to sellouts and a subsequent loss of revenue. When in control of logistics as a 3P seller, brands can sell directly to customers, price accordingly, and adjust stock quickly to meet demand.
After entering a 1P agreement, Amazon manages branding and listing with marketing material provided by the brand. This arrangement requires you to work through Amazon Seller Support to address both large and small listing issues, which can be difficult and time consuming. Meanwhile, 3P sellers are in total control over their marketing, branding, and customer support – which is a heavy lift, but can lead to better campaigns, listings, and higher levels of customer satisfaction.
Walmart 1P vs 3P
Like Amazon, Walmart has extensive e-commerce infrastructure, making 1P a similarly attractive proposition for businesses who cannot afford to develop their own. Yet, 1P sellers on Walmart run into the same frustrating issues in regards to product control and profit loss.
As with Amazon, Walmart 1P offers the opportunity to outsource complex, expensive logistics and benefits from the “sold by Walmart” label. Walmart also exercises control over listing optimization and marketing for 1P sellers. Walmart purchases the seller’s product in wholesale,, and, like Amazon, will negotiate low MAPs for your product that are subject to Walmart’s low-price matching requirements and are difficult to change once set. On the other hand, as a 3P seller on Walmart, brands are required to oversee logistics but are granted more freedom in terms of brand management.
Both 1P and 3P are subject to referral fees that range between 8-20% of sales; however, unlike Amazon, Walmart doesn’t charge monthly account fees to 3P sellers.
What Is Best for Your Business?
With e-commerce rapidly expanding, keeping up with complex marketing and logistics requirements is becoming increasingly difficult. For many, building e-commerce infrastructure from scratch is often the reason sellers feel pigeon-holed into a 1P relationship. However, handing Amazon or Walmart marketing, operations, and logistical power is not the only option for businesses looking for e-commerce support. Working with a third-party e-commerce partner like ZQUARED allows businesses to outsource marketing optimization and logistics while maintaining ownership over their product and profit.
Working with ZQUARED in a 3P partnership model supports sellers’ strengths while utilizing ZQUARED to handle the complexities of e-commerce. ZQUARED purchases your product, manages logistics, safeguards pricing, and leverages vast e-commerce expertise to optimize listings with SEO and build customized advertising campaigns. ZQUARED works in close partnership with brands from strategic planning to market expansion across multiple marketplace platforms.
For more information about how partnering with ZQUARED to streamline your sales channels and regain control of multiple marketplaces, request an assessment of your Amazon channel or send an email to partners@zquared.com.