1P vs. 3P: Selling on Walmart and Amazon

While it’s fully legal to use Amazon to warehouse goods to sell on Amazon, it’s a risky business. Think about it from a logistics perspective. If you were running a marketplace, would you want to worry about whether or not some other warehousing company would deliver goods to your customers when needed? Right. I bet you wouldn’t.

Neither do Amazon or Walmart. They want control over the relationship between marketplace and supplier. So if you take the risk of using one as a 1P and the other as a 3P, be aware it could result in your products getting pulled from the marketplaces.

In fact, it’s almost impossible to pull off this combination anymore as both platforms aren’t accommodating for the combination. It’s “enter at your own risk”.

And, for most eCommerce sellers, that risk doesn’t isn’t worth the potential of reward. Especially if you’re working with tight margins. A limited budget won’t cover the shortfalls or inventory overruns that could result if price wars don’t happen between Amazon and Walmart.

And let’s be honest: They’ll do what they want.

It would be best if you didn’t depend on them to get in a price war to keep things comfortable for you as a seller. So if this isn’t how you should sell on Amazon and Walmart, how should you sell?

Walmart is a “smaller” marketplace compared to Amazon but still offers a tremendous opportunity for your business. With the right marketing mix, your product line can get great exposure on Walmart due to generally lighter competition (at least in some product categories).

The inverse can often be true on Amazon. At times, it seems like no matter how well-intentioned and positioned your marketing and advertising; it doesn’t matter. Purely because there are so many products with which you’re competing.

There are three primary benefits of selling on Walmart:

1. There aren’t any regular fees, like on Amazon

2. There aren’t any SKU minimums or maximums like you may see in some product categories on Amazon, and

3. Your products have the potential to reach a massive audience (Walmart averages well over 100 million unique visitors a month to their website) with comparatively light competition

With Walmart, you have the option to become a Drop Ship Vendor.

The benefits of selling on Amazon are well-documented, so we won’t spend too much time on them here. After all, if you’re reading this article, you’ve experienced them.

Here are a few:

1. Its reputation as the world’s premier eCommerce platform

2. The massive website traffic that comes to the site every month, which is compounding month-over-month

3. The relative ease of user experience (UX), which they’ve sunk millions of dollars into, and

4. Automation, automation, automation – everything you would have had to do a few decades ago to build a brick-and-mortar business has been automated by Amazon. Everything.

The drawbacks of selling on Amazon are more nuanced but are enough to help people decide against it.

You’re probably equally familiar with the drawbacks of selling on Amazon, so we’ll cover them quickly.

Here are a few:

1. There are fees for fees on fees. A good portion of Amazon’s business model is based on the fees you pay as a seller.

2. There’s a ton of competition. Everyone is selling on Amazon these days, whether as a side hustle or a full-time business.

3. Amazon does things their way, and if you want to play the game, you do things Amazon’s way, and

4. Inventory management can be a bear. You’ll need to develop your own tracking mechanisms to augment what Amazon provides to stay on top of the merchandise you warehouse and sell.

When you’ve decided on the platform, the next step is to make a firm decision between 1P and 3P.

Your unique business model and brand maturity are essential to decide if a 1P or 3P relationship with Amazon is best for you.

With 1P, Amazon is the “retailer,” and you are an inventory supplier to Amazon. In this relationship, Amazon has to invite you directly. To get things kicked off, they will send you a purchase order (PO), and you fulfill what’s required of that PO by shipping the product directly to Amazon.

At this point, Amazon becomes the “owner” of your products, and they set price points, fees, and other logistics for product handling.

As a 1P seller on Amazon, you use their Vendor Central platform. It’s different from the traditional Seller Central platform, which most Amazon sellers use. In Vendor Central, you can check how your POs are being processed, get a glimpse at how your products are performing and costs versus expenses as a 1P seller.

The 3P selling model flips everything. You are the retailer, and you sell products D2C via Amazon. You use Seller Central, the standard Amazon selling platform, to build product pages and sell directly to your customers, check on orders and monitor warehouse inventory.

As a 3P seller, you have full control of everything going on with your business. You can decide whether you want to use Fulfillment by Merchant (FBM) or Fulfillment by Merchant (FBM). There’s also the option to offer products via Amazon Prime if you want to go that route.

With Amazon 1P, it’s easy to track all of your invoices because Amazon sends them to you on a set schedule every month. You don’t have to do the heavy lifting of designing product pages because Amazon’s design team takes care of this for you.

Since you’re selling through the Amazon platform with them as the retailer, you earn trust through Amazon by proxy. Being “one” with Amazon gains you access to their deep mix of advertising opportunities.

In general, it’s a lighter lift. There isn’t as much work to do daily to ensure the business is standing upright because Amazon has taken that off your hands.

With Amazon 3P, you have greater control over your business, in general. It’s much easier to tweak prices to stay competitive and react to the market. This ability to react naturally leads to improved profit margins along the way.

This business control extends to your ability to shape your Amazon business’s brand as you see fit. Because you aren’t piggybacking off Amazon’s brand – but are instead building your own – it’s easier to build up product launches and incentivize your one-off customers to become repeat customers. When you’re building these incentives into your business, you’re building trust at the same time, which has the longer-term payoff versus a one-time sale that’s purely transactional.

It’s not all sunshine and daffodils, however.

There are some disadvantages of 1P and 3P on Amazon, which are important to weigh as well.

When you decide to use Amazon 1P, you abandon any control over your pricing structure. Naturally, this can lead to lower margins because you cannot make the changes necessary to tweak your prices to react to changes in the market.

Chargebacks can be more common because you’re always having to maintain stock levels and fulfill orders quickly. If you slip behind, chargebacks get expensive quickly.

Last but hardly least, you’re 100% dependent Amazon will do what they say they will when it comes to fulfilling purchase orders. If they don’t, you get left in the lurch. In a situation where there’s a demand for the products in your line but no inventory there to fulfill the orders.

With 3P, you’ll work some long hours. The buck stops with you, and if you don’t do something, it doesn’t get done. You’ll be the creative team, pricing team, and product team, and brand reputation all wrapped into one. Oh yeah, and fees. Lots and lots of fees.