In the ever-changing world of e-commerce, it is clear that the last ten years have witnessed remarkable growth. The way consumers shop has changed significantly, from the convenience of online grocery shopping to trying on clothes at home. Additionally, consumers are now more open to buying products they used to prefer trying in physical stores. Notably, there has been a massive increase in beauty-specific e-commerce, almost quadrupling between 2015 and 2022.
As we move into the next phase of e-commerce’s development, one player dominates the scene: Amazon.
As the world’s largest e-commerce company with a market capitalization exceeding $1.3 billion, Amazon has a significant impact on e-commerce trends.
In 2024, we can see a clear trend where brands are increasingly favoring third-party, or 3P, selling.
What Is 1P vs. 3P E-Commerce?
In a 1P, or first-party, e-commerce model, brands sell their products to Amazon, which then sells them to the public. In contrast, the 3P model allows brands to sell through Amazon while still retaining their identity as vendors.
Over the past few years, the 3P e-commerce model has been gaining traction. While about half of all Amazon vendors use a hybrid approach of both first-party and third-party selling, in the second quarter of 2024, 3P sellers accounted for 60% of paid units on the platform.
Why the Shift?
This shift towards 3P selling directly responds to changing consumer buying patterns. It offers brands wider reach and deeper connections with their customer bases, driven significantly by the vast amount of data available to Amazon. The ability to leverage Amazon’s extensive data resources to target customers throughout their shopping journey has proven very appealing to brands looking to optimize their advertising investments.
While a 1P marketplace might be simpler because it mirrors the traditional wholesaler-retailer relationship, 3P offers vendors continued ownership, increased visibility into sales data, and more control over packaging, marketing, and category options.
Operating in an Open Marketplace
The shift to 3P also reflects the challenges many brands face in the 1P marketplace. In general, 1P sellers have more restrictions and less control over pricing. Amazon operates as an open marketplace and does not adhere to suggested retail price (SRP) or minimum advertised price (MAP) guidelines. Additionally, using algorithms to determine pricing strategies often leads to sudden reductions to compete with marketwide discounts.
However, despite the shift from 1P to 3P, brands looking to make the leap must be prepared for the demands of an open marketplace. They will need to utilize their external and internal resources to support demand planning, content creation, SEO, marketplace compliance, and promotional strategy and logistics. Is it worth making the move?
How Brands Can Benefit From Moving to 3P
Weighing the pros and cons of 1P vs. 3P e-commerce involves considering how your brand can maximize the opportunities of moving to third-party selling. How will you make the most of its benefits in a market where other companies are also rushing to do the same? Start with these tips:
1. Access Innovations as They Arrive
Amazon is a leader in e-commerce innovation and regularly implements new technology to enhance its services. As a third-party seller, you will gain access to data tools that provide deeper insights into sell-through performance, customer long-term value, share of the basket, and other essential marketing metrics. Plus, when Amazon gets involved with generative AI, it is sure to change the marketing game.
2. Elevate Your Brand Presence
Success in the 3P model depends on elevating your brand within Amazon’s ecosystem.
Establishing a distinct brand identity and showcasing unique qualities is crucial in standing out among the many sellers.
Utilizing the storytelling tools available to 3P sellers can enhance your brand’s visibility and appeal.
3. Diversify Revenue Streams
Access to a larger market means access to more diverse revenue streams, which can be invigorating for brands looking to grow and potentially add new product lines. Also, taking advantage of other opportunities in third-party selling, such as brand-building on social media or collaborating with influencers, can give your brand extra power in the marketplace to increase those diverse revenue streams.
Almost all e-commerce companies could benefit from the 3P model of e-commerce. The question is, how will you handle that transition and adequately support its growth? When will be the right time in your business strategy to make the leap, or are you already prepared?
Featured Image Credit: Provided by the Author; Photo by Christian Wiediger; Unsplash
